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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For fiscal year ended: December 31, 2003
Commission File Number: 0-9773
TASA PRODUCTS LIMITED
(Exact name of registrant as specified in it's charter)
Washington 91-1121874
(State or other Jurisdiction of (IRS Employer ID No.)
incorporation or organization)
14508 SE 51st, Bellevue, WA 98006
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (425) 746-6761
Securities registered pursuant to Section 12(b) of the Act: None
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
DOCUMENTS INCORPORATED BY REFERENCE
Form S-1, TASA Products Limited, Commission File No. 2-68566, but
excluding the balance sheet of TASA Products Limited together with
the report of independent certified public accountants, is
incorporated by reference in Items 1, 5, 11 and 13.
Exhibit Index Pgs. 9 to 17
Page 1
Item 1: Description of Business
TASA PRODUCTS LIMITED (hereinafter call the "Partnership"), is a
Washington State limited partnership organized as of June 19, 1980 for
the purpose of acquiring the rights in a group of related electronic
products and developing these products further to a point where they
could be commercially produced and marketed. The Partnership conducts no
other business. Michel E. Maes and James R. Steffey are General
Partners, and may remain as General Partners for the life of the
Partnership unless removed pursuant to the Partnership Agreement. The
sale of the Limited Partnership Interests in the Partnership were made
pursuant to Registration Statement No. 2-68566 filed with the Securities
and Exchange Commission and declared effective on November 7, 1980. The
purchasers of said Limited Partnership Interests for Phases 1, 2, 3, 4, 5
and 6 of the Partnership are the Limited Partners of the Partnership as
of December 31, 1981.
The Partnership's business is more fully described under the caption
"Projects of the Partnership" in the Prospectus forming a part of the
Registration Statement described above (hereinafter called the
"Prospectus"), which, except for the balance sheet and report of
accountants contained herein, is incorporated herein by this reference
for all purposes.
The Partnership has no employees. The partnership originally licensed
the manufacture and sale of its products to Communications Research
Corporation, (CRC), a subsidiary of Energy Sciences Corporation, (ESC).
The Partnership subsequently has licensed LINC Technology Corporation, an
affiliate of the General Partners, as more fully described in Item 7
below. TASA's principal products currently being sold by LINC are the
Data Over Voice Encoder, (DOVE), and Line Carrier Modem, (LCM).
Item 2: Properties
The Partnership does not have any principal plants or physical
properties.
Item 3: Legal Proceedings
The staff of the Securities and Exchange Commission's Division of
Enforcement recommended to the Commission that it authorize the staff to
file a civil injunctive action against Energy Sciences Corporation,
Michel E. Maes, James R. Steffey, and the Partnership to require timely
filing of reports with the commission. Such an injunction was entered on
June 25, 1986. All subsequent reports have been timely filed.
On April 29, 1986, TASA Products Limited and Energy Sciences Corporation
filed petitions for reorganization under Chapter 11 of the Bankruptcy
Laws. The Petitions were filed in the United States Bankruptcy Court for
the Western District of Washington, at Seattle, as Case No.'s 86-02993-
Wll and 86-02994-Wll.
Energy Sciences Corporation was dismissed from Chapter 11 on May 13,
1988. ESC had financial dealings and intercompany transactions with the
partnership. The assets of ESC, which included amounts owed by the
partnership to ESC and the license rights to manufacture and market the
partnership's products granted by the partnership to a subsidiary of ESC,
were foreclosed upon by the sole secured creditor of ESC, the law firm of
Murphy, Elgot & Moore, but the full effect on the partnership has not yet
been determined. (See item 7 below).
Page 2
On October 16, 1989 the United States Bankruptcy Court ordered that the
partnership's Chapter 11 be converted to a Chapter 7. Mr. Ronald Brown
of Leach, Brown & Andersen, Seattle Washington, was appointed trustee.
On May 11, 1990, the General Partners of the partnership filed an
ammended motion to dismiss the Chapter 7. This motion was granted and
the partnership is no longer in bankruptcy
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Market Price of and Dividends on the Registrant's Common
Equity Related Security Holder Matters
(a) There is no market for the Securities of the
Registrant.
(b) There are 590 investor limited partners as of
December 31, 2003.
(c) The partnership does not pay dividends. Royalties, based
on a percentage of gross sales of the partnership products, if any, made
by a licensee of the partnership's products are to be distributed to the
partners, less reserves and payments for partnership operating,
maintenance and reporting expenses as determined by the General Partners.
Under terms of the present license agreement in place, royalties were
owed on amounts collected by the licensee on sales made after September
1991 to be accrued and paid in the following accounting quarter starting
with the first quarter of 1992. See Item 7 below.
Item 6: Selected Financial Data
TASA Products Limited is a Limited Partnership and the partners hold
partnership interests rather than stock. A summary of financial activity
for 2003 is a follows:
Royalty Revenues 0
Other Revenues 0
Loss from Continuing Operations (Reporting Expenses) 0
Net Income per Partnership Unit 0
Total Assets 0
Long Term Obligations 2,383,607
Royalty Payments to Partners per Unit 0
Item 7: Management's Discussion and Analysis of the Financial
Condition and Results of Operation
The partnership owns the proprietary rights to certain products
which are licensed to LINC Technology Corporation as described
more fully below. The partnership conducts no operations itself
and its revenues will be solely from royalty income. Under the
terms of a new license now in effect, total sales of $506,293
(cumlative over five years) were subject to royalties in 1999. A
total royalty payment was made by Linc Technology Corporation to
four electronics partnerships that share ownership in certain
electronics products in the amount of $25,315 in December 1999.
In accordance with the sharing arrangement discribed below (third
paragraph down), a royalty of $12,118 was paid to the partnership
which is income for 1999. Tax, Securities and Exchange
Commission, and Partnership Reporting expenses were not charged
Page 3
to the partnership in 1999. The net assets have changed from 0 to
$12,118. The partnership made a distribution of $10,906 total to
the limited partners in March 2000. A total of $1,212 was paid to
two former secured creditors of the partnership in March 2000. No
new royalties were accrued in the year 2001, 2002 or 2003 and the
partnersip had no income nor loss for 2003.
When ESC's bankruptcy was dismissed in May 1988, all remaining
assets were repossesed by the sole secured creditor of ESC,
Murphy, Elgot & Moore, represented by Mr. Thomas Murphy. These
assets are primarily amounts owed to ESC by the partnerships and
the rights to produce electronics products at CRC. The General
Partners began discussions with Mr. Murphy, (who was also counsel
for ESC and the partnerships), on plans to recommercialize the
electronic products. They were joined by Mr. Keith Nichols, who
had purchased a portion of the electronics inventory from CRC when
ESC was still in Chapter 11. After conducting preliminary market
research and reaching a basic understanding with Mr. Murphy, a new
company was formed in September 1988, called LINC Technology
Corporation. The company was owned by Messrs. Maes, Steffey, and
Nichols in the amount of 19% each; Mr. Murphy owned 10% and the
balance of 33% was owned by outside investors. Mr. Nichols left
the company in 1991 and is no longer an active participant, but
remains a stockholder.
In 2001 a ownership restructuring took place with the unanimous
approval of all stockholders. Mr. Maes and Mr. Steffey now own a
higher percentage of Linc Technology Corporation.
LINC was formed, and was initially privately financed with $49,000
of cash, plus donated time, to pursue a variety of opportunities
in electronics and data communications. LINC believes that a
market remains for the partnership's products. Continued emphasis
is on the LCM and the DOVE (now called the MDL500).
The Partnership made only one attempt to negotiate a license for
its products following the dissolution of Energy Sciences
Corporation and its subsidiary, Communications Research
Corporation (the initial licensee), in 1988. A non-affiliated
company had been formed in 1987 called CRC, Inc., of which Mr.
Keith Nichols was a co-founder and partner. (As described above,
Mr. Nichols was subsequently a co-founder of LINC Technology
Corporation in 1988, along with Mr. Steffey and Mr. Maes, general
partners of the partnership). CRC, Inc. purchased inventory of
the partnership's products in 1987 from the Energy Sciences
Corporation Trustee. Because there are no patents or trade
secrets covering any of the partnerships products, the owners of
CRC, Inc. felt no responsibility to pay royalties to the
partnership (and had no legal obligation to do so) when the issue
was discussed with them. It was felt that this would be the case
with any outside third party the general partners might approach.
When Mr. Nichols expressed a desire to pursue the market more
aggressively than CRC, Inc. was doing, Mr. Steffey and Mr. Maes
proposed the formation of LINC Technology Corporation with the
understanding that LINC would pay royalties on partnership
products in the future. LINC was formed and Mr. Nichols
subsequently sold the inventory of partnership products he owned
personally to LINC for ultimate resale to outside customers. The
royalty arrangement arrived at between the partnership and LINC
was modeled after one negotiated with New Detonics Manufacturing
Corporation (NDMC) for a group of affiliated partnerships, as part
of the sale of assets of another Energy Sciences Corporation
subsidiary, Detonics Manufacturing Corporation to NDMC. That
Page 4
royalty arrangement called for 4% royalties and a four year
deferment.
The license entered into between the partnerships and LINC calls
for a royalty building to 5% of gross sales to be paid to each
partnership on sales, if any, of its own products (compared to the
prior formula with CRC which ranged from 10% down to 6%).
Royalties are paid on amounts actually collected by LINC from
sales of partnership products and calculated and accrued in the
following quarterly accounting period. The details of the royalty
arrangement are as follows: Initial royalties of 1% are payable on
collected invoices for sales starting in September 1990, followed
by 2% in September 1991 and 5% per year starting in September 1992
and thereafter. The royalty is divided between partnerships in
the case of joint ownership of product rights. TASA receives 45%
of the 5% royalty from sales of DOVE (MDL500) and 90% of the 5%
from sales of LCM. In 1995, a new royalty agreement was put into
effect in order to reduce administrative expenses. Under the new
plan, no royalties will accrue to the partnership until a total of
$300,000.00 of sales on products licensed to LINC Technology
Corporation have been generated and collected. At that point, a
lump sum royalty payment of $15,000.00 will be paid to the
patrnership group of TASA Products Limited (the Partnership),
Energy Sciences Limited Partnership, Telemetric Controls Limited
Partnership, and Communications Link Limited Partnership. After
such payment, again no royalty will accrue or be owed until
another $300,000.00 in sales has occured, after which a second
lump sum of $15,000.00 is due, and so forth. LINC Technology
Corporation will be responsible for periodic mailings to the
partnership at its expense. Based on IRS regulations, no
partnership 1065 tax returns and K-1s have to be filed or issued
until the royalty accrues. Filings of 1065 and K-1 forms were
done in March 2000 for year 1999. Filings of 1065 and K-1 forms
were done again in March 2001 for year 2000 for information
purposes to show the changes in capital accounts. No 1065 and K-1
filings were reqired or done in 2003.
As described above, in 1995, the General Partners put in place an
arrangement under which royalties would not be payable to the
partnerships and profit would not accrue until a total of $300,000
in sales had occured. In 2003, as the amount of sales was
approaching $300,000 again, the General Partners reviewed the
costs associated with preparing the partnership tax returns (Form
1065) and the preparation and mailing of both the K-1s and
distribution checks. Based on our experience in 2000, the
General Partners estimated the cost to be approximately $5000.00.
In addition, the General Partners heard from many Limited Partners
that the trouble involved in providing the tax information to
their accountants was not worth the money that they received. The
General Partners therefore increased the level of sales required
before a royalty payment is due from $300,000 to $600,000, which
would result in a royalty payment totalling $30,000, instead of
$15,000 to be divided among all individual limited partners. As a
result, a smaller percentage of the royalty would go to tax form
and check preparation costs.
LINC Technology Corporation's address is 3535 Factoria Blvd. S.E.,
Bellevue, WA 98006; telephone 425-882-2206. LINC Technology
Corporation uses the DBA of DATA-LINC Group.
As previously reported, one remaining item from the dismissal of
Energy Sciences Corporation's bankruptcy is the residual amount
initially owed to ESC by the partnership, and then to the law firm
Page 5
of Murphy & Elgot. Mr. Murphy has passed away and the debt is now
owed to his former partner, Mr. Elgot. No specific payment
schedule or percentage of the partnership's overall royalty cash
flow has been established to settle the debt. Mr. Elgot does
legal work for LINC Technology Corporation.
The partnership's ultimate success is dependant on LINC's ability
to generate sales and to obtain capital, which can not be
continually assured. Sales on products licensed from the
partnership were $200,969 in 1999, $107,768 in 1998, $90,377 in
1997, $47,000 in 1996 and $60,000 in 1995. This resulted in the
royalty distribution early 2000.
In 2003, a total of $89,475 of the partnerships' products were
sold by Data-Linc Group. This compares with $60,965 for 2002,
$111,551 for 2001 and $64,502 for 2000. The cumulative total is
now $326,493.
Such sales represent only a small portion of the sales for LINC
Technology Corporation, which now manufactures and sells a broad
range of industrial modems, with emphisis on wireless modems.
Since 1991, new product development work was been undertaken at
Linc and other affiliates, including independent R&D efforts by
the general partners personally, which created some products that
interface with and complement the products owned by the
partnership and could enhance sales of the partnership's products
in the future. Sales of partnership products for calender 2004
can not be predicted but are expected to remain modest. LINC has
experienced some reduction in business in 2002 ansd 2003 due to a
general downturn in the economy and expects some improvement in
2004. LINC has modest working capital and does not do significant
advertising. LINC relies on Distributors to generate most of its
sales leads. Production is self funded through inventory
turnover. LINC's major marketing focus remains on industrial data
communications.
Item 8: Financial Statements and Supplementary Data
(a) Unaudited financial statements, submitted in
accordance with Reg. 210.3-11 of Regulation S-X, are attached as
Exhibit 1 and are herein incorporated by reference.
Item 9: Disagreements on Accounting and Financial Disclosure
Matters
TASA has no independent accountant at present.
PART III
Item 10: Directors and Executive Officers of the Registrant
The Partnership has no directors or officers. Management of the
Partnership is vested in the General Partners. The name of each
present General Partner of the Partnership, the nature of other
positions held by him, and his educational background is set forth
below.
Michel E. Maes, age 66, graduated from the University of
Washington in Physics in 1959. He subsequently did post-graduate
work in various phases of physics. He was an engineer of the
Boeing Company from 1959 to 1961; an engineer and later Director
Page 6
of Advanced Projects for Rocket Research Corporation, from 1961 to
1966; President of Explosives Corporation of America and Chairman
of the Board of Petroleum Technology Corporation, both
subsidiaries of Rocket Research Corporation, from 1966 to 1971.
Up until December 5, 1986, Mr. Maes served as Chairman of the
Board at ESC. Mr. Maes is now President of LINC Technology
Corporation.
James R. Steffey, age 67, is a graduate of the University of
Washington in Physics, with post-graduate study in plasma physics.
He was Director of International Operations at Explosives
Corporation of America from 1969 to 1972. From 1972 to 1973 he
was a consultant with Stevens and Company, an investment
counseling firm. He joined ESC in 1973 and until December 5,
1986, was President and a Director of ESC. Mr. Steffey is now
Vice-President of Marketing of LINC Technology Corporation. Mr.
Steffey was not closely involved with the technical aspects of the
Partnership's activities.
Item 11: Executive Compensation
The Partnership has no directors, officers or employees and thus
pays no direct compensation. The General Partners were paid a
one-time management fee in 1982. The General Partners and their
affiliates received certain compensation as described in the table
"Compensation and Fees to General Partners and Affiliates" in the
Prospectus which is hereby incorporated by reference.
Item 12: Security Ownership of Certain Beneficial Owners and
Management
(a) The only outstanding voting securities of the
Limited Partnerships are those Limited Partnership interests owned
by the investors or their successors in interest. No single
person owns 5% or more.
(b) The General Partners hold no limited partnership
interests. However, they have interests in Profits and Losses and
Cash Available for Distribution of 5%. The interest in Cash
Available for Distribution is subordinated to the Limited
Partners' receipt of distributions equal to their capital
contributions.
(c) There are no agreements or arrangements known
which could affect control of TASA.
Item 13: Certain Relationships and Related Transactions
As described in the prospectus, TASA was a party to several
contracts with affiliates of the Limited Partners which resulted
in compensation to the General Partners. See "Compensation and
Fees to the General Partners and Affiliates" and "Certain
Transactions" in the Prospectus, which hereby is incorporated
herein by reference. Also see Item 7 above.
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
a) Documents filed as part of this Annual Report:
Unaudited financial statements, filed in accordance with
Page 7
Reg. 210.3-11 of Regulation S-X.
b) Reports on Form 8-K:
None
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.
Registrant: TASA PRODUCTS LIMITED
By: Date:
Michel E. Maes, General Partner
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following person on
behalf of the registrant and in the capacity and on the date
indicated.
By: Date:
Michel E. Maes, General Partner
Supplemental Information to be furnished with Reports filed
pursuant to Sections 15(d) of the Act by Registrants which have
not registered securities pursuant to Section 12 of the Act.
No annual reports or proxy materials have been or will be sent to
security holders.
Page 8
TASA PRODUCTS LIMITED
BALANCE SHEET
DECEMBER 31, 2003 AND 2002
(UNAUDITED)
12/31/03 12/31/02
ASSETS
Current Assets:
Cash $ 0 0
Royalties Receivable 0 0
__ __
TOTAL CURRENT ASSETS $ 0 0
Intangible Assets Less Amortization 0 0
Receivable from Affiliates Less Allowance 0 0
TOTAL ASSETS 0 0
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts Payable $ 0 0
Taxes Payable 0 0
Reporting Reserve 0 0
TOTAL CURRENT LIABILITIES 0 0
Payable to Former Secured Creditors 2,383,607 2,383,607
__ __
TOTAL LIABILITIES 2,383,607 2,383,607
Partners' Capital (2,383,607) (2,383.607)
__ __
TOTAL LIABILITIES AND PARTNER'S EQUITY 0 0
The accompanying notes are an integral part of the financial
statements
TASA PRODUCTS LIMITED
STATEMENT OF INCOME
FOR THE YEAR ENDING
DECEMBER 31, 2003, 2002, & 2001
(UNAUDITED)
12/31/03 12/31/02 12/31/01
Revenue
Royalty Revenue 0 0 0
Other Revenue 0 0 0
__ __ __
TOTAL REVENUE 0 0 0
Costs and Expenses:
Bank Charges 0 0 0
Commissions 0 0 0
Filing Fee for 10-K 0 0 0
Operating Expense (Reporting) 0 0 0
Reporting Reserve 0 0 0
Professional Fees 0 0 0
Supplies 0 0 0
Taxes 0 0 0
__ __ __
TOTAL COSTS AND EXPENSES 0 0 0
Net Income (Loss) 0 0 0
The accompanying notes are an integral part of the financial statements
Page 9
TASA PRODUCTS LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDING
DECEMBER 31, 2003, 2002, & 2001
(UNAUDITED)
12/31/03 12/31/02 12/31/01
Net Cash From Operating Activities $ 0 0 0
Net Cash Used By Investing Actvts. 0 0 0
Net Cash From Financing Actvts 0 0 0
Net Increase In Cash 0 0
Cash At Begining of Period 0 0 0
Cash At End Of Period 0 0 0
TASA PRODUCTS LIMITED
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDING
DECEMBER 31, 2003, 2002 & 2001
(UNAUDITED)
12/31/03 12/31/02 12/31/01
Contributions by Partners 0 0 0
Capital Withdrawals 0 0 0
Syndication Costs 0 0 0
Accumulated Surplus (Deficit) (2,383,607) (2,383,607) (2,383,607)
Net Income (Loss) 0 0 0
Partners' Capital (Deficit) (2,383,607) (2,383,607) (2,383,607)
The accompanying notes are an integral part of the financial statements
Page 10
TASA PRODUCTS LIMITED
(a Washington State limited partnership)
NOTES TO THE FINANCIAL STATEMENTS
1. Partnership Organization and Operations
TASA Products Limited, a Washington State limited partnership
("the partnership"), was formed on June 19, 1980 for the purpose
of raising certain capital through the public offering of Limited
Partnership interests (4,100 units; $1,000 per unit), and
acquiring the rights to and conducting research and development
with respect to a group of electronic products. Subsequently, the
Partnership commenced limited manufacturing and marketing
activities for certain products. The Partnership shall continue
for a period of thirty (30) years from the date of organization
unless the Partnership is sooner dissolved according to the
provisions of the Amended Certificate of Limited Partnership and
Agreement. The Partnership has two general partners and limited
partners comprised of certain investor groups.
Research and development was completed and sales of products
began. For admission to the Partnership, an investor was assigned
to a group (one group is associated with each phase), based on the
timing of receipt of the contribution. Sale of all of the 4,100
limited partnership units was completed in 1981. The units of the
Partnership are nonassessable.
Partners' Capital
Initial contributions aggregating $4,100,00 were made by the
Limited Partners. The General Partners have not and will not make
any capital contributions. Partners share in income or loss of
the partnership as set forth below.
Allocation of Income, Loss and Cash Distributions
The loss attributable to the research and development efforts of
each phase was allocated to the partners included in such phase as
follows:
Limited Partners, pro rata 98%
General Partners 2%
All income and/or loss attributable to the operations after the
research and development program has been completed, including
revenues derived from the sale or other disposition of any rights
or interest, shall be allocated as follows:
Limited Partners, all groups, pro rata 98%
General Partners 2%
The Limited Partners shall receive one hundred percent of the cash
available for distribution, until such time as the Limited
Partners have received in distribution an amount equal to the
cumulative capital contributions received from Limited Partners.
After the Limited Partners have received cash distributions in an
amount equal to the cumulative capital contributions received from
Limited Partners, the General Partners will receive one hundred
percent of the cash available for distribution, until such time as
the General Partners have received an amount equal to five percent
of the cumulative capital contributions received from Limited
Partners.
Thereafter, the cash available for distribution shall be allocated
as follows:
Limited Partners, all groups, pro rata 95%
General Partners 5%
Page 11
Upon dissolution of the Partnership, proceeds of the liquidation
will be applied in accordance with the terms of the Amended
Certificate and Agreement of Limited Partnership in the following
order of priority:
1) To the payment of liabilities of the Partnership and
expenses of liquidation;
2) To the setting up on any reserves which the General
Partners may deem reasonably necessary for any contingent
or unforeseen liabilities or obligations of the
Partnership, or of the General Partners, arising out of or
in connection with the Partnership;
3) To the repayment of the Limited Partners' contributions to
the capital of the Partnership, plus an amount equal to
six percent of the capital contributions per annum
cumulative, less the sum of prior distributions to
investors from cash available for distribution;
4) Any balance then remaining shall be apportioned among all
the partners as follows:
Limited Partners, pro rata 98%
General Partners 2%
Pursuant to the terms of the Partnership Agreement, the General
Partners are not required to contribute to the Partnership any
deficit in their capital accounts which exist after application of
proceeds of liquidation as set forth above.
The Partnership filed for Bankruptcy protection under Chapter 11
in April 1986. The Chapter 11 was converted to a Chapter 7 by the
Bankruptcy Court in October 1989 and then the Bankruptcy was
dismissed in June 1990. The dismissal did not involve any
discharge of the Partnership's obligations, some of which were
accrued property taxes in the amount of under $1,000. These were
paid by the General Partners and are now included in the Amounts
Payable To Affiliates.
2. Significant Accounting Policies
Basis of Reporting
The records of the Partnership are maintained using the accrual
method of accounting. A substantial portion of the transactions
of the Limited Partnership have been, and will continue to be,
with the entities affiliated with the General Partners.
Inventories
The partnership has no inventories.
Property and Equipment
The partnership has no tangable properties.
Other Assets
The partnership has no tangable assets.
Offering Costs
Page 12
Offering costs, including sale commissions to brokers for sales of
limited partnership interests were charged directly to the
respective partners' capital account.
Income Taxes
The Partnership is not a tax-paying entity. No provision is made
in these financial statements for federal and state income taxes.
Research and Development Expenses
Research and development costs paid or accrued under terms of a
contract with an affiliated company were charged to expense in the
period in which the obligation was incurred.
Net Loss Attributable to Limited Partners Units
The net loss attributable to each $1,000 limited partnership unit
represents the loss for the period allocated to limited partners
divided by the number of partnership units outstanding at the end
of the period. The net loss allocated to specific individual
units will vary from the amount shown depending on the group to
which a limited partner has been assigned.
3. Notes and Accrued Interest Payable to an Affiliated Company
At December 31, 1980, the Partnership executed a promissory note
under the terms of a research and development contract. The note
in the amount of $1,148,000 bears interest at the rate of eight
and one-half percent compounded annually. Upon completion of the
Partnership funding in 1981, an additional note of $252,000 with
the same terms was executed. The principal and accrued interest
was to be paid in full no later than December 31, 1986, and are
collateralized by a pledge of certain rights to inventions held by
the Partnership. The date for repayment could be extended at the
request of the Partnership to December 31, 1993, provided the
Partnership has made payments toward the principal and the accrued
interest by December 31, 1986. After December 31, 1990, interest
shall be at a rate of ten percent compounded annually. Failure of
the Partnership to complete payment in full of the entire contract
price plus interest on or before December 31, 1986 or such other
date if the payment period is extended gives the affiliate the
right to foreclose the pledge of the Partnership's ownership
interest in the rights to inventions referred to above. In the
event the Partnership assigns, licenses or sells its rights to the
inventions to any other party, the affiliate retains an interest
in any royalties or income from such assignment, license or sale
until such time as the note is paid in full.
Due to the filing of Chapter 11 by the Partnership's affiliate,
and by the Partnership, and due to the cessation of commercial
activity relating to the Partnership's products, all accrual of
interest and right of foreclosure was suspended for the years
beyond 1987. The Chapter 11 proceeding of the Partnership's
affiliate was dismissed on May 13, 1988. As of March 2001, no
final settlement has been reached with the former secured
creditors of the Partnership's affiliate regarding the debt owed
by the Partnership. No further interest was accrued after 1986 by
aggreement with the secured creditor.
Page 13
4. Transactions with Related Parties
A substantial portion of the transactions of the Partnership have
been, and are anticipated in the future to be, with the General
Partners and their affiliates. Significant transactions with
these parties are summarized in the following paragraph.
Management fees to the General Partners of $18,500 and $84,000
(2.5% of the limited partners' contributions), were incurred in
1981 and 1980, respectively. The fees represent compensation to
the General Partners for organization of the Partnership and for
expense incurred in connection with the offering of the limited
partnership units. The fees were allocated to organization and
offering costs.
An affiliate of the General Partners entered into a fixed price
research and development contract with the Partnership. The
affiliate received $756,000 (cash of $504,00 and a promissory note
in the amount of $252,000), and $3,444,000 (cash of $2,296,000 and
a promissory note in the amount of $1,148,000), in 1981 and 1980,
respectively, as payment for conducting all present and future
research and development of the Partnership. The affiliate's
costs for performing the research and development activities
included certain general and administrative and overhead costs
allocated by its parent company, an affiliate of the General
Partners.
Prior to transferring product rights under the licensing
agreement, the Partnership can manufacture and market any products
developed. In 1982, the Partnership elected to do so and entered
into a manufacturing and marketing agreement whereby the
Partnership reimbursed the affiliate for all costs incurred in the
manufacturing and marketing activities. In addition, the
affiliate would receive 40% of net profits (as defined in the
agreement), derived from the manufacture and sale of the products
produced under this agreement. Substantially all operating costs
of this affiliate have been allocated to the Partnership under
this agreement.
The Partnership has been charged for certain general and
administrative services provided by other affiliates of the
General Partners. The General Partners have and will provide
management, research and development and other technical services
to affiliates which provide services to the Partnership. The
General Partners are and will be compensated by the affiliated
companies for such services.
A new license agreement has been entered into by the Partnership
with a newly created entity, which, as with the prior license, the
General Partners are part owners, officers and directors. The
General Partners have received and are expected to receive
compensation in the future from this entity.
5. Commitments and Contingencies
The Partnership has entered into agreements with several
individuals to obtain title to inventions and designs relating to
the electronic products the Partnership is developing. Pursuant
to the terms of the agreements, the individuals are entitled to
royalties received by the Partnership under licensing agreements
associated with the products.
The Partnership has entered into a licensing agreement with an
affiliate of the General Partners providing manufacturing and
marketing services under which the licensee has, upon transfer of
the product rights, the exclusive right to manufacture, use and
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sell any products successfully developed by the Partnership. The
terms of the agreement extend throughout the life of the
Partnership. In return for granting this license, the Partnership
shall receive royalties from the licensee as set forth in the
licensing agreement for its own products. The details of the
royalty arrangement are as follows: Initial royalties of 1% are
payable on collected invoices for sales starting in September
1990, followed by 2% in September 1991 and 5% per year starting in
September 1992 and thereafter. (Accounting is done in the quarter
following the quarter in which the sales receipts occur). The
royalty is divided between partnerships in the case of joint
ownership of rights. TASA receives 45% of the 5% royalty from
sales of DOVE and 90% of the 5% from sales of LCM.
In 1995, a new royalty agreement was put into effect in order to
reduce administrative expenses. Under the new plan, no royalties
will accrue to the partnership until a total of $300,000.00 of
sales on products licensed to LINC Technology Corporation have
been generated and collected. At that point, a lump sum royalty
payment of $15,000.00 will be paid to the patrnership group of
TASA Products Limited (the Partnership), Energy Sciences Limited
Partnership, Telemetric Controls Limited Partnership, and
Communications Link Limited Partnership. After such payment,
again no royalty will accrue or be owed until another $300,000.00
in sales has occured, after which a second lump sum of $15,000.00
is due, and so forth. LINC Technology Corporation will be
responsible for periodic mailings to the partnership at its
expense. Based on IRS regulations, no partnership 1065 tax
returns and K-1s have to be filed or issued until the royalty
accrues. Filings of 1065 and K-1 forms were done in March 2000
for year 1999. Filings of 1065 and K-1 forms were done again in
March 2001 for year 2000 for information purposes to show the
changes in capital accounts.
In 2003, as the amount of sales was approaching $300,000 again,
the General Partners reviewed the costs associated with preparing
the partnership tax returns (Form 1065) and the preparation and
mailing of both the K-1s and distribution checks. Based on our
experience in 2000, the General Partners estimated the cost to be
approximately $5000.00. In addition, the General Partners heard
from many Limited Partners that the trouble involved in providing
the tax information to their accountants was not worth the money
that they received. The General Partners therefore increased the
level of sales required before a royalty payment is due from
$300,000 to $600,000, which would result in a royalty payment
totalling $30,000, instead of $15,000 to be divided among all
individual limited partners. As a result, a smaller percentage of
the royalty would go to tax form and check preparation costs.
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