<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 0-16683
TECHNOLOGY FUNDING SECURED INVESTORS II
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3034262
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- -------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(415) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
No active market for the units of limited partnership interests ("Units")
exists, and therefore the market value of such Units cannot be
determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $5,221,676 and
$7,528,512 at 1995 and 1994,
respectively) $ 2,918,676 4,999,512
Equity investments (cost basis
of $3,173,005 and $2,936,564 at
1995 and 1994, respectively) 3,083,673 1,603,688
---------- ----------
Total investments 6,002,349 6,603,200
Cash and cash equivalents 1,589,756 1,006,954
Other assets 67,376 51,198
---------- ----------
Total $ 7,659,481 7,661,352
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 74,594 131,356
Due to related parties 2,230 246
Other liabilities 69,280 50,778
---------- ----------
Total liabilities 146,104 182,380
Commitments (Notes 2 and 7)
Partners' capital:
Limited Partners
(Units outstanding of 157,829
and 159,006 for 1995 and 1994,
respectively) 10,027,831 11,449,172
General Partners (122,122) (108,324)
Net unrealized fair value decrease
from cost:
Secured notes receivable (2,303,000) (2,529,000)
Equity investments (89,332) (1,332,876)
---------- ----------
Total partners' capital 7,513,377 7,478,972
---------- ----------
Total $ 7,659,481 7,661,352
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------------ ------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Secured notes receivable interest $ 443,710 235,329 829,521 713,879
Short-term investment interest 19,934 17,132 37,958 36,630
Other income -- 13,017 4,450 22,104
------- ------- --------- ---------
Total income 463,644 265,478 871,929 772,613
------- ------- --------- ---------
Costs and expenses:
Management fees 36,892 48,016 110,772 161,910
Other investment expenses 76,380 21,000 227,640 150,585
Operating expenses:
Lending operations and investment
management 23,873 64,828 117,377 126,543
Administrative and investor
services 45,381 57,687 153,685 224,349
Computer services 17,440 21,179 52,437 67,349
Professional fees 12,373 16,091 40,289 51,784
------- ------- ---------- ---------
Total operating expenses 99,067 159,785 363,788 470,025
------- ------- ---------- ---------
Total costs and expenses 212,339 228,801 702,200 782,520
------- ------- ---------- ---------
Net operating income (loss) 251,305 36,677 169,729 (9,907)
Net realized gain (loss) from
sales of equity investments 452,249 (4,490) 623,089 25,813
Realized losses from
investment write-downs (541,962) (173,813) (2,352,484) (2,448,743)
Recoveries from investments
previously written off 46,096 -- 179,846 --
------- ------- --------- ---------
Net realized income (loss) 207,688 (141,626) (1,379,820) (2,432,837)
Change in net unrealized
fair value:
Secured notes receivable 408,000 (162,000) 226,000 543,000
Equity investments (425,260) (627,904) 1,243,544 (687,835)
------- ------- --------- ---------
Net income (loss) $ 190,428 (931,530) 89,724 (2,577,672)
======= ======= ========= =========
Net realized income (loss) per Unit $ 1 (1) (9) (15)
======= ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF PARTNERS' CAPITAL (UNAUDITED)
- ------------------------------------------
<TABLE>
<CAPTION>
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, 1994 $11,449,172 (108,324) (1,332,876) (2,529,000) 7,478,972
Repurchase of limited
partnership interests (55,319) -- -- -- (55,319)
Net realized loss (1,366,022) (13,798) -- -- (1,379,820)
Change in net unrealized fair
value:
Equity investments -- -- 1,243,544 -- 1,243,544
Secured notes receivable -- -- -- 226,000 226,000
---------- ------- --------- --------- ---------
Partners' capital,
September 30, 1995 $10,027,831 (122,122) (89,332) (2,303,000) 7,513,377
========== ======= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest and other income received $ 838,816 629,240
Cash paid to vendors (383,853) (517,292)
Cash paid to related parties (379,670) (636,591)
Cash paid to affiliated partnerships (12,093) (31,407)
Reimbursement of collection expenses
received from a portfolio company -- 187,441
--------- ---------
Net cash provided (used) by
operating activities 63,200 (368,609)
--------- ---------
Cash flows from investing activities:
Secured notes receivable issued (718,465) (2,310,238)
Repayments of secured notes receivable 426,491 2,145,089
Proceeds from sales of equity investments 669,365 510
Recoveries from investments previously
written off 179,846 --
Purchase of equity investments (3,278) (247,543)
--------- ---------
Net cash provided (used) by
investing activities 553,959 (412,182)
--------- ---------
Cash flows from financing activities:
Repurchase of limited partnership interests (34,357) (4,270)
Distributions to Limited and General
Partners -- (300,003)
--------- ---------
Net cash used by financing
activities (34,357) (304,273)
--------- ---------
Net increase (decrease) in cash
and cash equivalents 582,802 (1,085,064)
Cash and cash equivalents at beginning
of year 1,006,954 2,400,854
--------- ---------
Cash and cash equivalents at September 30 $ 1,589,756 1,315,790
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- ------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1995 1994
---- ----
<S> <C> <C>
Reconciliation of net income (loss) to
net cash provided (used) by operating
activities:
Net income (loss) $ 89,724 (2,577,672)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Net realized gain from sales of
equity investments (623,089) (25,813)
Realized losses from investment
write-downs 2,352,484 2,448,743
Recoveries from investments previously
written off (179,846) --
Change in net unrealized fair value:
Secured notes receivable (226,000) (543,000)
Equity investments (1,243,544) 687,835
Changes in:
Accounts payable and accrued expenses (56,762) (44,781)
Due to/from related parties and
affiliated partnerships (9,198) (41,388)
Accrued interest on secured and
convertible notes receivable (43,508) (143,756)
Other assets (4,996) (135,721)
Other, net 7,935 6,944
--------- ---------
Net cash provided (used) by
operating activities $ 63,200 (368,609)
========= =========
Non-cash investing activities:
Conversion of secured notes
receivable and interest to equity
and other investments $ 1,741,550 1,041,054
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partner, the Balance Sheets as of
September 30, 1995 and December 31, 1994, and the related Statement of
Partners' Capital for the nine months ended September 30, 1995,
Statements of Operations for the three and nine months ended September
30, 1995 and 1994, and Statements of Cash Flows for the nine months ended
September 30, 1995 and 1994, reflect all adjustments which are necessary
for a fair presentation of the financial position, results of operations
and cash flows for such periods. These statements should be read in
conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1994. The following notes to financial statements for
activity through September 30, 1995 supplement those included in the
Annual Report on Form 10-K. Certain 1994 balances have been reclassified
to conform with the 1995 financial statement presentation. Allocation of
income and loss to Limited and General Partners is based on cumulative
income and loss. Adjustments, if any, are reflected in the current
quarter balances.
Withdrawal of Capital
- ---------------------
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. The price paid for any
Units tendered is subject to the restrictions stated in the Partnership
Agreement. As of September 30, 1995, 731 Units were repurchased for
$34,357 with an accrual of $20,962 for the remaining 446 Units to be
repurchased.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the nine months ended
September 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Management fees $110,772 161,910
Reimbursable operating expenses 271,793 436,183
</TABLE>
Certain reimbursable expenses have been accrued and allocated based upon
interim estimates prepared by the Managing General Partner and are
adjusted to actual cost periodically. As of September 30, 1995, due to
related parties for such expenses were $2,230 compared to $665 due from
related parties included in other assets at December 31, 1994.
Within the normal course of business, the Partnership participates with
affiliated partnerships in secured notes receivable granted to
nonaffiliated borrowing companies. The Partnership may also
reparticipate such secured notes receivable amongst affiliated
partnerships to meet business needs. At September 30, 1995, due from
affiliated partnerships was $11,847 (included in "other assets"),
compared to due to affiliated partnerships of $246 (include in "due to
related parties") at December 31, 1994. These amounts were received from
or paid to such affiliated partnerships in the respective following
quarters.
3. Net Realized Income (Loss) Per Unit
-----------------------------------
Net realized income (loss) per Unit is calculated by dividing total net
realized income (loss) allocated to the Limited Partners by the weighted
average number of Units outstanding for the nine months ended September
30, 1995 and 1994 of 158,875 and 159,388, respectively.
4. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1994 is included in the 1994 Annual Report. Activity from January 1
through September 30, 1995 consisted of
<TABLE>
<CAPTION>
January 1 -
September 30, 1995
--------------------
Investment Cost Fair
Industry/Company Date Position Basis Value
- ---------------- ---------- -------- ----- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $2,936,564 1,603,688
--------- ---------
Significant changes:
WARRANTS:
- --------
Computers and Computer Equipment
- --------------------------------
Censtor Corporation 02/91 16,808 Common
shares at $.29;
exercised 05/95 (7,500) (37,112)
Pinnacle Systems, Inc. 05/90 2,083 Common
shares at $8.00;
exercised 02/95 (2,500) (14,164)
Computer Software and Systems
- -----------------------------
Datalogix International, 01/92 17,787 Common
Inc. shares at $1.87;
exercised 06/95 (10,000) (10,000)
Microelectronics
- ----------------
Elantec, Inc. 08/90 109,091 Common
shares at $.55;
exercised 07/95 (1,667) (1,667)
Telecommunications
- ------------------
Integrated Network 06/91 5,882 Common
Corporation shares at $17.00;
expiring 06/96 (10,000) (100,002)
Primary Access 10/90- 15,100 Common
Corporation 04/91 shares at $2.25;
exercised 06/95 (3,500) (3,500)
STOCKS:
- ------
Computers and Computer Equipment
- --------------------------------
Censtor Corporation 05/95 4,538 Common
shares 2,395 2,395
MTI Technology Corporation 04/94 20,928 Common
shares 0 (5,504)
Wasatch Education Systems 06/95 1,741,550 Series C
Corporation Preferred shares 1,741,550 1,741,550
Industrial/Business Automation
- ------------------------------
Cyclean, Inc. 01/95 39,263 Series D
Preferred shares 109,545 109,545
Cyclean of Los Angeles, LLC 03/95 Class A LLC Unit -
45% ownership 11,091 11,091
Medical
- -------
Allegiant Physicians 08/94 13,500 Common
Services, Inc. shares (7,500) (32,337)
Resonex Holding Corporation 02/94 11,402 Common
shares (841,254) 0
Microelectronics
- ----------------
Elantec, Inc. 07/95 34,091 Common
shares 19,270 19,270
Retail/Consumer Products
- ------------------------
S-Tron 05/93 Subordinated
debenture,
$220,000 (1)
principal amount (221,136) (73,511)
S-Tron 05/93 1,826,000 Series 1
and 2 Preferred
shares (496,827) (110,853)
Telecommunications
- ------------------
Primary Access Corporation 11/93 22,000 Common
shares (52,250) (52,250)
3Com Corporation 06/95 798 Common
shares in
escrow 8,375 36,648
--------- ---------
Total significant changes 238,092 1,479,599
Other changes, net (1,651) 386
--------- ---------
Total equity investments at September 30, 1995 $3,173,005 3,083,673
========= =========
(1) Subordinated note includes accrued interest. The interest rate on the subordinated
note was 6%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At September 30, 1995 and December 31, 1994, marketable equity
securities had aggregate costs of $204,227 and $205,852, respectively,
and aggregate fair values of $128,610 and $143,567, respectively. The
unrealized loss at September 30, 1995 and December 31, 1994 included
gross gains of $43,673 and $51,501, respectively.
Allegiant Physicians Services, Inc.
- -----------------------------------
In August 1995, the Partnership exercised its option to sell half of its
common stock holdings to the company for $22,500 and realized a gain of
$15,000. The Partnership has retained its option to sell the remaining
shares at a later date.
Censtor Corporation
- -------------------
In May 1995, the Partnership exercised its warrant without cash and
received 4,538 common shares. The recorded common share cost basis was
$2,395, which is net of a realized loss.
Cyclean, Inc./Cyclean of Los Angeles, LLC
- -----------------------------------------
In January 1995, the Partnership obtained the right to receive 51,051
Series D Preferred shares with a twelve month vesting schedule in
exchange for a one year maturity date extension of secured notes
receivable. At September 30, 1995, 39,263 shares were fully vested with
a recorded cost basis and fair value of $109,545.
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 this 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 $11,091. 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 late 1995.
Datalogix International, Inc.
- -----------------------------
In June 1995, Datalogix International, Inc. completed its initial public
offering. The Partnership exercised its warrant without cash and sold
all of its resulting common shares in the company for total proceeds of
$114,392 and a realized gain of $104,392.
Elantec, Inc.
- -------------
In July 1995, the Partnership exercised its warrant without cash and
received 34,091 common shares. The recorded common shares cost basis of
$19,270 included a realized gain of $17,603 and a warrant cost basis of
$1,667.
Integrated Network Corporation
- ------------------------------
During June 1995, the Partnership exercised its option to sell half of
its warrant holdings to the company for $100,000, and realized warrant
income of $90,000, which was included in "secured notes receivable
interest income" on the Statements of Operations. The Partnership does
not have this option for its remaining warrant.
MTI Technology Corporation
- --------------------------
The Partnership recorded a decrease in fair value of $5,504 to reflect
the publicly-traded market price at September 30, 1995. The
Partnership's investment is unrestricted.
Pinnacle Systems, Inc.
- ----------------------
In February 1995, the Partnership exercised its warrant without cash and
received 1,971 common shares. The recorded cost basis of $13,244
included a realized gain of $10,744 and a warrant cost basis of $2,500.
In May 1995, the Partnership sold the common shares for total proceeds
of $37,449 and realized a gain of $24,205.
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 $31,504, which reflects a
realized gain of $28,004 and a warrant cost basis of $3,500. Upon the
acquisition, these shares, along with the existing 22,000 Primary Access
common shares held by the Partnership, were then exchanged for 7,984
3Com common shares, of which 7,186 shares were sold for total proceeds
of $495,024 and realized a gain of $419,645 in July 1995. The remaining
798 shares 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 $28,273 to reflect
the above transactions and the market value at September 30, 1995.
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 year end. Based on the opinion
of the Managing General Partner, there has been a decline in the
Partnership's investment value and accordingly, the common stock cost
basis of $841,254 and secured notes receivable investments totaling
$536,962 were written off.
S-Tron
- ------
The company was unsuccessful in its recent efforts to obtain a major
government contract; as a result, operations will likely cease by year
end. Based on the Managing General Partner's opinion, the fair value of
the Partnership's investment has declined. Accordingly, the Partnership
has written off the cost basis of its Preferred stock investment of
$496,827 and recorded a write-down of $221,136 on its subordinated note
investment.
Wasatch Education Systems Corporation
- -------------------------------------
In June 1995, the Partnership converted its secured notes receivable
totaling $1,741,550 into 1,741,550 Series C Preferred shares at $1.00
per share. As part of the conversion, the Partnership wrote off or
reversed accrued interest totaling $357,495. In addition, the
Partnership's existing common warrants were replaced with new five-year
warrants with similar exercise prices. New warrants were also received
as a result of previous maturity extensions.
5. Secured Notes Receivable, Net
-----------------------------
Activity from January 1 through September 30, 1995 consisted of:
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 4,999,512
1995 activity:
Secured notes receivable issued 718,465
Repayments of secured notes receivable (426,491)
Secured notes receivable converted
to equity investments (1,741,550)
Write-off of secured notes receivable (536,962)
Write-off or reversal of accrued interest (357,495)
Increase in interest receivable 95,330
Decrease in allowance for loan losses 226,000
Other, net (58,133)
---------
Total secured notes receivable, net,
at September 30, 1995 $ 2,918,676
=========
</TABLE>
The Partnership had accrued interest of $17,049 and $279,214 at
September 30, 1995 and December 31, 1994, respectively.
Refer to Note 4, Equity Investments, for disclosure regarding secured
notes receivable converted to equity investments, write-off of secured
notes receivable, and write-off or reversal of accrued interest.
Changes in the allowance for loan losses were as follows:
<TABLE>
<S> <C>
Balance at January 1, 1995 $2,529,000
---------
Provision for loan losses 131,116
Secured notes receivable write-downs:
Medical (536,962)
Recoveries of previous write-offs:
Semiconductor equipment 90,000
Industrial/business automation 31,273
Computers and computer equipment 58,573
---------
Total recoveries 179,846
---------
Change in net unrealized fair value of
secured notes receivable (226,000)
---------
Balance at September 30, 1995 $2,303,000
=========
</TABLE>
The provision for loan losses is generally comprised of realized loan
losses, net of recognized recoveries, and a change in net unrealized
fair value based upon the level of loan loss reserves deemed adequate by
the Managing General Partner.
The allowance for loan losses is adjusted quarterly based upon changes
to the portfolio size and risk profile. Although the allowance is
established by evaluating individual debtor repayment ability, the
allowance represents the Managing General Partner's assessment of the
portfolio as a whole.
Notes aggregating $4,459,903 and $4,321,823 were on nonaccrual status
due to uncertainties of the borrowers' financial condition at September
30, 1995 and December 31, 1994, respectively. The Managing General
Partner continues to monitor the progress of companies with nonaccrual
notes. The fair value at September 30, 1995 recognizes the Managing
General Partner's estimate of collectibility of these notes.
All notes are secured by specific assets of the borrowing company.
Interest rates on notes issued during the nine months ended September
30, 1995 ranged from 10% to 14%.
6. Cash and Cash Equivalents
-------------------------
At September 30, 1995 and December 31, 1994, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Demand accounts $ 2,806 2,334
Money-market accounts 1,586,950 1,004,620
--------- ---------
Total $1,589,756 1,006,954
========= =========
</TABLE>
7. 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 September 30, 1995, the Partnership had
unfunded commitments of $80,200 related to bridge and term note
financings.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the nine months ended September 30, 1995, net cash provided by
operating activities totaled $63,200. The Partnership paid management
fees of $110,772 to the Managing General Partner, reimbursed related
parties for operating expenses of $268,898, and paid $12,093 to
affiliated partnerships for net loan participations. In addition, other
operating expenses of $383,853 were paid. Interest and other income
received totaled $838,816.
During the nine months ended September 30, 1995, the Partnership issued
$718,465 in secured notes receivable primarily to portfolio companies in
the computers and computer equipment industry. Fundings of equity
investments totaled $3,278. Repayments of notes receivable provided
cash of $426,491 and proceeds from investment sales totaled $669,365.
The Partnership also received $179,846 from investment recoveries. As
of September 30, 1995, the Partnership was committed to fund $80,200 on
bridge and term notes to existing borrowing companies.
All management fees which are due have been paid through September 30,
1995. Management fees are paid to the extent that the aggregate amount
of all proceeds (including those from warrants exercised without cash)
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 as defined in the
Partnership Agreement.
Each June, Limited Partners may tender their Units for repurchase by the
Partnership. The price paid for any Units tendered is subject to the
restrictions stated in the Partnership Agreement. As of September 30,
1995, $34,357 was paid for 731 Units repurchased by the Partnership with
an accrual of $20,962 for an additional 446 Units to be repurchased.
Cash and cash equivalents at September 30, 1995 were $1,589,756. Future
distributions will be dependent upon loan repayments from borrowing
companies and available cash, and are expected to fluctuate. Operating
cash reserves combined with proceeds from the sale of investments,
interest income received on short-term investments and repayments of
secured notes receivable are expected to be sufficient to fund
Partnership operations and loan requirements of existing borrowing
companies through the next twelve months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding
- ------------------------------------------------------------------
year
- ----
Net income was $190,428 for the three months ended September 30, 1995
compared to a net loss of $931,530 for the same period in 1994. The
change was substantially due to a $570,000 increase in the change in net
unrealized fair value of secured notes receivable investments, a
$456,739 increase in net realized gain from sales of equity investments,
a $208,381 increase in secured notes receivable interest income, and a
$202,644 increase in the change in the net unrealized fair value of
equity investments. These changes were partially offset by a $368,149
increase in realized losses from investment write-downs.
The Partnership recorded an increase in the fair value of secured notes
receivable of $408,000 during the quarter ended September 30, 1995,
compared to a decrease of $162,000 for the same period in 1994 based
upon the level of loan loss reserves deemed adequate by the Managing
General Partner at the respective quarter ends. The 1995 increase was
primarily due to the write-down of secured notes receivable to a
portfolio company in the medical industry as this investment had been
reflected with fair value less than cost.
During the quarter ended September 30, 1995, net realized gain from
sales of equity investments of $452,249 primarily related to the sale of
3Com Corporation. Losses of $4,490 were realized in 1994.
Secured notes receivable interest income was $443,710 and $235,329 for
the quarters ended September 30, 1995 and 1994, respectively. The
increase was primarily due to the receipt of an interest payment from a
portfolio company in the computer software and systems industry which
had been on nonaccrual status.
The change in fair value of equity investments reflected a net increase
in the fair value of the Partnership's holdings. During the quarter
ended September 30, 1995, the decrease of $425,260 was mostly due to the
sale of 3Com Corporation as gains were realized. In 1994, the decrease
of $627,904 primarily related to a portfolio company in the medical
industry.
The Partnership recorded realized losses from investment write-downs of
$541,962 and $173,813 during the quarters ended September 30, 1995 and
1994, respectively. These write-downs were primarily related to secured
notes receivable to portfolio companies in the medical and
industrial/business automation industries.
Total operating expenses were $99,067 for the quarter ended September
30, 1995 compared to $159,785 for the same quarter in 1994. The
decrease was mostly due to lower lending operations and investment
management, and administrative and investor services expenses from
reduced overall portfolio activities.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current nine months compared to corresponding nine months in the
- ----------------------------------------------------------------
preceding year
- --------------
Net income was $89,724 compared to a net loss of $2,577,672 for the nine
months ended September 30, 1995 and 1994, respectively. The change was
primarily due to a $1,931,379 increase in the change in net unrealized
fair value of equity investments, a $597,276 increase in net realized
gain from sales of equity investments, partially offset by a $317,000
decrease in the change in net unrealized fair value of secured notes
receivable.
In 1995, the increase in equity investment fair value of $1,243,544
primarily related to the write-downs of portfolio companies in the
medical and retail/consumer products industries as these investments had
been reflected with a fair value less than cost. In 1994, the decrease
of $687,835 primarily related to a portfolio company in the medical
industry.
In 1995, the Partnership recorded a net realized gain from sales of
equity investments of $623,089 primarily due to the sale of 3Com
Corporation. In 1994, the realized gain of $25,813 mostly related to
the non-cash exercise of Elantec, Inc. warrants.
The Partnership recorded an increase in the fair value of secured notes
receivable of $226,000 and $543,000 for the nine months ended September
30, 1995 and 1994, respectively, based upon the level of loan loss
reserves deemed adequate by the Managing General Partner at the
respective quarter ends.
Secured notes receivable interest income was $829,521 and $713,879 for
the nine months ended September 30, 1995 and 1994, respectively. The
increase was mostly due to a cash interest payment received from a
portfolio company as discussed in the above section.
Total operating expenses were $363,788 and $470,025 for the nine months
ended September 30, 1995 and 1994, respectively. The 1994 actual
operating expense was reduced by collection expense reimbursements of
$187,441 from a portfolio company in the computers and computer
equipment industry, of which approximately $130,000 related to expenses
incurred prior to December 31, 1993. Lending operations and investment
management expenses have been reduced by this amount. Had there been no
recovery of prior period costs, total operating expenses would have been
$598,392 in 1994. The decrease was primarily due to lower overall
portfolio activities as discussed in the above section.
During the nine months ended September 30, 1995 and 1994, the
Partnership realized losses from investments write-downs of $2,352,484
and $2,448,743, respectively. The 1995 write-downs primarily related to
equity investments in portfolio companies in the medical and retail and
consumer products industries. Write-downs in 1994 mostly related to
secured notes receivable to a portfolio company in the computers and
computer equipment industry.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Partnership during the
quarter ended September 30, 1995.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 1995 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING SECURED INVESTORS II
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: November 10, 1995 By: /s/Frank R. Pope
------------------------------------
Frank R. Pope
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 8,394,681
<INVESTMENTS-AT-VALUE> 6,002,349
<RECEIVABLES> 0
<ASSETS-OTHER> 67,376
<OTHER-ITEMS-ASSETS> 1,589,756
<TOTAL-ASSETS> 7,659,481
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 146,104
<TOTAL-LIABILITIES> 146,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,905,709
<SHARES-COMMON-STOCK> 157,829
<SHARES-COMMON-PRIOR> 159,006
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,392,332)
<NET-ASSETS> 7,513,377
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 867,479
<OTHER-INCOME> 4,450
<EXPENSES-NET> 702,200
<NET-INVESTMENT-INCOME> 169,729
<REALIZED-GAINS-CURRENT> (1,549,549)
<APPREC-INCREASE-CURRENT> 1,469,544
<NET-CHANGE-FROM-OPS> 89,724
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 1,177
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 34,405
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 110,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 744,777
<AVERAGE-NET-ASSETS> 7,496,175
<PER-SHARE-NAV-BEGIN> 72
<PER-SHARE-NII> (9)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 63
<EXPENSE-RATIO> 9.37
<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>
