<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 quarterly period ended March 31, 2000
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)
(650) 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)
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Investments:
Notes receivable, net (cost basis
of $3,379,270 in 2000 and 1999) $2,651,270 2,651,270
Equity investments (cost basis
of $3,042,246 in 2000 and 1999) 945,281 945,281
--------- ---------
Total investments 3,596,551 3,596,551
Cash and cash equivalents 29,771 38,290
Restricted cash 16,500 16,500
Due from related parties -- 11,197
Other assets 65,920 63,030
--------- ---------
Total assets $3,708,742 3,725,568
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 68,092 70,718
Due to related parties 72,948 --
Other liabilities 10,809 10,809
--------- ---------
Total liabilities 151,849 81,527
Commitments and contingencies (Notes 3 and 7)
Partners' capital:
Limited Partners (150,570 Units outstanding) 3,621,181 3,707,457
General Partners (64,288) (63,416)
--------- ---------
Total partners' capital 3,556,893 3,644,041
--------- ---------
Total liabilities and partners' capital $3,708,742 3,725,568
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Income:
Short-term investment interest $ 227 185
------ -------
Total income 227 185
------ -------
Costs and expenses:
Management fees 18,219 29,019
Operating expenses 69,156 145,095
------ -------
Total costs and expenses 87,375 174,114
------ -------
Net loss $(87,148) (173,929)
====== =======
Net loss per Unit $ (0.57) (1.14)
====== =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 227 185
Cash paid to vendors (24,887) (108,410)
Cash advanced by (paid to) related parties 16,141 (70,580)
------ -------
Net cash used by operating
activities (8,519) (178,805)
------ -------
Cash flows from investing activities:
Repayments of secured notes receivable -- 678,037
------ -------
Net cash provided by
investing activities -- 678,037
------ -------
Net (decrease) increase in cash and
restricted cash (8,519) 499,232
Cash and restricted cash at
beginning of year 54,790 45,336
------ -------
Cash and restricted cash at March 31 $ 46,271 544,568
====== =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- ------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
---------------------------------------
2000 1999
---------- ---------
<S> <C> <C>
Reconciliation of net loss to net cash
used by operating activities:
Net loss $(87,148) (173,929)
Changes in:
Accounts payable and accrued expenses (2,626) (7,983)
Due to related parties 84,145 6,739
Other (2,890) (3,677)
------ -------
Net cash used by operating
activities $ (8,519) (178,805)
====== =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partner, the Balance Sheets as of
March 31, 2000, and December 31, 1999, and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 2000 and 1999, 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, 1999.
The following notes to financial statements for activity through March 31,
2000, supplement those included in the Annual Report on Form 10-K.
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.
The Partnership is scheduled to terminate on December 31, 2000. If no
further action is taken by the General Partners before this termination
date, the Partnership will be liquidated in accordance with the Partnership
Agreement. The General Partners expect to request that the Partnership
assets be transferred to a liquidating trust (the "Trust") to continue the
management and sale of the remaining Partnership assets and the liquidation
of its obligations. Such a trust generally operates for a period not
exceeding two years (and its formation will require the approval by a
majority in interest of the Partners.) Partners would have beneficial
interests in the Trust equal to their individual interests in the
Partnership. Alternatively, the General Partners may seek to obtain
approval of a majority in interest of the Limited Partners to extend the
Partnership for two additional two-year terms.
Partners' Capital Reclassification
- ----------------------------------
Commencing in the fourth quarter of 1999, the Partnership is including the
change in net unrealized fair value of investments in the profits and
losses allocated to partners' capital accounts based on a reevaluation of
the Partnership Agreement. The allocations of the net unrealized fair
value increase (decrease) from cost of investments, and resulting
reclassifications, were determined by applying the provisions of the
Partnership Agreement from the inception of the Partnership. The
reclassification has no effect on total partners' capital or the
Partnership's net income or loss for any period. The reclassifications
resulting from the reevaluation of the Partnership Agreement have the
effect of accelerating the allocation of profits or losses to partners'
capital accounts and, as a result, may permit the acceleration of
distributions to Partners to the extent allowable under the Partnership
Agreement.
The allocation of the net unrealized fair value decrease reclassified as of
March 31, 1999 follows:
Net Unrealized
Fair Value
Decrease
Limited General From Cost of
Partners Partners Investments Total
-------- -------- -------------- ---------
Partners' capital,
March 31, 1999,
before reclassification $7,106,141 (175,863) (1,300,387) 5,629,891
Allocation of net
unrealized fair value
decrease from cost (1,432,692) 132,305 1,300,387 --
--------- ------- --------- ---------
Partners' capital,
March 31, 1999,
as reclassified $5,673,449 (43,558) -- 5,629,891
========= ======= ========= =========
2. Financing of Partnership Operations
-----------------------------------
The General Partners have made loans to the Partnership to finance its
recurring losses from on-going operations. The Partnership has very
limited cash resources and primarily illiquid assets. The General Partners
are under no obligation to continue the financing of the Partnership's
daily operations and may elect to discontinue such support at any time
during the remaining life of the Partnership or Trust, if created. The
General Partners may attempt to secure third party financing to continue
operations using the collateral value of the Partnership's remaining
investments. It is likely that a potential lender would require the
remaining Partnership investment be appraised by an independent third
party, specifically to assess their value as readily liquid collateral
prior to any financing. The collateral values determined by a lender may
differ significantly from the investment fair value reflected in these
financial statements.
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the three months ended
March 31, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Management fees $18,219 29,019
Reimbursable operating expenses 49,785 48,300
</TABLE>
Certain reimbursable expenses have been allocated and accrued based upon
interim estimates prepared by the Managing General Partner and are adjusted
to actual cost periodically. At March 31, 2000, $55,614 was due to related
parties for such expenses, compared to $11,197 due from related parties at
December 31, 1999.
Amounts payable for management fees were $17,334 and $0 at March 31, 2000
and December 31, 1999, respectively.
4. Notes Receivable, Net
---------------------
A complete listing of the Partnership's notes receivable at December 31,
1999, is included in the 1999 Annual Report on Form 10-K. There was no
notes receivable activity from January 1 through March 31, 2000.
5. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December 31,
1999, is included in the 1999 Annual Report on Form 10-K. There was no
equity investment activity from January 1 through March 31, 2000.
6. Cash and Cash Equivalents
-------------------------
At March 31, 2000, and December 31, 1999, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
2000 1999
-------- ---------
<S> <C> <C>
Demand and brokerage accounts $29,245 36,148
Money market accounts 526 2,142
------ ------
Total $29,771 38,290
====== ======
</TABLE>
7. Commitments and contingencies
-----------------------------
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. The Partnership had no unfunded commitments for equity
investments as of March 31, 2000.
The Partnership, together with an affiliated partnership, is a guarantor
for a note payable of a portfolio company. The Partnership's share of the
guarantee is $247,500.
In December 1997, the Partnership together with an affiliated Partnership,
guaranteed equipment financing for a portfolio company by depositing
$50,000 in an escrow account with the lending institution. The Partnership
funded $16,500 of this deposit. If the portfolio company fails to repay
the line of credit, the Partnership may forego the escrowed funds.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the three months ended March 31, 2000, net cash used by operating
activities totaled $8,519. The Partnership paid management fees of $885
and received advances from the Managing General Partners totaling $17,026
to fund its operations. Other operating expenses of $24,887 were paid and
interest income of $227 was received.
Cash and restricted cash at March 31, 2000, were $46,271. The Partnership
is scheduled to terminate on December 31, 2000. If no further action is
taken by the General Partners before this termination date, the Partnership
will be liquidated in accordance with the Partnership Agreement. The
General Partners expect to request that the Partnership assets be
transferred to a liquidating trust (the "Trust") to continue the management
and sale of the remaining Partnership assets and the liquidation of its
obligations. Such a trust generally operates for a period not exceeding
two years (and its formation will require the approval by a majority in
interest of the Partners.) Partners would have beneficial interests in the
Trust equal to their individual interests in the Partnership.
Alternatively, the General Partners may seek to obtain approval of a
majority in interest of the Limited Partners to extend the Partnership for
two additional two-year terms.
The General Partners have made loans to the Partnership to finance its
recurring losses from on-going operations. The Partnership has very
limited cash resources and primarily illiquid assets. The General Partners
are under no obligation to continue the financing of the Partnership's
daily operations and may elect to discontinue such support at any time
during the remaining life of the Partnership or Trust, if created. The
General Partners may attempt to secure third party financing to continue
operations using the collateral value of the Partnership's remaining
investments. It is likely that a potential lender would require the
remaining Partnership investment be appraised by an independent third
party, specifically to assess their value as readily liquid collateral
prior to any financing. The collateral values determined by a lender may
differ significantly from the investment fair value reflected in these
financial statements.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net losses were $87,148 and $173,929 for the three months ended March 31,
2000 and 1999, respectively. The decrease in net loss was primarily the
result of a $75,939 decrease in operating expenses.
Total operating expenses were $69,156 and $145,095 for the three months
ended March 31, 2000 and 1999, respectively. The decrease is primarily
attributable to decreased investment monitoring activities and decreased
professional and administrative fees.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
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 March 31, 2000.
(b) Financial Data Schedule for the three months ended and as of
March 31, 2000(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: May 11, 2000 By: /s/Michael R. Brenner
------------------------------------
Michael R. Brenner
Vice President
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 6,421,516
<INVESTMENTS-AT-VALUE> 3,596,551
<RECEIVABLES> 0
<ASSETS-OTHER> 65,920
<OTHER-ITEMS-ASSETS> 46,271
<TOTAL-ASSETS> 3,708,742
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 151,849
<TOTAL-LIABILITIES> 151,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,381,858
<SHARES-COMMON-STOCK> 150,570
<SHARES-COMMON-PRIOR> 150,570
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,824,965)
<NET-ASSETS> 3,556,893
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 227
<OTHER-INCOME> 0
<EXPENSES-NET> 87,375
<NET-INVESTMENT-INCOME> (87,148)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (87,148)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (87,148)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,219
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 87,425
<AVERAGE-NET-ASSETS> 3,600,467
<PER-SHARE-NAV-BEGIN> 24.62
<PER-SHARE-NII> (0.57)
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.05
<EXPENSE-RATIO> 2.4
</TABLE>
