<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 March 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)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 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,
1995 1994
---------- ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $1,051,274 and
$995,227 in 1995 and 1994,
respectively) $ 795,274 760,227
Equity investments (cost basis
of $3,224,494 and $3,196,958 in
1995 and 1994, respectively) 811,166 915,383
--------- ---------
Total investments 1,606,440 1,675,610
Cash and cash equivalents 653,051 534,644
Other assets 34,140 59,984
--------- ---------
Total $ 2,293,631 2,270,238
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 39,989 47,221
Due to related parties 9,714 1,136
Other liabilities 58,953 60,320
--------- ---------
Total liabilities 108,656 108,677
Commitments and subsequent
event (Notes 2, 4 and 7)
Partners' capital:
Limited Partners
(Units outstanding of
115,501 in both 1995 and 1994) 5,041,356 4,866,951
General Partners (187,053) (188,815)
Net unrealized fair value decrease
from cost:
Secured notes receivable (256,000) (235,000)
Equity investments (2,413,328) (2,281,575)
--------- ---------
Total partners' capital 2,184,975 2,161,561
--------- ---------
Total $ 2,293,631 2,270,238
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1995 1994
---- ----
<S> <C> <C>
Income:
Secured notes receivable interest $ 17,268 58,254
Short-term investment interest 8,731 3,378
Other income -- 986
------- -------
Total income 25,999 62,618
Costs and expenses:
Management fees 10,808 21,589
Operating expenses:
Lending operations and investment
management 30,754 107,852
Administrative and investor
services 43,768 70,414
Computer services 16,094 25,977
Professional fees 9,154 7,766
------- -------
Total operating expenses 99,770 212,009
------- -------
Total costs and expenses 110,578 233,598
------- -------
Net operating loss (84,579) (170,980)
Net realized gain from sale
of equity investments 260,746 --
Recovery from investments previously
written off -- 45,290
Realized losses from investment
write-downs -- (39,969)
------- -------
Net realized income (loss) 176,167 (165,659)
Change in net unrealized
fair value:
Secured notes receivable (21,000) 606,000
Equity investments (131,753) (955,159)
------- -------
Net income (loss) $ 23,414 (514,818)
======= =======
Net realized income (loss) per Unit $ 2 (1)
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CASH FLOWS (unaudited)
- ----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 34,815 49,817
Cash paid to vendors (15,599) (70,900)
Cash paid to related parties (70,852) (124,164)
Cash received from
affiliated partnerships 1,696 57,120
------- -------
Net cash used by operating activities (49,940) (88,127)
------- -------
Cash flows from investing activities:
Secured notes receivable issued (125,000) (36,000)
Repayments of secured notes receivable 39,052 116,617
Proceeds from sale of equity investments 254,295 --
Recovery from investments previously
written off -- 45,290
Purchase of equity investments -- (400)
------- -------
Net cash provided by investing activities 168,347 125,507
------- -------
Net increase in cash and
cash equivalents 118,407 37,380
Cash and cash equivalents at beginning
of year 534,644 568,130
------- -------
Cash and cash equivalents at March 31 $ 653,051 605,510
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1995 1994
---- ----
<S> <C> <C>
Reconciliation of net income
(loss) to net cash used by
operating activities:
Net income (loss) $ 23,414 (514,818)
Adjustments to reconcile net income
(loss) to net cash used by
operating activities:
Net realized gain from
sale of equity investments (260,746) --
Recovery from investments
previously written off -- (45,290)
Realized losses from investment
write-downs -- 39,969
Change in net unrealized fair value:
Secured notes receivable 21,000 (606,000)
Equity investments 131,753 955,159
Other, net (53) (320)
Changes in:
Accrued interest on secured and
convertible notes receivable 8,869 (12,481)
Accounts payable and accrued
expenses (7,232) (2,246)
Due to related parties 8,182 37,442
Other liabilities (1,367) 4,205
Due to affiliated partnerships 1,696 57,120
Other assets 24,544 (867)
------- ---------
Net cash used by operating activities $ (49,940) (88,127)
======= =========
Non-cash investing activities:
Conversions of secured notes
receivable to equity investments $ -- 2,082,107
======= =========
</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
March 31, 1995 and December 31, 1994 and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 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 March 31, 1995 supplement those included in the Annual
Report on Form 10-K.
2. 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, 1995 and 1994 were as follows:
<TABLE>
<S> <C> <C>
1995 1994
---- ----
Management fees $10,808 21,589
Reimbursable operating expenses 68,226 140,017
</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, 1995 and December
31, 1994, due to related parties totaled $9,318 and $1,136,
respectively, related to reimbursable operating expenses previously
charged to the Partnership. Both amounts were paid in the respective
subsequent quarters.
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 March 31, 1995, the amount due
to affiliated partnerships was $396 (included in due to related parties)
compared to due from affiliated Partnerships of $1,300 (included in
other assets) at December 31, 1994. These amounts were paid to or
received from such affiliated partnerships in the following respective
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 Limited Partner Units outstanding for the three months
ended March 31, 1995 and 1994 of 115,501 and 116,008, respectively.
4. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1994 are included in the 1994 Annual Report. Activity from January
1 through March 31, 1995 consisted of
<TABLE>
<CAPTION>
January 1 -
March 31, 1995
--------------
Investment Cost Fair
Industry/Company Date Position Basis Value
- ---------------- ---------- -------- ----- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $3,196,958 915,383
--------- -------
1995 activity:
WARRANTS:
Computers and Computer Equipment
- --------------------------------
Pinnacle Systems, Inc. 05/90 2,083 Common
shares at $8.00;
exercised 02/95 (2,500) (14,164)
STOCKS:
Computers and Computer Equipment
- --------------------------------
Pinnacle Systems, Inc. 02/95 1,970 Common
shares 13,244 31,697
Electronic Design Automation
- ----------------------------
IKOS Systems, Inc. 07/90 84,765 Common
shares (23,613) (162,155)
Industrial/Business Automation
- ------------------------------
Cyclean, Inc. 01/95 6,548 Series D
Preferred
shares 18,269 18,269
Cyclean of
Los Angeles, LLC 03/95 Class A LLC Unit -
11% ownership 2,816 2,816
Medical
- -------
Hemocleanse, Inc. 03/95 20,999 Common
shares 19,320 19,320
--------- -------
Total 1995 activity 27,536 (104,217)
--------- -------
Total equity investments at March 31, 1995 $3,224,494 811,166
========= =======
</TABLE
Marketable Equity Securities
- ----------------------------
At March 31, 1995 and December 31, 1994, marketable equity securities had
aggregate costs of $13,244 and $26,113, respectively, and aggregate
market values of $31,697 and $176,319, respectively. The unrealized
gains at March 31, 1995 and December 31, 1994 were $18,453 and $150,206,
respectively.
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 March 31, 1995, 6,548 shares were fully vested with a
recorded cost basis and fair value of $18,269.
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 mid-1995.
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.
Pinnacle Systems, Inc.
- ----------------------
In February 1995, the Partnership exercised its warrant without cash and
received 1,970 common shares. The recorded cost basis of $13,244
included a realized gain of $10,744 and the warrant cost basis of $2,500.
The Partnership recorded an increase in the change in fair value of
$6,789 to reflect this transaction and the market value at March 31,
1995.
Other Equity Investments
- ------------------------
In March 1995, 3Com Corporation ("3Com"), a public company, announced its
intention to acquire Primary Access Corporation ("Primary Access"), a
Partnership portfolio company. The acquisition is subject to various
conditions customary for transactions of this nature and is expected to
be completed mid-1995. Upon consummation of the acquisition, the
Partnership will receive 3Com common shares in exchange for its Primary
Access warrant holdings, which will indicate future liquidity in excess
of the current fair value of $5,500 for this investment.
5. Secured Notes Receivable, Net
-----------------------------
Activity from January 1, 1995 through March 31, 1995 consisted of:
</TABLE>
<TABLE>
<S> <C>
Balance at January 1, 1995 $760,227
1995 activity:
Secured notes receivable issued 125,000
Repayment of secured notes receivable (39,052)
Change in interest receivable (11,685)
Increase in allowance for loan losses (21,000)
Increase in unamortized
discount related to warrants (18,216)
-------
Total secured notes receivable, net,
at March 31, 1995 $795,274
=======
</TABLE>
The Partnership had accrued interest of $2,404 and $14,089 at March 31,
1995 and December 31, 1994, respectively.
Activity in the allowance for loan losses were as follows:
<TABLE>
<S> <C>
Balance at January 1, 1995 $235,000
Change in net unrealized fair value
of secured notes receivable 21,000
-------
Balance at March 31, 1995 $256,000
=======
</TABLE>
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 $907,274 and $782,274 were on nonaccrual status due to
uncertainties in the financial condition of the borrowing companies at
March 31, 1995 and December 31, 1994, respectively. The Managing General
Partner continues to monitor the progress of companies with nonaccrual
notes. The fair value at March 31, 1995 reflected the Managing General
Partner's estimate of collectibility of these notes.
All notes are secured by specific assets of the borrowing company. The
interest rate on notes issued during the three months ended March 31,
1995 was 12%.
6. Cash and Cash Equivalents
-------------------------
At March 31, 1995 and December 31, 1994, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Demand and brokerage accounts $ 6,510 1,994
Money market accounts 646,541 532,650
------- -------
Total $653,051 534,644
======= =======
</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 March 31, 1995, the Partnership had unfunded
commitments of $104,961 mostly related to accounts receivable lines of
credit.
<PAGE>
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, 1995, net cash used by operations
totaled $49,940. The Partnership paid management fees of $10,808 to the
Managing General Partner, reimbursed related parties for operating
expenses of $60,044, and received $1,696 from affiliated partnerships for
net loan participations. In addition, other operating expenses of
$15,599 were paid. Interest received from secured notes receivable and
short-term investments was $34,815.
During the quarter ended March 31, 1995, the partnership issued $125,000
in secured notes receivable to a portfolio company in the retail/consumer
products industry. Repayments of notes receivable provided cash of
$39,052 and proceeds from investment sales provided cash of $254,295. As
of March 31, 1995, the Partnership was committed to fund $104,961 mostly
related to accounts receivable lines of credit to borrowing companies.
All management fees which are due have been paid through March 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 the total management fee
paid.
Cash and cash equivalents at March 31, 1995 were $653,051. Distributions
will fluctuate in the future based upon loan payoffs received and
expected cash needed by the Partnership. Operating cash reserves
combined with interest income received on short-term investments,
proceeds from investment sales, and repayments of secured notes
receivable are expected to be sufficient to fund Partnership operations
through the next twelve months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net income was $23,414 for the quarter ended March 31, 1995 compared to a
net loss of $514,818 for the same period in 1994. The change was
primarily due to a $823,406 increase in the change in net unrealized fair
value of equity investments, a $260,746 increase net realized gain from
sale of equity investments, and a $112,239 decrease in total operating
expenses. These changes were partially offset by a $627,000 decrease in
the change in net unrealized fair value of secured notes receivable.
The change in fair value of equity investments reflected a decrease in
the fair value of the Partnership's holdings. During the quarter ended
March 31, 1995, the decrease of $131,753 was primarily attributed to a
realized gain from the IKOS Systems, Inc. investment sale. During the
same period in 1994, the decrease of $955,159 was primarily due to the
conversion of notes receivable at fair values lower than cost to equity
investments for a portfolio company in the medical industry.
In 1995, net realized gain from sale of equity investments was $260,746
substantially related to the sale of IKOS Systems, Inc. No such gain was
realized for the same period in 1994.
Operating expenses were $99,770 and $212,009 for the three months ended
March 31, 1995 and 1994, respectively. The decrease was primarily due to
lower lending operations and investment management, and administrative
and investor services expenses as overall portfolio activities have
decreased. Also, the 1994 amount was high resulting from additional
collection costs for portfolio companies in the medical and
microelectronics industries.
In 1995, the Partnership recorded a decrease in fair value for secured
notes receivable of $21,000 compared to an increase of $606,000 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 1994 increase was primarily due to the conversion of notes receivable
to equity investments as discussed above.
Secured notes receivable interest income was $17,268 and $58,254 during
the three months ended March 31, 1995 and 1994, respectively. The
decrease was primarily attributable to lower interest-bearing notes
receivable balances since the Partnership entered the liquidation stage.
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, 1995.
(b) Financial Data Schedule for the quarter ended and as of March 31,
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 I
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: May 12, 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 MARCH 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> MAR-31-1995
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 4,275,768
<INVESTMENTS-AT-VALUE> 1,606,440
<RECEIVABLES> 0
<ASSETS-OTHER> 34,140
<OTHER-ITEMS-ASSETS> 653,051
<TOTAL-ASSETS> 2,293,631
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 108,656
<TOTAL-LIABILITIES> 108,656
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,854,303
<SHARES-COMMON-STOCK> 115,501
<SHARES-COMMON-PRIOR> 115,501
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,669,328)
<NET-ASSETS> 2,184,975
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 25,999
<OTHER-INCOME> 0
<EXPENSES-NET> 110,578
<NET-INVESTMENT-INCOME> (84,579)
<REALIZED-GAINS-CURRENT> 260,746
<APPREC-INCREASE-CURRENT> (152,753)
<NET-CHANGE-FROM-OPS> 23,414
<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> 23,414
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,808
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120,625
<AVERAGE-NET-ASSETS> 2,173,268
<PER-SHARE-NAV-BEGIN> 42
<PER-SHARE-NII> 2
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 44
<EXPENSE-RATIO> .06
<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>
