<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, 1996
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 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,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $756,038 and
$832,586 in 1996 and 1995,
respectively) $ 579,038 577,586
Equity investments (cost basis
of $269,509 and $265,947 in
1996 and 1995, respectively) 388,434 373,835
--------- ---------
Total investments 967,472 951,421
Cash and cash equivalents 572,706 941,985
Other assets 13,124 7,565
--------- ---------
Total $ 1,553,302 1,900,971
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 27,950 30,700
Due to related parties 12,066 420,507
Other liabilities 59,181 59,181
--------- ---------
Total liabilities 99,197 510,388
Commitments and subsequent events
(Notes 2, 4 and 7)
Partners' capital:
Limited Partners
(Units outstanding of
111,101 in both 1996 and 1995) 1,555,283 1,580,542
General Partners (43,103) (42,847)
Net unrealized fair value (decrease)
increase from cost:
Secured notes receivable (177,000) (255,000)
Equity investments 118,925 107,888
--------- ---------
Total partners' capital 1,454,105 1,390,583
--------- ---------
Total $ 1,553,302 1,900,971
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1996 1995
---- ----
<S> <C> <C>
Income:
Secured notes receivable interest $ 1,967 17,268
Short-term investment interest 8,305 8,731
------- -------
Total income 10,272 25,999
Costs and expenses:
Management fees 6,953 10,808
Operating expenses:
Lending operations and investment
management (9,199) 30,754
Administrative and investor
services 35,102 43,768
Computer services 8,928 16,094
Professional fees 9,098 9,154
------- -------
Total operating expenses 43,929 99,770
------- -------
Total costs and expenses 50,882 110,578
------- -------
Net operating loss (40,610) (84,579)
Net realized gain from sales
of equity investments 15,095 260,746
------- -------
Net realized (loss) income (25,515) 176,167
Change in net unrealized
fair value:
Secured notes receivable 78,000 (21,000)
Equity investments 11,037 (131,753)
------- -------
Net income $ 63,522 23,414
======= =======
Net realized income per Unit $ -- 2
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CASH FLOWS (unaudited)
- ----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 10,272 34,815
Cash paid to vendors (10,720) (15,599)
Cash paid to related parties (460,486) (70,852)
Cash received from
affiliated partnerships 3,574 1,696
------- -------
Net cash used by operating activities (457,360) (49,940)
------- -------
Cash flows from investing activities:
Secured notes receivable issued (34,000) (125,000)
Repayments of secured notes receivable 110,548 39,052
Proceeds from sales of equity investments 11,533 254,295
------- -------
Net cash provided by investing activities 88,081 168,347
------- -------
Net (decrease) increase in cash and
cash equivalents (369,279) 118,407
Cash and cash equivalents at beginning
of year 941,985 534,644
------- -------
Cash and cash equivalents at March 31 $ 572,706 653,051
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1996 1995
---- ----
<S> <C> <C>
Reconciliation of net income to net cash
used by operating activities:
Net income $ 63,522 23,414
Adjustments to reconcile net income
to net cash used by operating activities:
Net realized gain from
sales of equity investments (15,095) (260,746)
Change in net unrealized fair value:
Secured notes receivable (78,000) 21,000
Equity investments (11,037) 131,753
Other, net -- (53)
Changes in:
Due to related parties (408,441) 8,182
Other assets (5,559) 24,544
Other, net (2,750) 1,966
------- ---------
Net cash used by operating activities $(457,360) (49,940)
======= =========
</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, 1996 and December 31, 1995 and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 1996 and 1995 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,
1995. The following notes to financial statements for activity through
March 31, 1996 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, 1996 and 1995 were as follows:
<TABLE>
<S> <C> <C>
1996 1995
---- ----
Management fees $ 6,953 10,808
Reimbursable operating expenses 45,092 68,226
</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, 1996 and December
31, 1995, amounts due to related parties totaled $12,066 and $420,507,
respectively.
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, 1996 and December 31,
1995, the amounts due from affiliated partnerships on such
participations were $403 and $3,977 (included in other assets),
respectively. These amounts were received from 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 Limited Partner Units outstanding for the three months
ended March 31, 1996 and 1995 of 111,101 and 115,501, respectively.
4. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1995 are included in the 1995 Annual Report. Activity from January
1 through March 31, 1996 consisted of
<TABLE>
<CAPTION>
January 1 -
March 31, 1996
--------------
Investment Cost Fair
Industry/Company Date Position Basis Value
- ---------------- ---------- -------- ----- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 265,947 373,835
--------- -------
1995 activity:
WARRANTS:
Biotechnology
- -------------
Hybridon, Inc. 03/91 3,572 Common
shares at $3.50;
exercised 01/96 (1,250) (16,074)
STOCKS:
Biotechnology
- -------------
Hybridon, Inc. 01/96 1,250 Common
shares 4,812 11,000
Microelectronics
- ----------------
Celeritek, Inc. 05/94 13,847 Common
shares 0 21,866
Retail/Consumer Products
- ------------------------
S-TRON 05/93 Subordinated note,
$390,000 principal
amount (0) (0)
S-TRON 05/93 390,000 Common
shares (0) (0)
S-TRON 05/93 3,237,000 Series
1 & 2 Preferred (0) (0)
shares
--------- -------
Total significant changes 3,562 16,792
Other changes, net 0 (2,193)
--------- -------
Total equity investments at March 31, 1996 $ 269,509 388,434
========= =======
</TABLE
Marketable Equity Securities
- ----------------------------
At March 31, 1996 and December 31, 1995, marketable equity securities had
aggregate costs of $105,450 and $78,845, respectively, and aggregate
market values of $225,137 and $145,132, respectively. The unrealized
gains at March 31, 1996 and December 31, 1995 of $119,687 and $66,287,
respectively, did not include any gross losses.
Celeritek, Inc.
- ---------------
The Partnership recorded an increase in fair value of $21,866 to reflect
the publicly-traded market price at March 31, 1996. As of May 3, 1996,
the fair value increased to $183,867. This change reflects changes in
common stock prices which fluctuate daily on stock exchanges. The
Partnership's investment is unrestricted.
Hybridon, Inc.
- --------------
In January 1996, Hybridon, Inc. completed its initial public offering.
The Partnership exercised its warrant holdings without cash and received
2,532 shares of common stock with a cost basis of $9,747, which reflected
a realized gain of $8,497 and a warrant cost basis of $1,250.
Subsequently, the Partnership sold 1,282 of these shares for total
proceeds of $11,533 and realized a gain of $6,598. The Partnership
recorded a decrease of $8,636 in the change in fair value to reflect the
above transactions and the market value of the remaining unrestricted
shares at March 31, 1996.
S-TRON
- ------
The company was unsuccessful in its efforts to obtain a major government
contract; as a result, company operations ceased during March 1996. This
investment, which had previously been written off, is no longer held by
the Partnership.
Other Equity Investments
- ------------------------
The Partnership's 3Com Corporation shares are partially restricted.
5. Secured Notes Receivable, Net
-----------------------------
Activity from January 1, 1996 through March 31, 1996 consisted of:
</TABLE>
<TABLE>
<S> <C>
Balance at January 1, 1996 $577,586
1996 activity:
Secured notes receivable issued 34,000
Repayments of secured notes receivable (110,548)
Decrease in allowance for loan losses 78,000
-------
Total secured notes receivable, net,
at March 31, 1996 $579,038
=======
</TABLE>
The Partnership had no accrued interest at March 31, 1996 and December
31, 1995.
Activity in the allowance for loan losses was as follows:
<TABLE>
<S> <C>
Balance at January 1, 1996 $255,000
Change in net unrealized fair value
of secured notes receivable (78,000)
-------
Balance at March 31, 1996 $177,000
=======
</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.
Secured notes receivable with a total cost basis of $756,038 and $832,586
were on nonaccrual status due to uncertainty of certain borrowers'
financial conditions at March 31, 1996 and December 31, 1995,
respectively. The Managing General Partner continues to monitor the
progress of these companies. The fair value at March 31, 1996 recognized
the Managing General Partner's estimate of collectibility of these notes.
During the first quarter of 1996, the Partnership received approximately
$41,000 from a portfolio company in the medical industry to pay off its
principal balance. In addition, the Partnership was reimbursed $28,900
for legal, consulting, and other costs incurred in prior periods in the
defense of the Partnership's secured note rights through bankruptcy
court. The reimbursement was recorded as a reduction to lending
operations and investment management expense.
All notes are secured by specific assets of the borrowing company. The
interest rate on notes issued during the three months ended March 31,
1996 was 12%.
6. Cash and Cash Equivalents
-------------------------
At March 31, 1996 and December 31, 1995, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand and brokerage accounts $ 74,722 --
Money market accounts 497,984 941,985
------- -------
Total $572,706 941,985
======= =======
</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, 1996, the Partnership had unfunded
commitments of $16,000 mostly related to term note financings to an
existing borrowing company.
<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, 1996, net cash used by operating
activities totaled $457,360. The Partnership paid management fees of
$6,953 to the Managing General Partner, reimbursed related parties for
operating expenses of $453,533, and received $3,574 from affiliated
partnerships for net loan participations. In addition, other operating
expenses of $10,720 were paid. Interest received from secured notes
receivable and short-term investments was $10,272.
During the quarter ended March 31, 1996, the partnership issued $34,000
in secured notes receivable to a portfolio company in computers and
computer equipment industry. Repayments of notes receivable provided
cash of $110,548 and proceeds from investment sales provided cash of
$11,533. As of March 31, 1996, the Partnership was committed to fund
$16,000 related to term note financings to an existing borrowing company.
Cash and cash equivalents at March 31, 1996 were $572,706. 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 $63,522 and $23,414 for the quarters ended March 31, 1996
and 1995, respectively. The increase was primarily due to increases of
$142,790 and $99,000 in the change in net unrealized fair value of equity
investments and secured notes receivable, respectively, and a decrease of
$55,841 in operating expenses. These changes were mostly offset by a
$245,651 decrease in net realized gain from sales of equity investments.
During the quarter ended March 31, 1996, the increase in fair value for
equity investments of $11,037 was mainly due to an increase in a
portfolio company in the microelectronics industry, partially offset by a
decrease in a portfolio company in the telecommunications industry. In
1995, the decrease of $131,753 was primarily attributed to a realized
gain from the sale of IKOS Systems, Inc.
In 1996, the Partnership recorded an increase in fair value for secured
notes receivable of $78,000 compared to a decrease of $21,000 for the
same period in 1995, based upon the level of loan loss reserves deemed
adequate by the Managing General Partner at the respective quarter ends.
Operating expenses were $43,929 and $99,770 for the three months ended
March 31, 1996 and 1995, respectively. As explained in Note 5 to the
financial statements, the 1996 operating expenses were reduced by a
$28,900 reimbursement of prior period collection expenses from a
portfolio company in the medical industry. Had the reimbursement not been
received, total operating expenses would have been $72,829 for the
quarter ended March 31, 1996. The decrease of $26,941 was primarily due
to lower administrative and investor services, and lending operations and
investment management expenses as overall portfolio activities have
decreased.
In 1996, net realized gain from sales of equity investments was $15,095
related to the warrant net exercise and partial subsequent sale of the
resulting Hybridon, Inc. common stock. In 1995, the net realized gain of
$260,746 substantially related to IKOS Systems, Inc.
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, 1996.
(b) Financial Data Schedule for the quarter ended and as of March 31,
1996 (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 10, 1996 By: /s/Debbie A. Wong
-----------------------------------
Debbie A. Wong
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 1,025,547
<INVESTMENTS-AT-VALUE> 967,472
<RECEIVABLES> 0
<ASSETS-OTHER> 13,124
<OTHER-ITEMS-ASSETS> 572,706
<TOTAL-ASSETS> 1,553,302
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 99,197
<TOTAL-LIABILITIES> 99,197
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,512,180
<SHARES-COMMON-STOCK> 111,101
<SHARES-COMMON-PRIOR> 111,101
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (58,075)
<NET-ASSETS> 1,454,105
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,272
<OTHER-INCOME> 0
<EXPENSES-NET> 50,882
<NET-INVESTMENT-INCOME> (40,610)
<REALIZED-GAINS-CURRENT> 15,095
<APPREC-INCREASE-CURRENT> 89,037
<NET-CHANGE-FROM-OPS> 63,522
<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> 63,522
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,953
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 94,440
<AVERAGE-NET-ASSETS> 1,422,344
<PER-SHARE-NAV-BEGIN> 14
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14
<EXPENSE-RATIO> 4
<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>
