<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 June 30, 1997
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)
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $720,724 in
1997 and 1996) $ 280,724 280,724
Equity investments (cost basis
of $282,800 and $262,997 in
1997 and 1996, respectively) 462,571 467,491
--------- ---------
Total investments 743,295 748,215
Cash and cash equivalents 27,783 291,452
Other assets 10,641 7,421
--------- ---------
Total $ 781,719 1,047,088
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 21,288 36,000
Due to related parties -- 31,990
Other liabilities 3,897 6,386
--------- ---------
Total liabilities 25,185 74,376
Commitments (Notes 3 and 9)
Partners' capital:
Limited Partners
(Units outstanding of
109,904 in both 1997 and 1996) 1,064,695 1,254,236
General Partners (47,932) (46,018)
Net unrealized fair value (decrease)
increase from cost:
Secured notes receivable (440,000) (440,000)
Equity investments 179,771 204,494
--------- ---------
Total partners' capital 756,534 972,712
--------- ---------
Total $ 781,719 1,047,088
========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
----------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Secured notes receivable interest $ -- 758 -- 2,725
Short-term investment interest 1,606 6,020 4,615 14,325
------- ------- ------- -------
Total income 1,606 6,778 4,615 17,050
Costs and expenses:
Management fees 4,052 7,271 8,916 14,224
Other investment expenses 16,800 -- 76,905 --
Operating expenses:
Lending operations and investment
management 16,562 17,701 29,497 8,502
Administrative and investor
services 29,379 68,236 65,341 103,338
Computer services 7,237 16,602 18,534 25,530
Professional fees 9,780 17,530 16,680 26,628
------- ------- ------- -------
Total operating expenses 62,958 120,069 130,052 163,998
------- ------- ------- -------
Total costs and expenses 83,810 127,340 215,873 178,222
------- ------- ------- -------
Net operating loss (82,204) (120,562) (211,258) (161,172)
Net realized gain from sales
of equity investments -- 15,094 19,803 30,189
Realized losses from investment
write-downs -- (5,000) -- (5,000)
------- ------- ------- -------
Net realized loss (82,204) (110,468) (191,455) (135,983)
Change in net unrealized
fair value:
Secured notes receivable -- (269,000) -- (191,000)
Equity investments 28,315 68,883 (24,723) 79,920
------- ------- ------- -------
Net loss $ (53,889) (310,585) (216,178) (247,063)
======= ======= ======= =======
Net realized loss per Unit $ (1) (1) (2) (1)
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 4,615 17,050
Cash paid to vendors (131,753) (42,671)
Cash received from
affiliated partnerships -- 3,977
Cash paid to related parties (136,531) (569,258)
Reimbursement of collection
expenses from a portfolio company -- 28,900
------- -------
Net cash used by operating
activities (263,669) (562,002)
------- -------
Cash flows from investing activities:
Secured notes receivable issued -- (50,902)
Repayments of secured notes receivable -- 142,076
Proceeds from sales of equity investments -- 31,439
------- -------
Net cash provided by investing
activities -- 122,613
------- -------
Net decrease in cash and cash equivalents (263,669) (439,389)
Cash and cash equivalents at beginning
of year 291,452 941,985
------- -------
Cash and cash equivalents at June 30 $ 27,783 502,596
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Reconciliation of net loss
to net cash used by
operating activities:
Net loss $ (216,178) (247,063)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Net realized gain from
sales of equity investments (19,803) (30,189)
Realized losses from investment
write-downs -- 5,000
Change in net unrealized fair value:
Secured notes receivable -- 191,000
Equity investments 24,723 (79,920)
Changes in:
Accounts payable and accrued
expenses (14,712) 21,231
Due to/from related parties (37,241) (416,260)
Other assets 2,031 (4,348)
Other liabilities (2,489) (1,453)
------- -------
Net cash used by operating activities $ (263,669) (562,002)
======= =======
</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
June 30, 1997, and December 31, 1996, and the related Statements of
Operations for the three and six months ended June 30, 1997 and 1996,
and Statements of Cash Flows for the six months ended June 30, 1997 and
1996, 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,
1996. The following notes to financial statements for activity through
June 30, 1997, supplement those included in the Annual Report on Form
10-K.
2. Financing of Partnership Operations
-----------------------------------
The Managing General Partner expects cash received from future
liquidation of Partnership investments and the collection of notes
receivable will provide the necessary liquidity to service Partnership
debt and fund Partnership operations. The Partnership may be dependent
upon the financial support of the Managing General Partner to fund
operations if future proceeds are not received timely. The Managing
General Partner has committed to support the Partnership's working
capital requirements through short-term advances as necessary.
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the six months ended
June 30, 1997 and 1996, were as follows:
<TABLE>
<S> <C> <C>
1997 1996
---- ----
Management fees $ 8,916 14,224
Reimbursable operating expenses 90,374 138,774
</TABLE>
Certain reimbursable expenses have been allocated and accrued based upon
interim estimates prepared by the Managing General Partner and are
adjusted to actual costs periodically. At June 30, 1997, amounts due
from related parties (included in other assets) totaled $5,251, compared
to due to related parties of $31,990 at December 31, 1996.
4. Net Realized Loss Per Unit
--------------------------
Net realized loss per Unit is calculated by dividing total net realized
loss allocated to the Limited Partners by the weighted average number of
Limited Partner Units outstanding for the six months ended June 30, 1997
and 1996, of 109,904 and 111,101, respectively.
5. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1996, is included in the 1996 Annual Report. Activity from January
1 through June 30, 1997, consisted of:
<TABLE>
January 1 -
June 30, 1997
--------------
Investment Cost Fair
Industry/Company Date Position Basis Value
- ---------------- ---------- -------- ----- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 262,997 467,491
--------- -------
1997 activity:
WARRANTS:
Medical
- -------
Hemocleanse, Inc. 01/92 47,526 Common
shares at $.50;
exercised 01/97 0 (118,815)
STOCKS:
Medical
- -------
Hemocleanse, Inc. 01/97 39,605 Common
shares 19,803 118,815
Microelectronics
- ----------------
Celeritek, Inc. 05/94 13,846 Common
shares 0 30,808
Semiconductor Equipment
- -----------------------
Photon Dynamics 05/94 6,773 Common
shares 0 (12,612)
Telecommunications
- ------------------
3Com Corporation 06/95 790 Common
shares 0 (22,942)
--------- -------
Total significant changes 19,803 (4,746)
Other changes, net 0 (174)
--------- -------
Total equity investments at June 30, 1997 $ 282,800 462,571
========= =======
</TABLE
Marketable Equity Securities
- ----------------------------
At June 30, 1997, and December 31, 1996, marketable equity securities had
aggregate costs of $104,891 and $101,591, respectively, and aggregate
market values of $279,785 and $257,753, respectively. The unrealized
gains at June 30, 1997, and December 31, 1996, did not include any gross
losses.
Hemocleanse, Inc.
- -----------------
In January of 1997, the Partnership exercised its warrant for common
shares without cash and received 39,605 shares of common stock and
realized a gain of $19,803.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations or the elimination of a discount relating to selling
restrictions for publicly-traded portfolio companies. Celeritek, Inc.,
Photon Dynamics, and 3Com Corporation common stock are unrestricted,
marketable securities.
6. Secured Notes Receivable, Net
-----------------------------
No secured notes receivable were issued during the six months ended June
30, 1997.
The secured notes receivable portfolio of $720,724 was on nonaccrual
status due to the uncertainty of the financial condition of certain
borrowers at both June 30, 1997, and December 31, 1996. The Managing
General Partner continues to monitor the progress of these companies.
The fair value at June 30, 1997, recognized the Managing General
Partner's estimate of collectibility of these notes. All notes are
secured by specific assets of the borrowing company.
During the first quarter of 1996, 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. No such reimbursements
were received during the first six months of 1997.
7. Other Investment Expenses
-------------------------
In March of 1996, affiliated partnerships filed a lawsuit in the United
States District Court, Northern District of California, against Cyclean,
Inc., ("Cyclean"), Ecopave, L.P. ("Ecopave"), Ecopave Corp. and Stephen
M. Vance ("Vance"). The Partnership participated in secured notes
investments to Cyclean with the affiliated partnerships. In January of
1997, a counter claim was filed by Ecopave and Vance.
As a result of a settlement conference, these lawsuits were resolved
effective April 1, 1997. The affiliated partnerships purchased Ecopave
Corp. and Vance's ownership interest in Ecopave for $5.5 million. The
Partnership did not participate in the purchase. The Managing General
Partner believes the settlement is the most cost effective resolution of
this dispute and it has improved the Partnership's ability to recover its
secured notes receivable.
Other investment expenses in 1997 of $76,905 reflect the participated
cost of this legal action.
8. Cash and Cash Equivalents
-------------------------
At June 30, 1997, and December 31, 1996, cash and cash equivalents
consisted of:
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Demand and brokerage accounts $ 1,439 8,487
Money market accounts 26,344 282,965
------- -------
Total $ 27,783 291,452
======= =======
</TABLE>
9. 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. At June 30, 1997, the Partnership had unfunded
commitments of $4,500 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 six months ended June 30, 1997, net cash used by operating
activities totaled $263,669. The Partnership paid management fees of
$8,916 to the Managing General Partner, and reimbursed related parties
for operating expenses of $127,615. Other operating expenses of $131,753
were paid and interest income from short-term investments was $4,615.
Cash and cash equivalents at June 30, 1997, were $27,783. Future
distributions will be dependent upon loan payoffs received and expected
cash needs of the Partnership. Operating cash reserves combined with
interest income received on short-term investments, proceeds from
investment sales, and repayments of secured notes receivable, and the
support of the Managing General Partner are expected to be sufficient to
fund Partnership operations through the next twelve months. At June 30,
1997, the Partnership was committed to fund $4,500 related to term note
financings to an existing borrowing company.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net losses were $53,889 and $310,585 for the three months ended June 30,
1997 and 1996, respectively. The decrease in net loss was primarily due
to a $269,000 increase in the change in net unrealized fair value of
secured notes receivable, and a $57,111 decrease in total operating
expenses. These changes were partially offset by a $40,658 decrease in
the change in net unrealized fair value of equity investments.
The Partnership recorded a $269,000 decrease in the fair value of secured
notes receivable for the three months ended June 30, 1996, based upon the
level of loan loss reserves deemed adequate by the Managing General
Partner at quarter end. No such reserve was required for the same period
in 1997.
Total operating expenses were $62,958 and $120,069 for the three months
ended June 30, 1997 and 1996, respectively. The decrease was primarily
due to lower administrative investor service expenses as overall
portfolio activities have decreased.
During the quarter ended June 30, 1997, the $28,315 increase in fair
value of equity investments was primarily due to increases in
microelectronics, semi-conductor equipment and telecommunications
industries, partially offset by decreases in a portfolio company in the
computers and computer equipment industry. During the same period in
1996, the $68,883 increase was primarily due to increases in medical and
microelectronics industries, partially offset by decreases in
industrial/business automation industry.
Other investment expenses were $16,800 for the quarter ended June 30,
1997. These expenses were due to legal expenses related to the
settlement of the lawsuits discussed in Note 7 to the financial
statements. There were no such expenses for the quarter ended June 30,
1996.
Given the inherent risk associated with the business of the Partnership,
the future performance of the borrowing companies may significantly
impact the Partnership's future operations.
Current six months compared to corresponding six months in the preceding
- ------------------------------------------------------------------------
year
- ----
Net losses for the six months ended June 30, 1997 and 1996, were $216,178
and $247,063, respectively. The decrease in net loss was primarily
attributable to a $191,000 increase in the change in net unrealized fair
value of secured notes receivable. This change was partially offset by a
$104,643 decrease in the change in net unrealized fair value of equity
investments, and a $76,905 increase in other investment expenses.
The Partnership recorded a decrease in the fair value of secured notes
receivable of $191,000 for the six months ended June 30, 1996, based upon
the level of loan loss reserves deemed adequate by the Managing General
Partner at quarter end. There was no such reserve recorded for the same
period in 1997.
During the six months ended June 30, 1997, the decrease in fair value of
equity investments was $24,723. During the same period in 1996, the
$79,920 increase was primarily due to increases in medical and
microelectronics industries, partially offset by decreases in
industrial/business automation industry.
Other investment expenses were $76,905 for the six months ended June 30,
1997. These expenses were due to legal expenses related to the
settlement of the lawsuits discussed in Note 7 to the financial
statements. There were no such expenses for the six months ended June
30, 1996.
Total operating expenses were $130,052 and $163,998 for the six months
ended June 30, 1997 and 1996, respectively. The decrease was primarily
attributable to lower administrative and investor services expenses
resulting from a decline in overall portfolio activities.
II. OTHER INFORMATION
Item 1. Legal Proceedings
The lawsuit an affiliated partnership filed in the United States District
Court, Northern District of California, against Cyclean Inc., et al, and
the related counter claims, previously reported in the 1996 Form 10-K,
have been resolved effective April 1, 1997. The Partnership participated
in investments to Cyclean with the affiliated partnership. See Note 7 to
the financial statements for additional disclosure.
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 June 30, 1997.
(b) Financial Data Schedule for the six months ended and as of June 30,
1997 (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: August 12, 1997 By: /s/Michael R. Brenner
-----------------------------------
Michael R. Brenner
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 1,003,524
<INVESTMENTS-AT-VALUE> 743,295
<RECEIVABLES> 0
<ASSETS-OTHER> 10,641
<OTHER-ITEMS-ASSETS> 27,783
<TOTAL-ASSETS> 781,719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,185
<TOTAL-LIABILITIES> 25,185
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,016,763
<SHARES-COMMON-STOCK> 109,904
<SHARES-COMMON-PRIOR> 109,904
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (260,229)
<NET-ASSETS> 756,534
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,615
<OTHER-INCOME> 0
<EXPENSES-NET> 215,873
<NET-INVESTMENT-INCOME> (211,258)
<REALIZED-GAINS-CURRENT> 19,803
<APPREC-INCREASE-CURRENT> (24,723)
<NET-CHANGE-FROM-OPS> (216,178)
<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> (216,178)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,916
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 222,862
<AVERAGE-NET-ASSETS> 864,623
<PER-SHARE-NAV-BEGIN> 11
<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> (10)
<EXPENSE-RATIO> 25
<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>
