<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, 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)
March 31, December 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $720,724 in both
1997 and 1996) $ 280,724 280,724
Equity investments (cost basis
of $282,800 and $262,997 in
1997 and 1996, respectively) 434,256 467,491
--------- ---------
Total investments 714,980 748,215
Cash and cash equivalents 188,021 291,452
Other assets 5,278 7,421
--------- ---------
Total $ 908,279 1,047,088
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 92,162 36,000
Due to related parties 1,871 31,990
Other liabilities 3,823 6,386
--------- ---------
Total liabilities 97,856 74,376
Commitments and subsequent events
(Notes 3, 7 and 9)
Partners' capital:
Limited Partners
(Units outstanding of
109,904 in both 1997 and 1996) 1,146,077 1,254,236
General Partners (47,110) (46,018)
Net unrealized fair value (decrease)
increase from cost:
Secured notes receivable (440,000) (440,000)
Equity investments 151,456 204,494
--------- ---------
Total partners' capital 810,423 972,712
--------- ---------
Total $ 908,279 1,047,088
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1997 1996
---- ----
<S> <C> <C>
Income:
Secured notes receivable interest $ -- 1,967
Short-term investment interest 3,009 8,305
------- ------
Total income 3,009 10,272
Costs and expenses:
Management fees 4,864 6,953
Other investment expenses 60,105 --
Operating expenses:
Lending operations and investment
management 12,935 (9,199)
Administrative and investor
services 35,962 35,102
Computer services 11,297 8,928
Professional fees 6,900 9,098
------- ------
Total operating expenses 67,094 43,929
------- ------
Total costs and expenses 132,063 50,882
------- ------
Net operating loss (129,054) (40,610)
Net realized gain from sales
of equity investments 19,803 15,095
------- ------
Net realized loss (109,251) (25,515)
Change in net unrealized
fair value:
Secured notes receivable -- 78,000
Equity investments (53,038) 11,037
------- ------
Net (loss) income $(162,289) 63,522
======= ======
Net realized loss per Unit $ (1) --
======= ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 3,009 10,272
Cash paid to vendors (17,956) (10,720)
Cash paid to related parties (88,484) (460,486)
Cash received from
affiliated partnerships -- 3,574
------- -------
Net cash used by operating activities (103,431) (457,360)
------- -------
Cash flows from investing activities:
Secured notes receivable issued -- (34,000)
Repayments of secured notes receivable -- 110,548
Proceeds from sales of equity investments -- 11,533
------- -------
Net cash provided by investing activities -- 88,081
------- -------
Net decrease in cash and
cash equivalents (103,431) (369,279)
Cash and cash equivalents at beginning
of year 291,452 941,985
------- -------
Cash and cash equivalents at March 31 $ 188,021 572,706
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1997 1996
---- ----
<S> <C> <C>
Reconciliation of net (loss) income to
net cash used by operating activities:
Net (loss) income $(162,289) 63,522
Adjustments to reconcile net (loss) income
to net cash used by operating activities:
Net realized gain from
sales of equity investments (19,803) (15,095)
Change in net unrealized fair value:
Secured notes receivable -- (78,000)
Equity investments 53,038 (11,037)
Changes in:
Due to related parties (30,119) (408,441)
Other assets 2,143 (5,559)
Accounts payable and accrued expenses 56,162 (2,750)
Other, net (2,563) --
------- -------
Net cash used by operating activities $(103,431) (457,360)
======= =======
</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, 1997, and December 31, 1996, and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 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 March 31, 1997, supplement those included in the Annual
Report on Form 10-K. Certain 1996 balances have been reclassified to
conform with the 1997 financial statement presentation.
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 three months
ended March 31, 1997 and 1996, were as follows:
<TABLE>
<S> <C> <C>
1997 1996
---- ----
Management fees $ 4,864 6,953
Reimbursable operating expenses 53,501 45,092
</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, 1997, and December
31, 1996, amounts due to related parties totaled $2,430 and $31,990,
respectively.
At March 31, 1997, a management fee receivable of $559 was recorded;
this amount was reimbursed by the General Partners subsequent to quarter
end.
4. 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, 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, are included in the 1996 Annual Report. Activity from January
1 through March 31, 1997, consisted of
<TABLE>
<CAPTION>
January 1 -
March 31, 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 16,616
Semiconductor Equipment
- -----------------------
Photon Dynamics 05/94 6,775 Common
shares 0 (13,546)
Telecommunications
- ------------------
3Com Corporation 06/95 790 Common
shares 0 (33,508)
--------- -------
Total significant changes 19,803 (30,438)
Other changes, net 0 (2,797)
--------- -------
Total equity investments at March 31, 1997 $ 282,800 434,256
========= =======
</TABLE
Marketable Equity Securities
- ----------------------------
At March 31, 1997, and December 31, 1996, marketable equity securities
had an aggregate cost of $101,591, and aggregate market values of
$227,315 and $257,753, respectively. The unrealized gains at March 31,
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
-----------------------------
There were no secured notes receivable activities from January 1, 1997,
through March 31, 1997.
The secured notes receivable portfolio of $720,724 was on nonaccrual
status due to uncertainty of certain borrowers' financial conditions at
both March 31, 1997, and December 31, 1996. The Managing General Partner
continues to monitor the progress of these companies. The fair value at
March 31, 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 quarter of 1997.
7. Other Investment Expenses
-------------------------
In March of 1996, an affiliated partnership 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 partnership.
Ecopave was formed by Cyclean, Ecopave Corp. and Vance. Cyclean, without
the consent of the affiliated Partnership, transferred certain equipment
worth approximately $488,000 to Ecopave that is subject to the affiliated
partnership's security interest. Cyclean further gave Ecopave a license
to use its patented technology. The equipment and intellectual property
were security interest on a secured loan extended by the affiliated
partnership to Cyclean. The affiliated partnership thus commenced this
legal action for patent infringement, seeking to collect approximately
$3.5 million of indebtedness owed to the Partnership and affiliated
partnerships by Cyclean and the recovery of the equipment from Ecopave.
In January of 1997, a counter suit was filed by Ecopave Corp. and Vance
against the affiliated partnership which seeks declaration that certain
patent rights held by the affiliated partnership as security for the
Cyclean debt are invalid as well as asserts a fraud claim. In addition,
the counter suit seeks compensatory damages of approximately $5 million
and unspecified punitive damages.
As a result of a settlement conference, the above lawsuits have been
resolved effective April 1, 1997. The affiliated partnership has
indirectly purchased Ecopave Corp. and Vance's ownership interest in
Ecopave for $5.5 million. The Partnership did not participate in the
settlement of this claim. The Managing General Partner believes a
settlement is the most cost effective resolution of this dispute for the
Partnership and has improved the Partnership's position to recover its
secured notes receivable.
Other investment expenses in 1997 of $60,105 reflect the participated
cost of this legal action.
8. Cash and Cash Equivalents
-------------------------
At March 31, 1997, and December 31, 1996, cash and cash equivalents
consisted of:
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Demand and brokerage accounts $ 3,276 8,487
Money market accounts 184,745 282,965
------- -------
Total $188,021 291,452
======= =======
</TABLE>
9. 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, 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 three months ended March 31, 1997, net cash used by operating
activities totaled $103,431. The Partnership paid management fees of
$5,423 to the Managing General Partner and reimbursed related parties for
operating expenses of $83,061. In addition, other operating expenses of
$17,956 were paid. Interest received from short-term investments was
$3,009.
Cash and cash equivalents at March 31, 1997 were $188,021. Future
distributions will be dependent on 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, repayments of secured notes receivable, and Managing
General Partner's support are expected to be sufficient to fund
Partnership operations through the next twelve months. As of March 31,
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 loss for the quarter ended March 31, 1997, was $162,289 compared to a
net income of $63,522 for the same period in 1996. The change was
primarily due to decreases of $78,000 and $64,075, respectively, in the
change in unrealized fair value of secured notes receivable and equity
investments, and a $60,105 increase in other investment expenses.
During the quarter ended March 31, 1997, there was no change in fair
value for secured notes receivable compared to a $78,000 increase for the
quarter ended March 31, 1996, based upon the level of loan loss reserves
deemed adequate by the Managing General Partner.
During the quarter ended March 31, 1997, the decrease of $53,038 in
equity investments fair value was primarily due to decreases in portfolio
companies in the telecommunications, medical, and semiconductor equipment
industries, partially offset by an increase in a portfolio company in the
microelectronics industry. During the quarter ended March 31, 1996, the
increase of $11,037 was mainly due to a portfolio company in the
microelectronics industry, partially offset by a decrease in a portfolio
company in the telecommunications industry.
Other investment expenses were $60,105 for the quarter ended March 31,
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 March 31,
1996.
Operating expenses were $67,094 and $43,929 for the three months ended
March 31, 1997 and 1996, respectively. As explained in Note 6 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 slight decrease was primarily due to
lower lending operations and investment management expenses as overall
portfolio activities have decreased.
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 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 March 31, 1997.
(b) Financial Data Schedule for the quarter ended and as of March 31,
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: May 9, 1997 By: /s/Debbie A. Wong
-----------------------------------
Debbie A. Wong
Vice President
and Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF MARCH 31, 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> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 1,003,524
<INVESTMENTS-AT-VALUE> 714,980
<RECEIVABLES> 0
<ASSETS-OTHER> 5,278
<OTHER-ITEMS-ASSETS> 188,021
<TOTAL-ASSETS> 908,279
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 97,856
<TOTAL-LIABILITIES> 97,856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,098,967
<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> (288,544)
<NET-ASSETS> 810,423
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,009
<OTHER-INCOME> 0
<EXPENSES-NET> 132,063
<NET-INVESTMENT-INCOME> (129,054)
<REALIZED-GAINS-CURRENT> 19,083
<APPREC-INCREASE-CURRENT> (53,038)
<NET-CHANGE-FROM-OPS> (162,289)
<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> (162,289)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,864
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 134,800
<AVERAGE-NET-ASSETS> 891,568
<PER-SHARE-NAV-BEGIN> 11
<PER-SHARE-NII> (1)
<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> 14.8
<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>
