<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 September 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)
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $725,224 and
$720,724 in 1997 and 1996
respectively) $285,224 280,724
Equity investments (cost basis
of $260,054 and $262,997 in
1997 and 1996, respectively) 506,302 467,491
------- ---------
Total investments 791,526 748,215
Cash and cash equivalents 3,489 291,452
Other assets 46,589 7,421
------- ---------
Total $841,604 1,047,088
======= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 41,757 36,000
Liability for short securities sale 38,532 --
Accrued limited partner unit repurchases 24,584 --
Due to related parties 24,753 31,990
Other liabilities 2,926 6,386
------- ---------
Total liabilities 132,552 74,376
Commitments (Note 3)
Partners' capital:
Limited Partners
(Units outstanding of 106,392 and
109,904 in 1997 and 1996 respectively) 951,630 1,254,236
General Partners (48,826) (46,018)
Net unrealized fair value (decrease)
increase from cost:
Secured notes receivable (440,000) (440,000)
Equity investments 246,248 204,494
------- ---------
Total partners' capital 709,052 972,712
------- ---------
Total $841,604 1,047,088
======= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
----------------------- -------------------------
1997 1996 1997 1996
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Income:
Secured notes receivable interest $ -- 1,125 -- 3,850
Short-term investment interest 91 5,546 4,706 19,871
------- ------ ------- -------
Total income 91 6,671 4,706 23,721
Costs and expenses:
Management fees 3,873 5,718 12,789 19,942
Other investment expenses -- 29,040 76,905 29,040
Operating expenses:
Lending operations and investment
management 9,892 4,302 26,446 12,804
Administrative and investor
services 64,250 37,212 142,534 140,550
Computer services 19,763 9,106 38,297 34,636
Professional fees 16,351 7,994 33,031 34,622
------- ------ ------- -------
Total operating expenses 110,256 58,614 240,308 222,612
------- ------ ------- -------
Total costs and expenses 114,129 93,372 330,002 271,594
------- ------ ------- -------
Net operating loss (114,038) (86,701) (325,296) (247,873)
Net realized gain from sales
of equity investments 24,663 -- 44,466 30,189
Realized losses from investment
write-downs -- -- -- (5,000)
------- ------ ------- -------
Net realized loss (89,375) (86,701) (280,830) (222,684)
Change in net unrealized
fair value:
Secured notes receivable -- -- -- (191,000)
Equity investments 66,477 27,856 41,754 107,776
------- ------ ------- -------
Net loss $(22,898) (58,845) (239,076) (305,908)
======= ====== ======= =======
Net realized loss per Limited $ (1) (1) (3) (2)
Partner Unit ======= ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 4,706 23,721
Cash paid to vendors (154,853) (87,944)
Cash received from
affiliated partnerships -- 3,977
Cash paid to related parties (180,725) (619,126)
Reimbursement of collection
expenses from a portfolio company -- 28,900
------- -------
Net cash used by operating
activities (330,872) (650,472)
------- -------
Cash flows from investing activities:
Secured notes receivable issued (4,500) (50,902)
Repayments of secured notes receivable -- 142,076
Proceeds from sales of equity investments 47,409 31,439
------- -------
Net cash provided by investing
activities 42,909 122,613
------- -------
Net decrease in cash and cash equivalents (287,963) (527,859)
Cash and cash equivalents at beginning
of year 291,452 941,985
------- -------
Cash and cash equivalents
at September 30 $ 3,489 414,126
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
--------------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Reconciliation of net loss
to net cash used by
operating activities:
Net loss $(239,076) (305,908)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Net realized gain from
sales of equity investments (44,466) (30,189)
Realized losses from investment
write-downs -- 5,000
Change in net unrealized fair value:
Secured notes receivable -- 191,000
Equity investments (41,754) (107,776)
Changes in:
Accounts payable and accrued
expenses 5,757 36,067
Liability for short securities sale 38,532 --
Due to/from related parties (7,237) (412,722)
Other assets (39,168) (4,112)
Other liabilities (3,460) (21,832)
-------- -------
Net cash used by operating activities $(330,872) (650,472)
======== =======
Non-cash financing activities:
Limited Partners unit repurchases $ 24,584 --
======== =======
</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
September 30, 1997, and December 31, 1996, and the related Statements of
Operations for the three and nine months ended September 30, 1997 and
1996, and Statements of Cash Flows for the nine months ended September
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 September 30, 1997, 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.
Withdrawal of Capital
---------------------
Each June, Limited Partners may tender their Units for repurchase by the
Partnership. The price paid for any Units tendered is subject to the
restrictions stated in the Partnership Agreement. As of September 30,
1997, requests to repurchase 3,512 limited partner units had been
received. These unit repurchases will be made in the fourth quarter of
1997.
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 nine months ended
September 30, 1997 and 1996, were as follows:
<TABLE>
<S> <C> <C>
1997 1996
------ ------
Management fees $ 12,789 19,942
Reimbursable operating expenses 160,699 186,462
</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. Amounts due to related parties
for such reimbursable expenses were $24,753 and $31,990 at September 30,
1997 and December 31, 1996, respectively.
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 nine months ended September
30, 1997 and 1996, of 109,514 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 September 30, 1997, consisted of:
<TABLE>
January 1 through
September 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 0 103,845
Semiconductor Equipment
- -----------------------
Etec Systems, Inc. 12/96 676 Common
shares 0 21,734
Photon Dynamics 05/94 6,773 Common
shares (22,746) (56,047)
Telecommunications
- ------------------
3Com Corporation 06/95 790 Common
shares 0 (19,545)
------- -------
Total significant changes (2,943) 49,987
Other changes, net 0 (11,176)
------- -------
Total equity investments at September 30, 1997 $260,054 506,302
======= =======
</TABLE
Marketable Equity Securities
- ----------------------------
At September 30, 1997, and December 31, 1996, marketable equity
securities had aggregate costs of $82,145 and $101,591, respectively, and
aggregate market values of $324,487 and $257,753, respectively. The
unrealized gains at September 30, 1997, and December 31, 1996, did not
include any gross losses.
Etec Systems, Inc.
- ------------------
At September 30, 1997, the Partnership recorded an increase in the change
in fair value of $21,734 to reflect the publicly-traded market price of
its investment. The Partnership entered into a short sale of 676 common
shares for total proceeds of $38,532 on September 30, 1997.
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.
Photon Dynamics, Inc.
- ---------------------
In August of 1997, the Partnership sold its entire investment in the
company for total proceeds of $47,409 and a realized gain of $24,663.
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.,
Etec Systems, and 3Com Corporation common stock are unrestricted,
marketable securities.
6. Secured Notes Receivable, Net
-----------------------------
Secured notes receivable of $4,500 were issued during the nine months
ended September 30, 1997.
The secured notes receivable portfolio of $725,224 was on nonaccrual
status due to the uncertainty of the financial condition of certain
borrowers at both September 30, 1997, and December 31, 1996. The
Managing General Partner continues to monitor the progress of these
companies. The fair value at September 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. The interest
rate on notes issued during the nine months ended September 30, 1997 was
12%.
During 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 nine 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 September 30, 1997, and December 31, 1996, cash and cash equivalents
consisted of:
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Demand and brokerage accounts $3,254 8,487
Money market accounts 235 282,965
----- -------
Total $3,489 291,452
===== =======
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the nine months ended September 30, 1997, net cash used by
operating activities totaled $330,872. The Partnership paid management
fees of $12,789 to the Managing General Partner, and reimbursed related
parties for operating expenses of $167,936. Other operating expenses of
$154,853 were paid and interest income from short-term investments of
$4,706 was received.
Cash and cash equivalents at September 30, 1997, were $3,489. Future
distributions will be dependent upon loan repayments from borrowing
companies, future proceeds from equity investment sales, and available
cash. 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.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net losses were $22,898 and $58,845 for the three months ended September
30, 1997 and 1996, respectively. The decrease in net loss was primarily
due to a $38,621 increase in the change in net unrealized fair value of
equity investments, a $29,040 decrease in other investment expenses and a
$24,663 increase in net realized gain from sales of equity investments.
These changes were partially offset by a $51,642 increase in total
operating expenses.
During the quarter ended September 30, 1997, the $66,477 increase in fair
value of equity investments was primarily due to increases in the
microelectronics industry. During the same period in 1996, the $27,856
increase was primarily due to portfolio companies in the microelectronics
and telecommunications industries.
Other investment expenses were $29,040 for the quarter ended September
30, 1996. 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 September
30, 1997.
The $24,663 net realized gain from sales of equity investments resulted
from the sale of Photon Dynamics common shares during the quarter ended
September 30, 1997. There were no investment sales in the comparable
quarter of 1996.
Total operating expenses were $110,256 and $58,614 for the three months
ended September 30, 1997 and 1996, respectively. In the third quarter of
1997, the Partnership's administrative and investor service operations
were relocated to Santa Fe, New Mexico. This relocation is expected to
lower the future operational costs of the Partnership sufficient to
recoup the initial relocation expenses incurred, and provide a meaningful
reduction in ongoing operational costs.
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 nine months compared to corresponding nine months in the
- -----------------------------------------------------------------
preceding year.
- ---------------
Net losses for the nine months ended September 30, 1997 and 1996, were
$239,076 and $305,908, 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 $66,022 decrease in the change in net unrealized
fair value of equity investments, and a $47,865 increase in other
investment expenses.
The Partnership recorded a decrease in the fair value of secured notes
receivable of $191,000 for the nine months ended September 30, 1996,
based upon the level of loan loss reserves deemed adequate by the
Managing General Partner. There was no such reserve recorded for the
same period in 1997.
During the nine months ended September 30, 1997, the increase in fair
value of equity investments of $41,754 was primarily due to increases in
the microelectronics industry, partially offset by decreases in the
medical and telecommunications industries. During the same period in
1996, the $107,776 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 and $29,040 for the nine months
ended September 30, 1997 and 1996, respectively. These expenses were due
to legal expenses related to the settlement of the lawsuits discussed in
Note 7 to the financial statements.
Total operating expenses were $240,308 and $222,612 for the nine months
ended September 30, 1997 and 1996, respectively.
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 September 30, 1997.
(b) Financial Data Schedule for the nine months ended and as of
September 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: November 14, 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 SEPTEMBER 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> SEP-30-1997
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 985,278
<INVESTMENTS-AT-VALUE> 791,526
<RECEIVABLES> 0
<ASSETS-OTHER> 46,589
<OTHER-ITEMS-ASSETS> 3,489
<TOTAL-ASSETS> 841,604
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132,552
<TOTAL-LIABILITIES> 132,552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 902,804
<SHARES-COMMON-STOCK> 106,392
<SHARES-COMMON-PRIOR> 109,904
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (193,752)
<NET-ASSETS> 709,052
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,706
<OTHER-INCOME> 0
<EXPENSES-NET> 330,002
<NET-INVESTMENT-INCOME> (325,296)
<REALIZED-GAINS-CURRENT> 44,466
<APPREC-INCREASE-CURRENT> 41,754
<NET-CHANGE-FROM-OPS> (239,076)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 3,512
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (263,660)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,789
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 332,962
<AVERAGE-NET-ASSETS> 840,882
<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> 9
<EXPENSE-RATIO> 39.2
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
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>
