<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, 1998
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)
(650) 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,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $725,224
in 1998 and 1997) $285,224 285,224
Equity investments (cost basis
of $177,907 and $261,196 in
1998 and 1997, respectively) 121,206 286,237
------- -------
Total investments 406,430 571,461
Cash and cash equivalents 7,755 68,068
Other assets 7,303 13,991
------- -------
Total assets $421,488 653,520
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 21,172 28,302
Due to related parties 49,462 111,334
Other liabilities 809 1,051
------- ---------
Total liabilities 71,443 140,687
Commitments and contingencies
(Note 3)
Partners' capital:
Limited Partners
(Units outstanding of
106,990 in 1998 and 1997) 896,172 976,408
General Partners (49,426) (48,616)
Net unrealized fair value (decrease)
increase from cost:
Secured notes receivable (440,000) (440,000)
Equity investments (56,701) 25,041
------- ---------
Total partners' capital 350,045 512,833
------- ---------
Total liabilities and
partners' capital $421,488 653,520
======= =========
</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,
----------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Short-term investment interest 130 1,606 284 4,615
------- ------- ------- -------
Total income 130 1,606 284 4,615
Costs and expenses:
Management fees 2,085 4,052 4,650 8,916
Other investment expenses -- 16,800 -- 76,905
Operating expenses 71,421 62,958 131,759 130,052
------- ------- ------- -------
Total costs and expenses 73,506 83,810 136,409 215,873
------- ------- ------- -------
Net operating loss (73,376) (82,204) (136,125) (211,258)
Net realized gain from sales
of equity investments 61,774 -- 55,079 19,803
------- ------- ------- -------
Net realized loss (11,602) (82,204) (81,046) (191,455)
Change in net unrealized
fair value of equity investments (55,260) 28,315 (81,742) (24,723)
------- ------- ------- -------
Net loss $ (66,862) (53,889) (162,788) (216,178)
======= ======= ======= =======
Net realized loss per Unit $ -- (1) (1) (2)
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 284 4,615
Cash paid to vendors (34,782) (131,753)
Cash paid to related parties (164,183) (136,531)
------- -------
Net cash used by operating
activities (198,681) (263,669)
------- -------
Cash flows from investing activities:
Proceeds from sales of equity investments 138,368 --
------- -------
Net cash provided by investing
activities 138,368 --
------- -------
Net decrease in cash and cash
equivalents (60,313) (263,669)
Cash and cash equivalents at beginning
of year 68,068 291,452
------- -------
Cash and cash equivalents
at June 30 $ 7,755 27,783
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
------------------------------------
1998 1997
-------- --------
<S> <C> <C>
Reconciliation of net loss
to net cash used by
operating activities:
Net loss $(162,788) (216,178)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Net realized gain from
sales of equity investments (55,079) (19,803)
Change in net unrealized fair
value of equity investments 81,742 24,723
Changes in:
Accounts payable and accrued
expenses (7,130) (14,712)
Due to related parties (61,872) (37,241)
Other assets 6,688 2,031
Other liabilities (242) (2,489)
------- -------
Net cash used by operating activities $(198,681) (263,669)
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partner, the accompanying interim
financial statements reflect all adjustments necessary for a fair
presentation of the financial position, results of operations, and cash
flows for the interim periods presented. These statements should be read
in conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1997. 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.
2. Financing of Partnership Operations
-----------------------------------
The Managing General Partner expects that cash received from liquidation of
Partnership investments will provide the necessary liquidity to fund
Partnership operations. Until such future proceeds are received, the
Partnership will be dependent upon the financial support of the Managing
General Partner to fund operations. The Managing General Partner has
committed to this support in the form of short-term cash advances.
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, 1998 and 1997, were as follows:
<TABLE>
1998 1997
------ ------
<S> <C> <C>
Management fees $ 4,650 8,916
Reimbursable operating expenses 97,661 90,374
</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, 1998 and December 31, 1997, due
to related parties for such expenses were $34,405 and $100,928,
respectively.
At June 30, 1998 and December 31, 1997, management fees payable were
$10,717 and $6,066, respectively, and due to affiliated partnerships for
reparticipated secured notes receivable was $4,340, for both June 30, 1998
and December 31, 1997.
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, 1998
and 1997, of 106,990 and 109,904, respectively.
5. Secured Notes Receivable, Net
-----------------------------
There were no secured notes receivable activities from January 1 through
June 30, 1998.
The Partnership's secured notes receivable portfolio was on nonaccrual
status due to the uncertainty of the financial conditions of certain
borrowers at June 30, 1998 and December 31, 1997. The Managing General
Partner continues to monitor the progress of these companies and intends to
manage these investments to maximize the Partnership's net realizable
value. The fair value at June 30, 1998, recognizes the Managing General
Partner's estimate of collectibility of these notes. All notes are secured
by specific assets of the borrowing company.
6. Equity Investments
------------------
<TABLE>
A complete listing of the Partnership's equity investments at December 31, 1997 is
included in the 1997 Annual Report. Activity from January 1 through June 30, 1998
consisted of:
January 1 through June 30, 1998
-------------------------------
Investment Cost Fair
Industry/Company Date Position Basis Value
- ---------------- ---------- -------- -------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $261,196 286,237
Microelectronics
- ----------------
Celeritek, Inc. 05/94- 11,847 Common
12/97 shares (83,289) (165,031)
------- -------
Total equity investments at June 30, 1998 $177,907 121,206
======= =======
</TABLE
Marketable Equity Securities
- ----------------------------
At December 31, 1997, marketable equity securities had aggregate costs of
$83,287, and aggregate market values of $165,029. The unrealized gains at
December 31, 1997 did not include any gross losses. There were no
marketable equity securities at June 30, 1998.
Celeritek,Inc.
- --------------
In March 1998, the Partnership sold 1,847 common shares for total proceeds
of $21,472 and realized a loss of $6,695.
In April 1998, the Partnership sold its remaining investment in the company
for total proceeds of $116,896 and realized a gain of $61,774.
7. Other Investment Expenses
-------------------------
Other investment expenses, primarily legal fees, of $76,905 in 1997,
reflect the participated cost of litigation which was settled in the same
year. There were no such expenses in 1998.
8. Cash and Cash Equivalents
-------------------------
At June 30, 1998, and December 31, 1997, cash and cash equivalents
consisted of:
</TABLE>
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Demand accounts $ 7,346 9,195
Money market accounts 409 58,873
------ ------
Total $ 7,755 68,068
====== ======
</TABLE>
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, 1998, net cash used by operating
activities totaled $198,681. The Partnership reimbursed related parties
for management fees and operating expenses of $164,183. Other operating
expenses of $34,782 were paid and interest income of $284 was received.
Cash and cash equivalents at June 30, 1998, were $7,755. Future
distributions will be dependent upon loan repayments from borrowing
companies, future proceeds from equity investment sales, and available
cash. Operating cash reserves, proceeds from sales of equity investments,
repayments of secured notes receivable, and the Managing General Partner's
support 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 $66,862 and $53,889 for the three months ended June 30,
1998 and 1997, respectively. The increase in net loss in the current
period was primarily due to a $83,575 decrease in the change in net
unrealized fair value of equity investments as a result of the sale of
Celeritek, Inc. common shares and a $8,463 increase in total operating
expenses, partially offset by a $61,774 increase in net realized gain
resulting from the Celeritek sale and a $16,800 decrease in other
investment expenses.
Total operating expenses were $71,421 and $62,958 for the three months
ended June 30, 1998 and 1997, respectively
Other investment expenses, primarily legal fees, for the three months ended
June 30, 1997 were $16,800. There were no such expenses in 1998. The
decrease was due to the settlement of the related litigation in 1997.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current six months compared to corresponding six months in the preceding
- ------------------------------------------------------------------------
year
- ----
Net losses for the six months ended June 30, 1998 and 1997, were $162,788
and $216,178, respectively. The decrease in net loss was primarily
attributable to a $76,905 decrease in other investment expenses and a
$35,276 increase in realized gains from sales of equity investments. This
change was partially offset by a $57,019 decrease in the change in net
unrealized fair value of equity investments.
Other investment expense, primarily legal fees, for the six months ended
June 30, 1997 were $76,905. There were no such expenses in 1998. The
decrease was due to the settlement of the related litigation in 1997.
During 1998, the Partnership realized a net gain of $55,079 from the sale
of Celeritek, Inc. common stock. In 1997, the realized gain of $19,803
resulted from the non-cash exercise of Hemocleanse, Inc. common share
warrants.
During the six months ended June 30, 1998, the decrease in fair value of
equity investments was $81,742. During the same period in 1997, the
$24,723 decrease was primarily due to the non-cash exercise of Hemocleanse,
Inc. common share warrants.
Total operating expenses were $131,759 and $130,052 for the six months
ended June 30, 1998 and 1997, respectively.
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 June 30, 1998.
b) Financial Data Schedule for the six months ended and as of June 30,
1998 (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, 1998 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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 903,131
<INVESTMENTS-AT-VALUE> 406,430
<RECEIVABLES> 0
<ASSETS-OTHER> 7,303
<OTHER-ITEMS-ASSETS> 7,755
<TOTAL-ASSETS> 421,488
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71,443
<TOTAL-LIABILITIES> 71,443
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 846,746
<SHARES-COMMON-STOCK> 106,990
<SHARES-COMMON-PRIOR> 106,990
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (496,701)
<NET-ASSETS> 350,045
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 284
<OTHER-INCOME> 0
<EXPENSES-NET> 136,409
<NET-INVESTMENT-INCOME> (136,125)
<REALIZED-GAINS-CURRENT> 55,079
<APPREC-INCREASE-CURRENT> (81,742)
<NET-CHANGE-FROM-OPS> (162,788)
<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> (162,788)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,650
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 139,797
<AVERAGE-NET-ASSETS> 431,439
<PER-SHARE-NAV-BEGIN> 9
<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> 8
<EXPENSE-RATIO> 31.6
<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>
