<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, 1999
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)
March 31, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable,
net (cost basis of
$360,839 and $725,224 in
1999 and 1998, respectively) $1,733,839 2,098,224
Equity investments (cost basis
of $166,729 in both 1999 and 1998) 0 0
--------- ---------
Total investments 1,733,839 2,098,224
Cash and cash equivalents 10,924 7,020
Other assets 1,862 1,052
--------- ---------
Total assets $1,746,625 2,106,296
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 30,112 37,614
Due to related parties 70,853 307,403
Other liabilities 767 244
--------- ---------
Total liabilities 101,732 345,261
Commitments
(Note 3)
Partners' capital:
Limited Partners
(106,990 Units outstanding) 492,129 607,110
General Partners (53,507) (52,346)
Net unrealized fair value increase
(decrease) from cost:
Secured notes receivable 1,373,000 1,373,000
Equity investments (166,729) (166,729)
--------- ---------
Total partners' capital 1,644,893 1,761,035
--------- ---------
Total liabilities and
partners' capital $1,746,625 2,106,296
========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 1998
-------- --------
<S> <C> <C>
Income:
Short-term investment interest $ 668 154
------- ------
Total income 668 154
Costs and expenses:
Management fees 8,805 2,565
Operating expenses 108,005 60,338
------- ------
Total costs and expenses 116,810 62,903
------- ------
Net operating loss (116,142) (62,749)
Net realized loss from sales
of equity investments -- (6,695)
------- ------
Net realized loss (116,142) (69,444)
Change in net unrealized
fair value of equity investments -- (26,482)
------- ------
Net loss $(116,142) (95,926)
======= ======
Net realized loss per Limited $ (1.07) (0.65)
Partner Unit ======= ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 668 154
Cash paid to vendors (33,709) (10,167)
Cash (paid to) advanced by
related parties (327,440) 9,309
------- ------
Net cash used by operating
activities (360,481) (704)
------- ------
Cash flows from investing activities:
Repayments of secured notes receivable 364,385 --
Proceeds from sales of equity
investments -- 21,472
------- ------
Net cash provided by investing
activities 364,385 21,472
------- ------
Net increase in cash
and cash equivalents 3,904 20,768
Cash and cash equivalents at beginning
of year 7,020 68,068
------- ------
Cash and cash equivalents
at March 31 $ 10,924 88,836
======= ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 1998
-------- --------
<S> <C> <C>
Reconciliation of net loss
to net cash used by
operating activities:
Net loss $(116,142) (95,926)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Net realized loss from
sales of equity investments -- 6,695
Change in net unrealized fair
value of equity investments -- 26,482
Changes in:
Accounts payable and accrued
expenses (7,502) (268)
Due to related parties (236,550) 55,529
Other (287) 6,784
------- ------
Net cash used by operating activities $(360,481) (704)
======= ======
</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, 1999, and December 31, 1998, and the related Statements of
Operations for the three months ended March 31, 1999 and 1998, and
Statements of Cash Flows for the three months ended March 31, 1999 and
1998, 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, 1998. The following
notes to financial statements for activity through March 31, 1999,
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.
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. 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 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 three months ended
March 31, 1999 and 1998, were as follows:
<TABLE>
1999 1998
------ ------
<S> <C> <C>
Management fees $ 8,805 2,565
Reimbursable operating expenses 82,085 43,655
</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 March 31, 1999 and December 31, 1998, due
to related parties for such expenses were $57,872 and $290,351,
respectively.
At March 31, 1999 and December 31, 1998, management fees payable were
$8,641 and $12,712, respectively, and due to affiliated partnerships for
reparticipated secured notes receivable were $4,340 and $4,340,
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 three months ended March 31, 1999
and 1998, of 106,990.
5. Secured Notes Receivable, Net
-----------------------------
<TABLE>
A complete listing of the Partnership's secured notes receivable at December 31, 1998, is
included in the 1998 Annual Report on Form 10-K. Activity from January 1 through March
31, 1999, consisted of:
January 1 through March 31, 1999
--------------------------------
Investment Cost Fair
Industry/Company Date Position Basis Value
- ---------------- ---------- -------- -------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 $725,224 2,098,224
1999 activity:
Computers and Computer Equipment
- --------------------------------
MARCorp 12/89- Secured notes
02/93 receivable, plus
interest, totaling
$8,927,206 (364,385) (364,385)
------- ---------
Total secured notes receivable at March 31, 1999 $360,839 1,733,839
======= =========
</TABLE>
MARCorp
- -------
In 1998, the Company entered into an agreement to sell the majority of its
assets to the management of one of its subsidiaries. The Partnership has
valued its secured notes receivable investment in the company at its
expected share of the proceeds from this sale. In February 1999, the
Partnership received proceeds of $364,385. The remaining fair market value
of these proceeds at March 31, 1999 was $1,269,647.
6. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December 31,
1998, is included in the 1998 Annual Report on Form 10-K. There was no
investment activity from January 1 through March 31, 1999.
7. Cash and Cash Equivalents
-------------------------
At March 31, 1999, and December 31, 1998, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Demand and brokerage accounts $ 9,180 6,608
Money market accounts 1,744 412
------ -----
Total $10,924 7,020
====== =====
</TABLE>
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, 1999, net cash used by operating
activities totaled $360,481. The Partnership reimbursed related parties
for management fees and operating expenses of $327,440. Other operating
expenses of $33,709 were paid and interest income of $668 was received.
Cash and cash equivalents at March 31, 1999, were $10,924. 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 $116,142 and $95,926 for the three months ended March 31,
1999 and 1998, respectively. The increase in net loss in the current
period was primarily due to a $47,667 increase in total operating expenses,
partially offset by a $26,482 increase in the change in net unrealized fair
value of equity investments, and a $6,695 increase in the change in net
realized loss resulting from sales of equity investments.
Total operating expenses were $108,005 and $60,338 for the three months
ended March 31, 1999 and 1998, respectively. The increase is primarily
attributable to increased investment monitoring activity resulting from
notes receivable collection activities.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
YEAR 2000
- ---------
Widespread use of computer programs that use two digits rather than four to
store, calculate, and display year values in dates may cause computer
systems to malfunction in the year 2000, resulting in significant business
delays and disruptions.
The Partnership's State of Readiness
- ------------------------------------
Computer services are provided to the Partnership by its Managing General
Partner, Technology Funding Inc. ("TFI".) For several years, TFI has
sought to use Year 2000 compliant storage formats and algorithms in its
internally-developed and maintained systems. TFI has also completed
initial evaluations of computer systems, software, and embedded
technologies. Those evaluations confirmed that certain components of its
network server hardware and operating systems, voice mail system, e-mail
system, and accounting software may have Year 2000 compliance issues.
These resources and several less-critical components of the systems
environment were all scheduled as part of normal maintenance and
replacement cycles to be replaced or upgraded as Year 2000 compatible
components became available from vendors during 1998 and 1999. That
program remains on schedule to provide Year 2000 capable systems timely
without significant expenditures or disruption of Partnership operations.
However, the risk remains that TFI may not be able to verify whether Year
2000 compatibility claims by vendors are accurate, or whether changes
undertaken to achieve Year 2000 compatibility will create other undetected
problems in associated systems. Therefore, TFI anticipates that Year 2000
compliance testing and maintenance of these systems will continue as needed
into the first quarter of 2000.
As part of Year 2000 evaluation, TFI has also assembled a database listing
its significant suppliers to assess the extent to which it needs to prepare
for any of those parties' potential failure to remediate their Year 2000
compliance issues. TFI is reviewing public Year 2000 statements of those
suppliers and preparing questionnaires to be sent to mission-critical
vendors whose public statements were not adequate for assessment. TFI will
continue to monitor its significant suppliers as part of its Year 2000
evaluation. However, there can be no guarantee that the systems of other
companies on which TFI relies will be timely converted, or that failure to
convert will not have a material adverse effect on the Partnership and its
operations. TFI is also working with the Partnership's portfolio companies
to determine the extent to which their operations are vulnerable to Year
2000 issues. There can be no guarantee that the systems of portfolio
companies in which the Partnership has invested will be timely converted,
or that their failure to convert will not have a material adverse effect on
the Partnership.
The Cost to Address Year 2000 Issues
- ------------------------------------
Expenditures in 1999 to date related to Year 2000 issues were not material
to the Partnership's financial statements. TFI expects that additional
expenditures for Year 2000 compliance will not be material to the
Partnership.
The Risks Associated with Year 2000 Issues
- ------------------------------------------
Any failure by the portfolio companies in which the Partnership has
invested, or by those portfolio companies' key suppliers or customers, to
anticipate and avoid Year 2000 related problems at reasonable cost could
have a material adverse effect on the value of and/or the timing of
realization of value from the Partnership's investments. If Year 2000
compliance issues are not resolved by December 31, 1999, internal system
failures or miscalculations could cause a temporary inability to process
transactions, loss of ability to send or receive e-mail and voice mail
messages, or disruptions in other normal business activities.
Additionally, failure of third parties on whom TFI relies to remediate
their Year 2000 issues timely could result in disruptions in the
Partnership's relationship with its financial institutions, temporary
disruptions in processing transactions, unanticipated costs, and problems
related to the Partnership's daily operations. While TFI continues to
address its internal Year 2000 issues, until TFI receives and evaluates
responses from a significant number of its suppliers, the overall risks
associated with the Year 2000 issue remain difficult to describe and
quantify. There can be no guarantee that the Year 2000 issue will not have
a material adverse effect on the Partnership and its operations.
TFI's Contingency Plan
- ----------------------
As part of its normal efforts to assure business continuation in the event
of natural disasters, systems failures, or other disruptions, TFI has
prepared contingency plans including an extensive Year 2000 contingency
plan. Taken together with TFI's Year 2000 remediation plan, it identifies
potential points of failure, approaches to correcting known Year 2000
problems, dates by which the preferred corrections are anticipated to be
made and tested, and alternative approaches if the corrections are not
completed timely or are later found to be inadequate. Although backup
systems and contingency approaches have been identified for most mission-
critical systems and vendor dependencies, there remain some systems for
which no good alternative exists, and there may be some problems that prove
more intractable than currently anticipated.
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, 1999.
(b) Financial Data Schedule for the three months ended and as of March 31,
1999 (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 14, 1999 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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 527,568
<INVESTMENTS-AT-VALUE> 1,733,839
<RECEIVABLES> 0
<ASSETS-OTHER> 1,862
<OTHER-ITEMS-ASSETS> 10,924
<TOTAL-ASSETS> 1,746,625
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101,732
<TOTAL-LIABILITIES> 101,732
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 438,622
<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> 1,206,271
<NET-ASSETS> 1,644,893
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 668
<OTHER-INCOME> 0
<EXPENSES-NET> 116,810
<NET-INVESTMENT-INCOME> (116,142)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (116,142)
<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> (116,142)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,805
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 116,810
<AVERAGE-NET-ASSETS> 1,702,964
<PER-SHARE-NAV-BEGIN> 6
<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> 5
<EXPENSE-RATIO> 6.86
<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.
</FN>
</TABLE>
