<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Year Ended December 31, 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Units
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
No active market for the units of limited partnership interests ("Units")
exists, and therefore the market value of such Units cannot be
determined.
Documents incorporated by reference: Portions of the Prospectus dated
May 5, 1986, forming a part of Registration Statement No. 2-96022 under
the Securities Act of 1933 are incorporated by reference in Parts I and
III, hereof. Portions (pages 23 to 25) of the Prospectus of Technology
Funding Venture Capital Fund VI, LLC, as revised June 4, 1998 (accession
number 0000950133-98-002220), forming a part of the December 5, 1997,
Pre-Effective Amendment No. 1 to the Form N-2 Registration Statement No.
333-23913 dated July 11, 1997, are incorporated by reference in Part III
hereof.
<PAGE>
PART I
Item 1. BUSINESS
- - ------ --------
Technology Funding Secured Investors I (hereinafter referred to
as the "Partnership" or the "Registrant") was formed as a
California limited partnership on August 31, 1984. The business
of the Partnership is to provide secured loans and to acquire
equity interests in new and developing companies as described in
the "Summary of the Offering" and "Business of the Partnership"
sections of the Prospectus dated May 5, 1986, that forms a part
of Registrant's Form S-1 Registration Statement No. 2-96022,
which sections are incorporated herein by reference. Additional
characteristics of the Partnership's business are discussed in
the "Risk Factors" and "Conflicts of Interest" sections of the
Prospectus, which sections are also incorporated herein by
reference. The Partnership's Amended and Restated Limited
Partnership Agreement ("Partnership Agreement") provides that the
Partnership will continue until December 31, 2004, unless
dissolved earlier.
Item 2. PROPERTIES
- - ------ ----------
The Registrant has no material physical properties.
Item 3. LEGAL PROCEEDINGS
- - ------ -----------------
There are no material pending legal proceedings to which the
Registrant is party or of which any of its property is the
subject, other than routine litigation incidental to the
business of the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------ ---------------------------------------------------
No matter was submitted to a vote of the holders of units of
limited partnership interests ("Units") during 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- - ------ -------------------------------------------------------------
MATTERS
-------
(a) There is no established public trading market for the
Units.
(b) At December 31, 1998, there were 5,778 record holders of
Units.
(c) The Registrant, being a partnership, does not pay
dividends. Cash distributions, however, may be made to the
partners in the Partnership pursuant to the Registrant's
Partnership Agreement.
Item 6. SELECTED FINANCIAL DATA
- - ------ -----------------------
<TABLE>
<CAPTION>
For the Years Ended and As of December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total income $ 287 4,710 28,460 188,104 156,925
Net operating loss (416,929) (412,216) (342,248) (791,505) (446,132)
Net realized gain from sales
of equity investments 55,079 142,895 30,189 540,349 355,016
Realized losses from
investment write-downs (11,178) -- (5,000) (2,988,395) (514,251)
Recoveries from investments
previously written off -- 9,497 -- -- 45,290
Net realized loss (373,028) (259,824) (317,059) (3,239,551) (560,077)
Change in net unrealized
fair value:
Equity investments (191,770) (179,453) 96,606 2,389,463 (2,127,420)
Secured notes receivable 1,813,000 -- (185,000) (20,000) 549,000
Net income (loss) 1,248,202 (439,277) (405,453) (870,088) (2,138,497)
Net realized loss
per Unit (3) (2) (3) (28) (5)
Total assets 2,106,296 653,520 1,047,088 1,900,971 2,270,238
Refer to financial statement notes entitled "Summary of Significant Accounting Policies" and
"Allocation of Profits and Losses" for a description of the method of calculation for net
realized income (loss) per Unit.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- - ------ -----------------------------------------------------------
AND RESULTS OF OPERATIONS
- - -------------------------
Liquidity and Capital Resources
- - -------------------------------
In 1998, net cash used by operating activities totaled $199,416.
The Partnership reimbursed related parties for operating
expenses of $139,700. Other operating expenses of $60,003 were
paid and interest income of $287 was received. During 1998,
proceeds from investment sales totaled $138,368.
Beginning in 1991, the Partnership entered the liquidation stage
and began to distribute its available cash. The Partnership has
distributed a major portion of its available cash and is now at
the stage in its liquidation process where future distributions
are primarily dependent on loan repayments and equity investment
sales.
Cash and cash equivalents at December 31, 1998, were $7,020.
Repayments of secured notes receivable, proceeds from sales of
equity investments, and Managing General Partner's support are
expected to be sufficient to fund Partnership operations through
the next twelve months.
Results of Operations
- - ---------------------
1998 compared to 1997
- - ---------------------
Net income for 1998 was $1,248,202 as compared to a net loss of
$439,277 in 1997. The improvement was primarily a result of a
$1,813,000 increase in the fair value of secured notes
receivable, partially offset by an $87,816 decrease in net
realized gain from sales of equity investments and an $86,883
increase in operating expenses.
The Partnership recorded a $1,813,000 increase in the fair value
of secured notes receivable in 1998 which was primarily due to
an increase in expected loan repayments resulting from the
improved financial condition of borrowing companies in the
computer and computer equipment and industrial/business
automation industries. There was no change in the fair value of
secured notes receivable in 1997.
Net realized gain from sale of equity investments totaled
$55,079 and $142,895 in 1998 and 1997, respectively. The 1998
realized gain resulted from the sale of stock in Celeritek, Inc.
The realized gain in 1997 resulted from sales of stock in
Celeritek, Inc., Etec Systems, Inc., Photon Dynamics, Inc., and
3Com Corporation.
Total operating expenses were $410,570 and $323,687 in 1998 and
1997, respectively. As disclosed in Note 3 to the financial
statements, the Managing General Partner re-evaluated
allocations to the Partnership in 1998 and determined that they
had not fully recovered allocable operating expenses, primarily
salary, benefits, and professional fees as permitted by the
Partnership agreement. As a result, the Partnership was charged
$110,142 of additional operating expenses in 1998 of which
$12,302 and $97,840 related to 1997 and prior years,
respectively. If the additional expense had been recorded in
prior years, total operating expenses would have been $300,428
and $335,989 for 1998 and 1997, respectively.
Given the inherent risk associated with the business of the
Partnership, the future performance of portfolio company
investments may significantly impact future operations.
1997 compared to 1996
- - ---------------------
Net losses for 1997 and 1996 were $439,277 and $405,453,
respectively. The increased loss was primarily due to a $91,059
decrease in the change in fair value of investments and a
$42,685 increase in operating expenses, partially offset by a
$112,706 increase in realized gain from sales of equity
investments.
The Partnership recorded a $179,453 decrease in the fair value
of investments in 1997 which was primarily due to the sale of
investments in which the gain was realized. During 1996, the
Partnership recorded an increase of $96,606 in equity investment
fair value primarily due to increases in the medical,
microelectronics, and telecommunications industries, partially
offset by decreases in the industrial/business automation
industry. In 1996, the Partnership also recorded a decrease in
secured notes receivable fair value of $185,000 based upon the
level of loan loss reserves deemed required by the Managing
General Partner.
Total operating expenses were $323,687 and $281,002 in 1997 and
1996, respectively. As disclosed in Note 3 to the financial
statements, the 1996 operating expenses included expense
reimbursements of $46,290. Had the reimbursements not occurred,
the 1997 and 1996 total operating expenses would have been
$323,687 and $327,292, respectively. Included in 1997 operating
expenses are the costs of the Partnership's relocation of its
administrative and investor service operations to Santa Fe, New
Mexico.
The $142,895 net realized gain from sales of equity investments
in 1997 resulted from the sales of stock in Celeritek, Inc.,
Etec Systems, Inc., Photon Dynamics, Inc., and 3Com Corporation.
In 1996, the realized gain of $30,189 primarily resulted from
the sale of Hybridon, Inc. stock.
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 1998 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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ------ -------------------------------------------
The financial statements of the Registrant are set forth in Item
14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- - ------ -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
- - ------------------------
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------- --------------------------------------------------
As a partnership, the Registrant has no directors or executive
officers. Technology Funding Ltd., a California limited
partnership ("TFL"), and Technology Funding Inc., a California
corporation ("TFI"), and wholly owned subsidiary of TFL, are the
General Partners of the Partnership. TFI is the Managing
General Partner. Information concerning the ownership of TFL
and the business experience of the key officers of TFI and the
partners of TFL is incorporated by reference from the sections
entitled "Management of the Partnership - The General Partners"
and "Management of the Partnership - Key Personnel" in the
Prospectus, which are incorporated herein by reference. Changes
in this information that have occurred since the date of the
Prospectus are included on pages 23 to 25 in the Technology
Funding Venture Capital Fund VI, LLC Prospectus, as revised June
4, 1998 (accession number 0000950133-98-002220), forming a part
of the December 5, 1997, Pre-Effective Amendment No. 1 to the
Form N-2 Registration Statement No. 333-23913, dated July 11,
1997, which is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
- - ------- ----------------------
As a partnership, the Registrant has no officers or directors.
In 1998, the Partnership incurred $6,646 in management fees.
The management fees are designed to compensate the General
Partners for General Partner Overhead incurred in performing
management duties for the Partnership through December 31, 1998.
General Partner Overhead includes the General Partners' share of
rent and utilities, and certain salaries and benefits paid by
the General Partners in performing their obligations to the
Partnership.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - ------- --------------------------------------------------------------
Not applicable. No Limited Partner beneficially holds more than
5% of the aggregate number of Units held by all Limited
Partners, and neither the General Partners nor any of their
officers, directors or partners own any Units. The General
Partners control the affairs of the Partnership pursuant to the
Partnership Agreement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - ------- ----------------------------------------------
The Registrant, or its investee companies, have engaged in no
transactions with the General Partners or their officers and
partners other than as described above, in the notes to the
financial statements, or in the Prospectus.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- - ------- -------------------------------------------------------
FORM 8-K
- - --------
(a) List of Documents filed as part of this Annual Report on
Form 10-K
(1) Financial Statements - the following financial
statements are filed as a part of this Report:
Independent Auditors' Report
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the years ended
December 31, 1998, 1997 and 1996
Statements of Partners' Capital for the years ended
December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are not
applicable or the required information is included in
the financial statements or the notes thereto.
(3) Exhibits
Registrant's Amended and Restated Limited Partnership
Agreement (incorporated by reference to Exhibit A to
Registrant's Prospectus dated May 5, 1986, included in
Registration Statement No. 2-96022 filed pursuant to
Rule 424(b) of the General Rules and Regulations under
the Securities Act of 1933).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during
the year ended December 31, 1998.
(c) Financial Data Schedule for the year ended and as of
December 31, 1998 (Exhibit 27).
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Secured Investors I:
We have audited the accompanying balance sheets of Technology Funding
Secured Investors I (a California limited partnership) as of December 31,
1998 and 1997, and the related statements of operations, partners'
capital, and cash flows for each of the years in the three-year period
ended December 31, 1998. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of certain loans and
securities owned, by correspondence with the individual borrowing and
investee companies, and a physical examination of securities held by a
safeguarding agent as of December 31, 1998 and 1997. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Technology
Funding Secured Investors I as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Albuquerque, New Mexico
March 26, 1999 /S/KPMG LLP
<PAGE>
BALANCE SHEETS
- - --------------
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
------ ------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net (cost
basis of $725,224 in 1998 and 1997) $2,098,224 285,224
Equity investments (cost basis of
$166,729 and $261,196 in 1998 and
1997, respectively) 0 286,237
--------- -------
Total investments 2,098,224 571,461
Cash and cash equivalents 7,020 68,068
Other assets 1,052 13,991
--------- -------
Total assets $2,106,296 653,520
========= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 37,614 28,302
Due to related parties 307,403 111,334
Other liabilities 244 1,051
--------- -------
Total liabilities 345,261 140,687
Commitments, contingencies, and subsequent
event (Notes 3, 5, and 10)
Partners' capital:
Limited Partners
(Units outstanding of 106,990 in 1998
and 1997) 607,110 976,408
General Partners (52,346) (48,616)
Net unrealized fair value increase
(decrease) from cost:
Secured notes receivable 1,373,000 (440,000)
Equity investments (166,729) 25,041
--------- -------
Total partners' capital 1,761,035 512,833
--------- -------
Total liabilities and partners' capital $2,106,296 653,520
========= =======
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS
- - ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Income:
Short-term investment interest $ 287 4,710 24,610
Secured notes receivable
interest -- -- 3,850
--------- ------- -------
Total income 287 4,710 28,460
Costs and expenses:
Management fees 6,646 16,334 25,365
Other investment expenses -- 76,905 64,341
Operating expenses:
Administrative and investor
services 288,569 200,813 170,359
Lending operations and
investment management 37,453 32,109 9,298
Computer services 25,311 48,220 62,872
Professional fees 59,237 42,545 38,473
--------- ------- -------
Total operating expenses 410,570 323,687 281,002
--------- ------- -------
Total costs and expenses 417,216 416,926 370,708
--------- ------- -------
Net operating loss (416,929) (412,216) (342,248)
Net realized gain from sales of
equity investments 55,079 142,895 30,189
Realized losses from
investment write-downs (11,178) -- (5,000)
Recoveries from investments
previously written off -- 9,497 --
--------- ------- -------
Net realized loss (373,028) (259,824) (317,059)
Change in net unrealized fair
value:
Equity investments (191,770) (179,453) 96,606
Secured notes receivable 1,813,000 -- (185,000)
--------- ------- -------
Net income (loss) $1,248,202 (439,277) (405,453)
========= ======= =======
Net realized loss
per Unit $ (3) (2) (3)
========= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
- - -------------------------------
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996:
Net Unrealized Fair
Value Increase
(Decrease) From Cost
-----------------------
Limited General Equity Secured Notes
Partners Partners Investments Receivable Total
-------- -------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
Partners' capital,
December 31, 1995 $1,580,542 (42,847) 107,888 (255,000) 1,390,583
Repurchase of limited
partnership interests (12,418) -- -- -- (12,418)
Net realized loss (313,888) (3,171) -- -- (317,059)
Change in net unrealized fair
value:
Equity investments -- -- 96,606 -- 96,606
Secured notes receivable -- -- -- (185,000) (185,000)
--------- ------ ------- --------- ---------
Partners' capital,
December 31, 1996 1,254,236 (46,018) 204,494 (440,000) 972,712
Repurchase of limited
partnership interests (20,602) -- -- -- (20,602)
Net realized loss (257,226) (2,598) -- -- (259,824)
Change in net unrealized fair
value:
Equity investments -- -- (179,453) -- (179,453)
Secured notes receivable -- -- -- -- --
--------- ------ ------- --------- ---------
Partners' capital,
December 31, 1997 976,408 (48,616) 25,041 (440,000) 512,833
Net realized loss (369,298) (3,730) -- -- (373,028)
Change in net unrealized fair
value:
Equity investments -- -- (191,770) -- (191,770)
Secured notes receivable -- -- -- 1,813,000 1,813,000
--------- ------ ------- --------- ---------
Partners' capital,
December 31, 1998 $ 607,110 (52,346) (166,729) 1,373,000 1,761,035
========= ====== ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
- - ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating
activities:
Interest received $ 287 4,710 28,460
Cash paid to vendors (60,003) (188,906) (191,554)
Cash paid to related parties (139,700) (172,619) (665,289)
Cash received from affiliated
partnerships -- 4,340 3,977
Reimbursements of collection
expenses from portfolio
companies -- -- 46,290
------- ------- -------
Net cash used by
operating activities (199,416) (352,475) (778,116)
------- ------- -------
Cash flows from investing
activities:
Secured notes receivable issued -- (4,500) (50,902)
Repayments of secured notes
receivable -- -- 162,764
Proceeds from sales of equity
investments 138,368 175,196 31,439
Recoveries from investments
previously written off -- 9,497 --
Purchase of equity investments -- (30,500) (3,300)
------- ------- -------
Net cash provided by investing
activities 138,368 149,693 140,001
------- ------- -------
Cash flows from financing
activities:
Repurchase of limited
partnership interests -- (20,602) (12,418)
------- ------- -------
Net cash used by financing
activities -- (20,602) (12,418)
------- ------- -------
Net decrease in cash and cash
equivalents (61,048) (223,384) (650,533)
STATEMENTS OF CASH FLOWS (continued)
- - -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cash and cash equivalents at
beginning of year 68,068 291,452 941,985
--------- ------- -------
Cash and cash equivalents at
end of year $ 7,020 68,068 291,452
========= ======= =======
Reconciliation of net income
(loss) to net cash used by
operating activities:
Net income (loss) $1,248,202 (439,277) (405,453)
Adjustments to reconcile net
income (loss) to net cash
used by operating activities:
Net realized gain from sales of
equity investments (55,079) (142,895) (30,189)
Realized losses from investment
write-downs 11,178 -- 5,000
Recoveries from investments
previously written off -- (9,497) --
Change in net unrealized
fair value:
Equity investments 191,770 179,453 (96,606)
Secured notes receivable (1,813,000) -- 185,000
Changes in:
Due to/from related parties 196,069 79,344 (388,517)
Other liabilities (807) (5,335) (52,795)
Other, net 22,251 (14,268) 5,444
--------- ------- -------
Net cash used by
by operating activities $ (199,416) (352,475) (778,116)
========= ======= =======
Non-cash financing activities:
Non-cash exercise of warrants $ -- -- 8,497
========= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - -----------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Organization
- - ------------
Technology Funding Secured Investors I (the "Partnership") is a limited
partnership organized under the laws of the State of California on August
31, 1984. The purpose of the Partnership is to provide secured loans to
new and developing companies and to acquire, hold, sell, trade, exchange
or otherwise dispose of warrants and/or capital stock acquired by the
Partnership in conjunction with these loans. The General Partners are
Technology Funding Ltd. ("TFL") and Technology Funding Inc. ("TFI"), a
wholly owned subsidiary of TFL. TFI is the Managing General Partner.
The registration statement of the Partnership, filed with the Securities
and Exchange Commission, became effective and the Partnership commenced
selling units of limited partnership interest ("Units") on May 31, 1985.
On September 9, 1985, the minimum number of Units required to form the
Partnership (4,800) were sold. On May 31, 1987, the offering terminated
with 117,496 Units sold, generating $29,372,475 in cash from Limited
Partners and $29,399 from the General Partners. The Partnership
Agreement provides that the Partnership will continue until December 31,
2004, unless terminated sooner.
Preparation of Financial Statements and Use of Estimates
- - --------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Estimates are used when accounting for investments, change in unrealized
fair value of investments, liabilities and contingencies. Because of the
inherent uncertainty of valuation, the estimated fair value of
investments may differ significantly from the values that would have been
used had a ready market for investments existed, and the differences
could be material.
Investments:
- - -----------
Secured Notes Receivable, Net
-----------------------------
The Partnership's method of accounting for secured notes receivable, in
accordance with generally accepted accounting principles, is the fair
value basis used for investment companies.
The fair value of secured notes receivable is their initial cost basis
adjusted for unrealized gains and losses. The cost basis is comprised of
note principal plus accrued interest, less any discount related to
warrants. The net unrealized gain or loss is reviewed quarterly by the
Managing General Partner and is adjusted upward or downward to reflect
the change in the fair market value of the notes. Fair value may change
due to an increase or decrease in the allowance for loan losses, or when
the current expected loan proceeds exceed the cost basis. Adjustments to
fair value are reflected as "Change in net unrealized fair value of
secured notes receivable". Notes receivable are placed on nonaccrual
status when, in the opinion of the Managing General Partner, the future
collectibility of interest or principal is in doubt.
Where, in the opinion of the Managing General Partner, events indicate
there has been an other than temporary decline in value below the cost
basis of the note, an appropriate reduction in the cost basis is
recognized as "Realized losses from investment write-downs" on the
Statements of Operations. "Recoveries from investments previously written
off" represent realized gains when payment is received on such notes.
In conjunction with certain secured notes, upon note issuance or
restructure, the Partnership has received warrants to purchase certain
types of capital stock or capital stock of the borrowing company. The
cost basis of such warrants and the resulting discount has generally been
estimated by the Managing General Partner to be 1% of the principal
balance of the original notes made to the borrowing company. The cost
basis of capital stock and the resulting discount are generally based on
the valuation set at the latest round of financing. The discount is
amortized to interest income on a straight-line basis over the term of
the loan. These warrants and capital stock are included in the equity
investment portfolio.
Equity Investments
------------------
The Partnership's method of accounting for investments, in accordance
with generally accepted accounting principles, is the fair value basis
used for investment companies. The fair value of Partnership equity
investments is their initial cost basis with changes as noted below:
The fair value for publicly traded equity investments (marketable equity
securities) is based upon the five-day-average closing sales price or
bid/ask price that is available on a national securities exchange or
over-the-counter market. Certain publicly traded equity investments may
not be marketable due to selling restrictions and for those securities,
an illiquidity discount of up to 33% is applied when determining the fair
value; the actual discount percentage is based on the type and length of
the restrictions. Investments valued under this method were $0 and
$165,029 at December 31, 1998 and 1997, respectively.
All investments which are not publicly traded are valued at fair market
value as determined by the Managing General Partner in the absence of
readily ascertainable market values. Equity investments valued under
this method were $0 and $121,208 at December 31, 1998 and 1997,
respectively. Generally, investments in privately held companies are
valued at original cost unless there is clear evidence of a change in
fair value, such as a recent round of third-party financings or events
that, in the opinion of the Managing General Partners, indicate a change
in value.
Convertible and subordinated notes receivable are stated at cost plus
accrued interest, which is equivalent to fair value, and are included in
equity investments as repayment of these notes generally occurs through
conversion into equity investments.
Where, in the opinion of the Managing General Partner, events indicate
that the fair value of equity investments and convertible and
subordinated notes receivable may not be recoverable, a write-down to
estimated fair value is recorded. Temporary changes in fair value result
in increases or decreases to the unrealized fair value of equity
investments. Adjustments to fair value basis are reflected as "Change in
net unrealized fair value of equity investments. " In the case of an
other than temporary decline in value below cost basis, an appropriate
reduction in the cost basis is recognized as a realized loss with the
fair value being adjusted to match the new cost basis. Cost basis
adjustments are reflected as "Realized losses from investment write-
downs" on the Statements of Operations.
Sales of equity investments are recorded on the trade date. The basis on
which cost is determined in computing realized gains or losses is
specific identification.
Cash and Cash Equivalents
- - -------------------------
Cash and cash equivalents are principally comprised of cash invested in
demand accounts, accounts maintained with brokers and money market
instruments and are stated at cost plus accrued interest. The
Partnership considers all money market and short-term investments with an
original maturity of three months or less to be cash equivalents.
Net Realized Income (Loss) Per Unit
- - -----------------------------------
Net realized income (loss) per Unit is calculated by dividing the
weighted average number of Units outstanding for the years ended December
31, 1998, 1997 and 1996, of 106,990, 109,661 and 110,802, respectively,
into the total net realized income (loss) allocated to the Limited
Partners. The General Partners contributed an amount equal to 0.1% of
the total Limited Partner capital contributions and did not receive any
Partnership Units.
Provision for Income Taxes
- - --------------------------
No provision for income taxes has been made by the Partnership, as the
Partnership is not directly subject to taxation. The partners are to
report their respective shares of Partnership income or loss on their
individual tax returns.
The accompanying financial statements are prepared using generally
accepted accounting principles which may not equate to tax accounting.
The Partnership's total tax basis in investments was higher than the
reported total cost basis of $891,953 by $3,536,341 as of December 31,
1998.
Distributions
- - -------------
Distributions made to the Limited Partners are made among such partners
in the proportion their respective capital accounts bear to the total of
all capital accounts of the group. Future distributions will be
dependent upon available cash from loan repayments and equity investment
sales. After a reasonable amount of time, unnegotiated distribution
checks, if any, are recorded as other liabilities on the Balance Sheets.
2. Financing 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
--------------------------
Included in costs and expenses are related party costs as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Management fees $ 6,646 16,334 25,365
Reimbursable operating expenses:
Administrative and investor
services 269,234 160,586 146,997
Lending operations and
investment management 34,578 30,776 41,538
Computer services 25,311 39,927 62,872
</TABLE>
Management fees, payable quarterly, are equal to one-half of one percent
of Partnership assets under management. Management fees compensate the
Managing General Partner solely for General Partner Overhead (as defined
in the Partnership Agreement) incurred in supervising the operation,
management, and progress of Partnership loans to borrowing companies and
its portfolio of warrants and capital stock of borrowing companies, as
well as for the general administration of the Partnership. Currently,
management fees are only paid to the extent that the aggregate amount of
all proceeds (including warrants exercised without cash) received by the
Partnership from the sale or other disposition of borrowing company
equities, plus the aggregate fair market value of any equity securities
distributed to the partners, exceeds the total management fee payable.
Management fees payable were $12,712 and $6,066 at December 31, 1998 and
1997, respectively.
The Partnership reimburses the Managing General Partner and affiliates
for operating expenses incurred in connection with the business of the
partnership. Reimbursable operating expenses include expenses (other
than Organizational and Offering and General Partner Overhead) such as
investment operations, administrative and investor services, and computer
services. At December 31, 1998 and 1997, due to related parties for such
expenses were $290,351 and $100,928, respectively.
The Managing General Partner allocates operating expenses incurred in
connection with the business of the Partnership based on employee hours
incurred. In 1998, operating cost allocations to the Partnership were
re-evaluated. The Managing General Partner determined that they had not
fully recovered allocable operating expenses, primarily salary, benefits,
and professional fees, as permitted by the Partnership Agreement. As a
result, the Partnership was charged additional operating expenses of
$110,142, consisting of $12,302, $17,238, and $80,602 for 1997, 1996, and
prior years, respectively. Had the additional expenses been recorded in
prior years, operating expenses would have been $300,428, $335,989, and
$298,240 for 1998, 1997 and 1996, respectively.
During 1996, the Partnership received reimbursements of $46,290 from
portfolio companies primarily for legal, consulting, and other costs
incurred in prior periods in the defense of the Partnership's secured
note rights through bankruptcy court. The reimbursements were recorded
as a reduction to lending operations and investment management expense.
Effective November 1, 1997, TFL assigned its California office lease to
Technology Funding Property Management LLC (TFPM), an entity that is
affiliated to the Managing General Partner. Under the terms of a rent
agreement, TFPM charges the Partnership for its share of office rent and
related overhead costs. These amounts are included in administrative and
investor service costs.
Under the terms of a computer service agreement, Technology
Administrative Management, a division of TFI, charges the Partnership for
its share of computer support costs. These amounts are included in
computer services expenses.
Within the normal course of business, the Partnership participates in
secured notes receivable granted to non-affiliated borrowing companies by
affiliated partnerships which are also managed by the General Partners.
The Partnership may also reparticipate such secured notes receivable
amongst affiliated partnerships to meet business needs. At December 31,
1998 and 1997, $4,340 of such amounts were due to affiliated
partnerships.
The Partnership owns approximately 80% of MARCorp, a portfolio company.
In addition, the Partnership and affiliated partnerships have secured
notes receivable from MARCorp.
The Partnership together with affiliated entities own a 66% interest in
Cyclean, Inc., a portfolio company. In addition, the Partnership and
affiliated partnerships wholly own Cyclean of Los Angeles, LLC ("CLA"), a
portfolio company. The Partnership has secured notes receivable from
Cyclean, Inc. and affiliated entities have secured notes receivable from
both Cyclean, Inc. and CLA.
In 1996, a portfolio company of the Partnership and affiliated
partnerships entered into a joint venture with the General Partners to
perform investment recovery efforts in order to increase the future
investment returns to the Partnership. The General Partners agreed to
waive any "post-conversion" profit interest in the Partnership
attributable to any such recoveries for a share of the joint venture net
profits. The post-conversion profit is pursuant to, and as defined in,
the profit and loss provisions of the Partnership Agreement. Through
December 31, 1998, the Partnership has realized no recoveries, and the
General Partners had not realized any profit from the joint venture.
4. Allocation of Profits and Losses
--------------------------------
Net realized loss of the Partnership is allocated 99% to the Limited
Partners as a group and 1% to the General Partners as a group.
Net realized profit of the Partnership is allocated based on the
beginning-of-year partners' capital balances as follows:
(A) 99% to the Limited Partners as a group and 1% to the General
Partners until conversion, which is defined as such time
when:
(i) the amount of cash plus the value of any securities
distributed to the Limited Partners equals the
aggregate initial capital contributions of all the
Limited Partners; and
(ii) an 8% per annum cumulative, compounded return on the
adjusted capital contributions (i.e., initial capital
contributions less all amounts distributed) of all
Limited Partners has been achieved.
(B) Thereafter (post conversion), 80% to the Limited Partners as
a group and 20% to the General Partners as a group, except
as provided below.
The Partnership Agreement defines adjusted capital contribution, with
respect to any Limited Partner, as the capital contribution as reduced,
but not below zero, by (i) all prior tax distributions of cash to such
Limited Partner and (ii) the aggregate value (determined at the time of
distribution) of any securities distributed to such Limited Partner.
Limited Partners that subscribed to the first 60,000 Units accepted by
the Partnership will be allocated all of the General Partners' post-
conversion profits in excess of a 1% minimum allocation until such time
as each such Limited Partner has received total distributions from the
Partnership equal to their capital contribution plus a specified annual
priority return, ranging between 9% and 18%, on their adjusted capital
contribution. Once the lowest priority return is met, the profits will
be allocated to those Limited Partners who have not yet received their
priority returns. Thereafter, the General Partners will receive their
full post-conversion profits.
5. Secured Notes Receivable, Net
-----------------------------
At December 31, 1998 and 1997, secured notes receivable consisted of:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------- -----------------
Investment Cost Fair Cost Fair
Industry/Company Date Position Basis Value Basis Value
- - ---------------- ---------- -------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Industrial/Business Automation
- - ------------------------------
Cyclean, Inc. 09/87- Secured notes
09/94 receivable, plus
interest, totaling
$978,192 $443,572 589,063 443,572 65,572
Computers and Computer Equipment
- - --------------------------------
MARCorp 12/89- Secured notes
02/93 receivable, plus
interest, totaling
$9,291,591 406,523 1,634,032 406,523 344,523
------- --------- ------- -------
Total 850,095 2,223,095 850,095 410,095
Unamortized discount (all related to Cyclean, Inc.) (124,871) (124,871) (124,871) (124,871)
------- --------- ------- -------
Total secured notes receivable $725,224 2,098,224 725,224 285,224
======= ========= ======= =======
</TABLE>
Cyclean, Inc.
- - -------------
The Partnership has valued its secured notes receivable investment in the
company at its estimated share of proceeds that could result from a current
sale or liquidation. Because the company is an on going operation and not
currently pursuing sale or liquidation, there are inherent uncertainties
involved in estimating these proceeds. The estimated fair value of
$464,192 at December 31, 1998 may differ significantly from a value that
would have been used had the ultimate realization of the investment been
known, and the differences could be material.
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. The fair market value of
these proceeds at December 31, 1998 was $1,634,032. In February 1999, the
Partnership received $364,385 of these proceeds, the remainder of which are
due to be received no later than August 2000.
Changes in the net unrealized fair value of secured notes receivable were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C>
Net unrealized fair value decrease
from cost at beginning of year $ (440,000) (440,000) (255,000)
Change in net unrealized fair value
of secured notes receivable 1,813,000 -- (185,000)
--------- ------- -------
Net unrealized fair value increase
(decrease) from cost at end of year $1,373,000 (440,000) (440,000)
========= ======= =======
</TABLE>
The notes are secured by specific assets of the borrowing companies, and
interest rates at December 31, 1998, ranged from 12% to 13%. Scheduled
principal repayments are $443,573 and $406,522 for 1999 and 2000,
respectively. Secured notes receivable which are due on demand are
included as principal repayments in 1999. In addition, the Managing
General Partner may at times need to restructure notes by either extending
maturity dates or converting notes into equity investments to increase the
ultimate collectibility of the Partnership's investments.
The secured notes receivable portfolio at December 31, 1998 and 1997, was
on nonaccrual status due to uncertainty of the borrowers' financial
conditions. 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.
6. Equity Investments
------------------
At December 31, 1998, and December 31, 1997, equity investments consisted of:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------- -----------------
Investment Cost Fair Cost Fair
Industry/Company Date Position Basis Value Basis Value
- - ---------------- ---------- -------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
WARRANTS:
Industrial/Business Automation
- - ------------------------------
Cyclean, Inc. 09/87- Common share
09/94 warrants for
233,444 shares (1) $ 0 0 0 0
------- ------- ------- -------
Total warrants 0 0 0 0
------- ------- ------- -------
STOCKS:
Computers and Computer Equipment
- - --------------------------------
Censtor Corp. 05/95 21,178 Common
shares 0 0 11,178 0
MARCorp 12/89- 1,545,557 Series A
02/93 Preferred shares 0 0 0 0
MARCorp 05/92 Convertible
subordinated
debenture,
$2,813,898
principal amount 0 0 0 0
Industrial/Business Automation
- - ------------------------------
Cyclean, Inc. 09/94- 51,024 Series D
04/96 Preferred shares 124,790 0 124,790 0
Cyclean of 03/95 Class A LLC Unit
Los Angeles, LLC 11% ownership 2,816 0 2,816 0
Medical
- - -------
HemoCleanse, Inc. 03/95- 60,604 Common
01/97 shares 39,123 0 39,123 121,208
Resonex Holding 02/94 22,804 Common
Corporation shares 0 0 0 0
Microelectronics
- - ----------------
Celeritek, Inc. 5/94- 11,847 Common
12/97 shares -- -- 83,289 165,029
------- ------- ------- -------
Total stocks 166,729 0 261,196 286,237
------- ------- ------- -------
Total equity investments $166,729 0 261,196 286,237
======= ======= ======= =======
- - -- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(1) Cyclean, Inc. common share warrants are exercisable at prices ranging from $2.74 to $3.10
per share and expire on dates ranging from 03/99 to 07/02.
</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 gain at
December 31, 1997, did not include any gross losses. All of the
Partnership's marketable equity securities were sold in 1998.
Celeritek, Inc.
- - ---------------
In 1998, the Partnership sold its remaining investment in the company for
total proceeds of $138,368 and realized a gain of $55,079.
Censtor Corp.
- - -------------
In December 1998, the Partnership wrote off the cost basis of its
investment and realized a loss off $11,178. This was based on recent
sales of the company's securities by an entity affiliated with the
Managing General Partner which indicate that the Partnership's shares
have no realizable value.
HemoCleanse, Inc.
- - -----------------
In September 1998, the Partnership wrote off the fair value of its
investment based on the opinion of the Managing General Partner that the
current operating status of the company indicated a decline in fair
value.
7. Change in Net Unrealized Fair Value of Equity Investments
---------------------------------------------------------
In accordance with the Partnership's accounting policy as stated in Note
1, the Statements of Operations include a line item entitled "Change in
net unrealized fair value of equity investments. " The table below
discloses details of the changes:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Increase in fair value from cost
of marketable equity securities $ -- 81,742 156,162
(Decrease) increase in fair value
from cost of non-marketable
equity securities (166,729) (56,701) 48,332
------- ------- -------
Net unrealized fair value
(decrease) increase from cost
at end of year (166,729) 25,041 204,494
Net unrealized fair value
increase from cost at
beginning of year 25,041 204,494 107,888
------- ------- -------
Change in net unrealized
fair value of equity
investments $(191,770) (179,453) 96,606
======= ======= =======
</TABLE>
8. Litigation and Other Investment Expenses
-----------------------------------------
In March 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
1997, a counterclaim 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 was 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 and 1996 of $76,905 and $64,341,
respectively, reflect the participated cost of this legal action.
9. Cash and Cash Equivalents
-------------------------
At December 31, 1998 and 1997, cash and cash equivalents consisted of:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Demand and brokerage accounts $6,608 9,195
Money-market accounts 412 58,873
----- ------
Total $7,020 68,068
===== ======
</TABLE>
10. Repurchase of Limited Partnership Interests
-------------------------------------------
Each June, subject to the limitations of the Partnership agreement,
Limited Partners may tender their Units for repurchase by the
Partnership. The price paid for any Units tendered is based on the June
30 estimated fair value of the Partnership. Units repurchased and the
amounts paid were 2,914 Units for $20,602 in 1997 and 1,197 Units for
$12,418 in 1996. The Partnership did not repurchase Units in 1998.
<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: March 29, 1999 By: /s/Michael Brenner
-----------------------------
Michael Brenner
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/Charles R. Kokesh President, Chief March 29, 1999
- - ------------------------ Executive Officer,
Charles R. Kokesh Chief Financial Officer,
and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
The above represents the Board of Directors of Technology Funding Inc.
and the General Partners of Technology Funding Ltd.
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-K AS OF DECEMBER 31, 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> DEC-31-1998
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 891,953
<INVESTMENTS-AT-VALUE> 2,098,224
<RECEIVABLES> 0
<ASSETS-OTHER> 1,052
<OTHER-ITEMS-ASSETS> 7,020
<TOTAL-ASSETS> 2,106,296
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 345,261
<TOTAL-LIABILITIES> 345,261
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 554,764
<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> 1,761,035
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 287
<OTHER-INCOME> 0
<EXPENSES-NET> 417,216
<NET-INVESTMENT-INCOME> (416,929)
<REALIZED-GAINS-CURRENT> 43,901
<APPREC-INCREASE-CURRENT> 1,621,230
<NET-CHANGE-FROM-OPS> 1,248,202
<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> 1,248,202
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,646
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 417,866
<AVERAGE-NET-ASSETS> 1,136,934
<PER-SHARE-NAV-BEGIN> 9
<PER-SHARE-NII> (3)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6
<EXPENSE-RATIO> 36.70
<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.
</FN>
</TABLE>
