<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, at fair value
(cost basis of $360,839 in 2000
and 1999) $ 83,600 1,448,839
Equity investments, at fair value
(cost basis of $166,729 in 2000
and 1999) 0 0
------- ---------
Total investments 83,600 1,448,839
Cash and cash equivalents 7,994 7,861
------- ---------
Total assets $ 91,594 1,456,700
======= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 18,829 26,096
Due to related parties 586,273 380,396
Other liabilities 647 647
------- ---------
Total liabilities 605,749 407,139
Commitments and contingencies
Partners' capital:
Limited Partners
(106,990 Units outstanding) 0 184,901
General Partners (70,187) (56,611)
Net unrealized (loss) gain:
Secured notes receivable (277,239) 1,088,000
Equity investments (166,729) (166,729)
------- ---------
Total partners' capital (514,155) 1,049,561
------- ---------
Total liabilities and
partners' capital $ 91,594 1,456,700
======= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
-----------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
----------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Short-term investment interest $ 9 6 24 680
--------- ------- --------- -------
Total income 9 6 24 680
Costs and expenses:
Management fees 4,614 7,518 14,784 24,546
Operating expenses:
Administrative and investor services 42,737 69,571 120,803 239,962
Investment operations 5,024 8,755 8,549 28,082
Professional fees 8,613 6,847 14,608 26,499
Computer services 10,527 20,668 39,757 52,539
--------- ------- --------- -------
Total operating expenses 66,901 105,841 183,717 347,082
--------- ------- --------- -------
Total costs and expenses 71,515 113,359 198,501 371,628
--------- ------- --------- -------
Net realized loss (71,506) (113,353) (198,477) (370,948)
Change in net unrealized
fair value of notes receivable (1,365,239) -- (1,365,239) --
--------- ------- --------- -------
Net loss (1,436,745) (113,353) (1,563,716) (370,948)
========= ======= ========= =======
Net realized loss per unit $ (.56) (1.05) (1.73) (3.43)
========= ======= ========= =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
-----------------------------------
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 24 680
Cash paid to vendors (79,993) (131,948)
Cash advanced by (paid to)
related parties 80,102 (232,131)
------ -------
Net cash provided (used) by operating
activities 133 (363,399)
------ -------
Cash flows from investing activities:
Repayments of secured notes receivable -- 364,385
------ -------
Net cash provided by investing
activities -- 364,385
------ -------
Net increase in cash
and cash equivalents 133 986
Cash and cash equivalents at beginning
of year 7,861 7,020
------ -------
Cash and cash equivalents
at September 30 $ 7,994 8,006
====== =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
-----------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------------
2000 1999
-------- --------
<S> <C> <C>
Reconciliation of net loss
to net cash provided (used) by
operating activities:
Net loss $(1,563,716) (370,948)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Change in net unrealized fair
value of notes receivable 1,365,239 --
Changes in:
Due to related parties 205,877 10,258
Other (7,267) (2,709)
---------- -------
Net cash provided (used) by
operating activities $ 133 (363,399)
========== =======
</TABLE>
See accompanying notes to unaudited 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 the 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, 1999. 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 General Partners have made loans to the Partnership to finance its
recurring losses from on-going operations. The Partnership has very
limited cash resources and primarily illiquid assets. The General Partners
are under no obligation to continue the financing of the Partnership's
daily operations and may elect to discontinue such support at any time
during the remaining life of the Partnership.
The uncertainties arising from these circumstances raise substantial doubt
about the Partnership's ability to continue as a going concern. The
accompanying interim financial statements do not include any adjustments
that might result from the outcome of these uncertainties. The Partnership
has been advised by its independent public accountants that should the
uncertainties surrounding the Partnership's future operations remain
unresolved at year-end, their report on those financial statements will be
modified for that contingency.
3. Fair Value of Investments
-------------------------
The Partnership's investments are valued at fair value as determined in
good faith by the Managing General Partner in the absence of readily
available market quotations. At this stage of the Partnership's life, the
holdings in the Partnership's portfolio are limited to companies for which
any estimate of fair value is highly subjective. Therefore, in August
2000, the General Partners engaged an independent third party to appraise
the Partnership's remaining portfolio companies. Based upon the final
appraisal report received in October 2000, the Managing General Partner has
determined that the fair value of the Partnership's investments in
portfolio companies totals $83,600 at September 30, 2000. The Managing
General Partner is currently pursuing the sale of these investments. The
fair value at September 30, 2000 may differ significantly from a value that
would have been used had the ultimate proceeds from sale of the investments
been known.
4. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the nine months ended
September 30, 2000 and 1999, were as follows:
2000 1999
------ ------
Management fees $ 14,784 24,546
Reimbursable operating expenses 110,991 217,843
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 September 30, 2000 and December 31, 1999,
due to related parties for such expenses were $534,187 and $343,094,
respectively.
At September 30, 2000 and December 31, 1999, management fees payable were
$46,117 and $31,333, respectively, and due to affiliated partnerships for
reparticipated secured notes receivable were $5,969. Management fees,
payable quarterly, are equal to one-half of one percent of partnership
assets under management.
5. Secured Notes Receivable, Net
-----------------------------
At September 30, 2000 secured notes receivable consisted of:
Investment Cost Fair
Portfolio Company Date Position Basis Value
----------------- ---------- -------- ----- -----
Secured notes
Cyclean, Inc. 09/87-09/94 receivable $318,701 51,400
Secured notes
MARCorp 12/89-02/93 receivable 42,138 32,200
------- -------
Total secured notes receivable $360,839 83,600
======= =======
As discussed in Note 3, the Managing General Partner obtained an appraisal
of the Partnership's remaining assets in the following portfolio companies
from an independent third party. The Managing General Partner is currently
pursuing the sale of these investments. The fair value at September 30,
2000 may differ significantly from a value that would have been used had
the ultimate proceeds from sale of the investments been known.
Cyclean, Inc.
-------------
The fair value of the company's assets is estimated to range from
$1,751,334 to $2,824,000. However, the company's debt totals over
$22,872,000. Assuming that the partnership's notes would be paid on a pro
rata basis from the proceeds of a sale of the company's assets, the
appraised value of the Partnership's notes receivable is approximately
$51,400.
MARCorp
-------
The company is pursuing several options, including debt buy-downs, capital
restructuring and additional financing. After assessing the reasonable
probabilities of the possible scenarios, the appraised value of the
Partnership's interest in the company is approximately $32,200.
Changes in the net unrealized fair value of secured notes receivable were
as follows:
Net unrealized fair value of secured notes
receivable at January 1, 2000 $ 1,448,839
Net unrealized fair value of secured notes
receivable at September 30, 2000 83,600
---------
Change in net unrealized fair value of
secured notes receivable $(1,365,239)
=========
The decrease in unrealized fair value is a result of changes in the
estimated fair value of the investments described above.
6. Equity Investments
------------------
At September 30, 2000 equity investments consisted of:
Investment Cost Fair
Portfolio Company Date Position Basis Value
----------------- ---------- -------- ----- -----
51,024 Series D
Cyclean, Inc. 09/94-04/96 Preferred shares $124,790 0
Cyclean of Class A LLC Unit
Los Angeles, LLC 03/95 11% ownership 2,816 0
60,604 Common
HemoCleanse, Inc. 03/95-01/97 shares 39,123 0
------- -------
Total equity investments $166,729 0
======= =======
The fair value at September 30, 2000 is consistent with the final appraisal
discussed in Note 3. There has been no change in the fair value of equity
investments since December 31, 1999.
7. Cash and Cash Equivalents
-------------------------
At September 30, 2000, and December 31, 1999, cash and cash equivalents
consisted of:
2000 1999
-------- --------
Demand and brokerage accounts $7,455 7,078
Money market accounts 539 783
----- -----
Total $7,994 7,861
===== =====
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
-------------------------------
During the nine months ended September 30, 2000, net cash provided by
operating activities totaled $133. The Partnership received advances from
the Managing General Partners totaling $80,102 to fund its operations.
Other operating expenses of $79,993 were paid and interest income of $24
was received.
Cash and cash equivalents at September 30, 2000, were $7,994. The General
Partners have made loans to the Partnership to finance its recurring losses
from on-going operations. The Partnership has very limited cash resources
and primarily illiquid assets. The General Partners are under no
obligation to continue financing the Partnership's daily operations and may
elect to discontinue such support at any time during the remaining life of
the Partnership.
The uncertainties arising from these circumstances raise substantial doubt
about the Partnership's ability to continue as a going concern. The
accompanying interim financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
The Partnership's investments are valued at fair value as determined in
good faith by the Managing General Partner in the absence of readily
available market quotations. At this stage of the Partnership's life, the
holdings in the Partnership's portfolio are limited to troubled companies
for which any estimate of fair value is highly subjective. Therefore, in
August 2000, the General Partners engaged an independent third party to
appraise the Partnership's remaining portfolio companies. Based upon the
final appraisal report received in October 2000, the Managing General
Partner has determined that the fair value of the Partnership's investments
in portfolio companies totals $83,600 at September 30, 2000. The Managing
General Partner is currently pursuing the sale of these investments. The
fair value at September 30, 2000 may differ significantly from a value that
would have been used had the ultimate proceeds from sale of the investments
been known.
Results of Operations
---------------------
Current quarter compared to corresponding quarter in the preceding year
-----------------------------------------------------------------------
Net losses were $1,436,745 and $113,353 for the quarters ended September
30, 2000 and 1999, respectively. The increase in net loss in the current
period was primarily due to a $1,365,239 decrease in the change in net
unrealized fair value of notes receivable, partially offset by a $38,940
decrease in total operating expenses.
The fair value of secured notes receivable decreased $1,365,239 in the
three months ended September 30, 2000 as a result of a decline in estimated
fair value. There was no change in the fair value of secured notes
receivable during the quarter ended September 30, 1999.
Total operating expenses were $66,901 and $105,841 for the quarters ended
September 30, 2000 and 1999, respectively. The decrease is primarily
attributable to decreased investment monitoring, administrative and
computer services expenses.
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 nine months compared to corresponding nine months in the
---------------------------------------------------------------
preceding year
--------------
Net losses for the nine months ended September 30, 2000 and 1999, were
$1,563,716 and $370,948, respectively. The increase in net loss was
primarily attributable to a $1,365,239 decrease in the change in net
unrealized fair value of notes receivable, partially offset by a $163,365
decrease in operating expenses.
During the nine months ended September 30, 2000, the decrease in fair value
of secured notes receivable of $1,365,239 was a result of a decline in
estimated fair value. There was no change in the fair value of secured
notes receivable in 1999.
Total operating expenses were $183,717 and $347,082 for the nine months
ended September 30, 2000 and 1999, respectively. The decrease is primarily
attributable to decreased investment monitoring activity and related
administrative, computer services and professional costs.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Form 8-K was filed by the Partnership on September 12, 2000 to report
the resignation of KPMG LLP as the Partnership's independent
accountants. A Form 8-K/A was filed by the Fund on September 25, 2000
with KPMG LLP's letter in response to the Form 8-K.
A Form 8-K was filed by the Partnership on November 13, 2000 to
report the appointment of Arthur Andersen LLP as the Partnership's
independent public accountants.
(b) Financial Data Schedule for the nine months ended and as of September
30, 2000 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING SECURED INVESTORS I
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: November 14, 2000 By: /s/Charles R. Kokesh
-----------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc.
