<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, 1996
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. 814-124
TECHNOLOGY FUNDING MEDICAL PARTNERS I, L.P.
-------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 94-3166762
- ------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(415) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units cannot be
determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Equity investments(cost basis of
$2,357,922 and $2,094,559 in
1996 and 1995, respectively) $2,576,569 2,086,082
Cash and cash equivalents 3,607,324 3,948,745
Organizational costs (net of
accumulated amortization of
$20,000 and $18,000 in 1996
and 1995, respectively) 20,000 22,000
Other Assets 11,860 874
--------- ---------
Total $6,215,753 6,057,701
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 18,954 20,115
Due to related parties -- 39,486
--------- ---------
Total liabilities 18,954 59,601
Commitments (Notes 3 and 6)
Partners' capital:
Limited Partners (Units
outstanding of 79,716
in both 1996 and 1995) 5,983,020 6,011,161
General Partners (4,868) (4,584)
Net unrealized fair value increase
(decrease) from cost of equity
investments 218,647 (8,477)
--------- ---------
Total partners' capital 6,196,799 5,998,100
--------- ---------
Total $6,215,753 6,057,701
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
Interest income $ 51,532 53,191
Costs and expenses:
Management fees 39,649 63,537
Individual general partners' compensation 5,196 4,500
Amortization of organizational costs 2,000 2,000
Operating expenses:
Administrative and investor services 29,637 90,046
Investment operations 15,858 32,982
Computer services 4,267 9,980
Professional fees 7,611 21,543
Expenses absorbed by General Partners (24,261) (33,111)
------- ------
Total operating expenses 33,112 121,440
------- -------
Total costs and expenses 79,957 191,477
------- -------
Net realized loss (28,425) (138,286)
Change in net unrealized fair value
of equity investments 227,124 (12,066)
------- -------
Net income (loss) $ 198,699 (150,352)
======= =======
Net realized loss per Unit $ -- (2)
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 50,203 53,191
Cash paid to vendors (20,382) (26,448)
Cash paid to related parties (109,208) (158,176)
--------- ---------
Net cash used by operating activities (79,387) (131,433)
--------- ---------
Cash flows from investing activities:
Purchase of equity investments (262,034) --
--------- ---------
Net cash used by investing activities (262,034) --
--------- ---------
Cash flows from financing activities:
Proceeds from sale of limited partnership
interests -- 1,136,636
General Partners' capital contribution -- 1,139
Distribution of offering period income -- (45,924)
Payments for syndication fees -- (128,597)
--------- ---------
Net cash provided by financing activities -- 963,254
--------- ---------
Net (decrease) increase in cash and
cash equivalents (341,421) 831,821
Cash and cash equivalents at beginning
of year 3,948,745 3,571,768
--------- ---------
Cash and cash equivalents at March 31 $3,607,324 4,403,589
========= =========
Reconciliation of net income (loss) to net
cash used by operating activities:
Net income (loss) $ 198,699 (150,352)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Amortization of organizational costs 2,000 2,000
Change in net unrealized fair value
of equity investments (227,124) 12,066
Changes in:
Due to/from related parties (50,940) 1,256
Other, net (2,022) 3,597
--------- ---------
Net cash used by operating activities $ (79,387) (131,433)
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partners, the Balance Sheets as
of March 31, 1996 and December 31, 1995, and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 1996 and 1995, 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, 1995. The following notes to financial statements for
activity through March 31, 1996 supplement those included in the Annual
Report on Form 10-K. Certain 1995 balances have been reclassified to
conform with the 1996 financial statement presentation.
2. Net Realized Loss Per Limited Partner 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 of 79,716 and 66,347 for the three
months ended March 31, 1996 and 1995, respectively.
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, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Management fees $ 39,649 63,537
Syndication fees -- 128,597
Individual general partners' compensation 5,196 4,500
Amortization of organizational costs 2,000 2,000
Reimbursable operating expenses 37,684 124,506
Expenses absorbed by General Partners (24,261) (33,111)
</TABLE>
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Managing General Partners and are adjusted to
actual costs periodically. Amounts due from related parties for such
expenses were $24,670 (included in "other assets") at March 31, 1996
compared to $26,270 due to related parties at December 31, 1995. For
the quarter ended March 31, 1995, the Partnership recognized additional
reimbursable operating expenses totaling $89,086 that were recorded as a
contingent liability at December 31, 1994. Of this amount, $33,111 was
absorbed by the Managing General Partners as the limitation was in
effect.
Amounts due to related parties for management fees were $13,216 at both
March 31, 1996 and December 31, 1995. Pursuant to the Partnership
Agreement, a full first year fee is paid to the Managing General
Partners as each additional Limited Partner is admitted to the
Partnership, regardless of the date the Limited Partner is admitted. In
May 1995, the Partnership closed the offering with 19,076 additional
Units sold during early 1995.
Pursuant to the Partnership Agreement, the Partnership may not pay or
reimburse the Managing General Partners for operational costs that
aggregate more than 3% of total Limited Partner capital contributions.
For purposes of this limitation, the Partnership's operating year begins
May 3rd.
4. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1995 is in the 1995 Annual Report. Activity from January 1 through
March 31, 1996 consisted of
<TABLE>
<CAPTION>
January 1 -
March 31, 1996
Principal ------------------
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,094,559 2,086,082
--------- ---------
Significant changes:
Biotechnology
- -------------
CV Therapeutics, Inc. Series G
Preferred
shares 03/96 19,034 16,368 37,687
CV Therapeutics, Inc. Common
share warrant
at $.25;
expiring
03/99 03/96 28,551 21,700 49,964
Redcell, Inc. Convertible
note (1) 02/96 $89,966 90,786 90,786
Diagnostic Equipment
- --------------------
R2 Technology, Inc. Series A-1
Preferred
shares 05/94 100,000 0 84,000
R2 Technology, Inc. Convertible
note (1) 11/95 $33,332 (33,759) (33,759)
R2 Technology, Inc. Series B-1
Preferred
shares 03/96 17,134 34,268 34,268
Pharmaceuticals
- ---------------
Periodontix, Series A
Inc. Preferred
shares 12/93 100,000 0 100,000
Periodontix, Series B
Inc. Preferred
shares 02/96 67,000 134,000 134,000
-------- ---------
Total significant changes during
the three months ended March 31, 1996 263,363 496,946
Other changes, net 0 (6,459)
--------- ---------
Total equity investments at March 31, 1996 $2,357,922 2,576,569
========= =========
(1) Convertible notes include accrued interest. Interest rates on notes issued in 1996
ranged from 8% to 9%.
</TABLE>
Marketable Equity Securities
- ----------------------------
As of March 31, 1996, marketable equity securities had an aggregate cost
of $132,313 and an aggregate fair value of $100,936. The unrealized loss
at March 31, 1996 included gross losses of $31,377. As of December 31,
1995, there were no marketable equity securities.
CV Therapeutics, Inc.
- ---------------------
In March 1996, the Partnership made an additional investment in the
company by purchasing 19,034 Series G Preferred shares and a warrant for
28,551 common shares at a total cost of $38,068. The fair values above
reflect the valuation of this financing, resulting in an increase in the
change in fair value of $49,583.
Periodontix, Inc.
- -----------------
In February 1996, the Partnership made an additional investment in the
company by purchasing 67,000 Series B Preferred shares at for $134,000.
The pricing of this round indicated an increase in the change of fair
value of $100,000 for the Partnership's existing investment.
R2 Technology, Inc.
- -------------------
In March 1996, the Partnership purchased 17,134 Series B-1 Preferred
shares by converting the November 1995 $33,332 note including accrued
interest of $936 for a total cost of $34,268. The pricing of this
conversion financing round in which third parties participated indicated
an increase in the change in fair value of $84,000 for the Partnership's
existing investment.
Redcell, Inc.
- -------------
In February 1996, the Partnership issued $89,966 in convertible notes to
the company.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at March 31, 1996 and December 31, 1995
consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand accounts $ 13,981 606
Money-market accounts 3,593,343 3,948,139
--------- ---------
Total $3,607,324 3,948,745
========= =========
</TABLE>
6. Commitments
-----------
The Partnership is a party to financial instruments with off-balance-
sheet risk in the normal course of its business. Generally, these
instruments are commitments for future equity fundings, venture capital
limited partnership investments, equipment financing commitments, or
accounts receivable lines of credit that are outstanding but not
currently fully utilized. As they do not represent current outstanding
balances, these unfunded commitments are properly not recognized in the
financial statements. At March 31, 1996, the Partnership had unfunded
commitments of $50,000 related to venture capital limited partnership
investments, and $162,250 related to equity investments.
<PAGE>
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, 1996, net cash used by operating
activities totaled $79,387. The Partnership paid management fees of
$39,649 to the Managing General Partners and reimbursed related parties
for operating expenses of $64,363. In addition, $5,196 was paid to the
individual general partners as compensation for their services. Other
operating expenses of $20,382 were paid. The Partnership received
$50,203 in interest income.
During the quarter ended March 31, 1996, the Partnership purchased
$262,034 equity investments primarily in portfolio companies in the
pharmaceuticals and biotechnology industries.
Cash and cash equivalents at March 31, 1996 were $3,607,324. At March
31, 1996, the Partnership was committed to fund additional investments
totaling $212,250. Interest income earned on short-term investments, and
operating cash reserves are expected to be adequate to fund Partnership
operations through the next twelve months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net income was $198,699 during the three months ended March 31, 1996
compared to a net loss of $150,352 for the same period in 1995. The
change was primarily due to a $239,190 increase in the change in net
unrealized fair value of equity investments and an $88,328 decrease in
total operating expenses.
The Partnership recorded an increase in fair value of equity investments
of $227,124 during the quarter ended March 31, 1996 compared to a
decrease of $12,066 during the same period in 1995. The 1996 increase
was primarily due to increases in portfolio companies in the diagnostic
equipment and pharmaceuticals industries.
Total operating expenses were $33,112 and $121,440 for the quarters ended
March 31, 1996 and 1995, respectively. As explained in Note 3, the
Partnership may not pay or reimburse the Managing General Partners for
operational costs that aggregate more than 3% of total Limited Partner
capital contributions. As a result, operating expenses of $24,261 and
$33,111 were absorbed by the Managing General Partners in 1996 and 1995,
respectively. In addition, the 1995 expenses included $55,975 in
contingent liabilities which was recognized upon completion of Unit sales
in May 1995. Had the limitation not been in effect and the contingent
liability recognition not occurred in 1995, total operating expenses
would have been $57,373 and $98,576 for 1996 and 1995, respectively. The
decrease was primarily due to lower overall Partnership activities.
The Partnership incurred management fees of $39,649 and $63,357 during
the quarters ended March 31, 1996 and 1995, respectively. The management
fee, as defined in the Partnership Agreement, is equal to two percent of
total Limited Partners' capital contributions for the first year of
Partnership operations through the sixth year. Pursuant to the
Partnership Agreement, a full first year fee is paid to the Managing
General Partners as each additional Limited Partner is admitted to the
Partnership, regardless of the date the Limited Partner is admitted.
In 1995, management fees were higher due to the sale of new Units.
Given the inherent risk associated with the business of the Partnership,
the future performance of portfolio company investments may significantly
impact future operations.
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, 1996.
(b) Financial Data Schedule for the quarter ended and as of March 31,
1996 (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 MEDICAL PARTNERS I, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: May 10, 1996 By: /s/Debbie A. Wong
-----------------------------------
Debbie A. Wong
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 2,357,922
<INVESTMENTS-AT-VALUE> 2,576,569
<RECEIVABLES> 0
<ASSETS-OTHER> 31,860
<OTHER-ITEMS-ASSETS> 3,607,324
<TOTAL-ASSETS> 6,215,753
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,954
<TOTAL-LIABILITIES> 18,954
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,978,152
<SHARES-COMMON-STOCK> 79,716
<SHARES-COMMON-PRIOR> 79,716
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 218,647
<NET-ASSETS> 6,196,799
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 51,532
<OTHER-INCOME> 0
<EXPENSES-NET> (79,957)
<NET-INVESTMENT-INCOME> (28,425)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 227,124
<NET-CHANGE-FROM-OPS> 198,699
<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> 198,699
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39,649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 80,207
<AVERAGE-NET-ASSETS> 6,097,449
<PER-SHARE-NAV-BEGIN> 75
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 75
<EXPENSE-RATIO> 1.3
<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. Only taxable gains or losses are allocated in accordance with
the Partnership Agreement.
</FN>
</TABLE>
