<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, 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)
September 30, December 31,
1996 1995
-------------- ------------
<S> <C> <C>
ASSETS
Equity investments (cost basis of
$3,273,583 and $2,094,559 in
1996 and 1995, respectively) $3,599,047 2,086,082
Cash and cash equivalents 2,425,606 3,948,745
Organizational costs (net of
accumulated amortization of
$24,000 and $18,000 in 1996
and 1995, respectively) 16,000 22,000
Other Assets 1,761 874
--------- ---------
Total $6,042,414 6,057,701
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 29,569 20,115
Due to related parties 16,171 39,486
--------- ---------
Total liabilities 45,740 59,601
Commitments (Notes 3 and 6)
Partners' capital:
Limited Partners (Units
outstanding of 79,716
in both 1996 and 1995) 5,679,147 6,011,161
General Partners (7,937) (4,584)
Net unrealized fair value increase
(decrease) from cost of equity
investments 325,464 (8,477)
--------- ---------
Total partners' capital 5,996,674 5,998,100
--------- ---------
Total $6,042,414 6,057,701
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
----------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $ 43,461 64,523 140,814 186,689
Costs and expenses:
Management fees 39,650 39,649 118,948 164,484
Individual General Partners'
compensation 7,519 9,022 23,284 24,022
Amortization of organizational
costs 2,000 2,000 6,000 6,000
Operating expenses:
Administrative and investor
services 38,039 33,971 121,067 172,166
Investment operations 8,572 12,952 47,816 62,613
Professional fees 23,556 5,871 55,504 41,332
Computer services 7,350 6,921 25,604 22,403
Expenses absorbed by
General Partners -- -- (50,162) (52,168)
Expenses not subject
to limitation -- -- 128,120 --
------- ------- ------- -------
Total operating expenses 77,517 59,715 327,949 246,346
------- ------- ------- -------
Total costs and expenses 126,686 110,386 476,181 440,852
------- ------- ------- -------
Net realized loss (83,225) (45,863) (335,367) (254,163)
Change in net unrealized fair
value of equity investments 58,700 -- 333,941 (10,937)
------- ------- ------- -------
Net loss $(24,525) (45,863) (1,426) (265,100)
======= ======= ======= =======
Net realized loss per Unit $ (1) (1) (4) (3)
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 132,047 186,689
Cash paid to vendors (96,300) (83,016)
Cash paid to related parties (394,629) (368,779)
--------- ---------
Net cash used by operating activities (358,882) (265,106)
--------- ---------
Cash flows from investing activities:
Purchase of equity investments (1,164,257) (494,763)
--------- ---------
Net cash used by investing activities (1,164,257) (494,763)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of limited partnership
interests -- 1,865,844
General Partners' capital contribution -- 1,868
Distribution of offering period income -- (123,713)
Payments for syndication fees -- (234,333)
--------- ---------
Net cash provided by financing activities -- 1,509,666
--------- ---------
Net (decrease) increase in cash and cash
equivalents (1,523,139) 749,797
Cash and cash equivalents at beginning
of year 3,948,745 3,571,768
--------- ---------
Cash and cash equivalents at September 30 $2,425,606 4,321,565
========= =========
Reconciliation of net loss to net
cash used by operating activities:
Net loss $ (1,426) (265,100)
Adjustments to reconcile net loss
to net cash used by operating activities:
Amortization of organizational costs 6,000 6,000
Change in net unrealized fair value
of equity investments (333,941) 10,937
Changes in:
Accounts payable and accrued expenses 9,454 (4,495)
Due to/from related parties (23,315) (11,105)
Other changes, net (15,654) (1,343)
--------- ---------
Net cash used by operating activities $ (358,882) (265,106)
========= =========
</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 September 30, 1996, and December 31, 1995, and the related Statements
of Operations for the three and nine months ended September 30, 1996,
and Statements of Cash Flows for the nine months ended September 30,
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
September 30, 1996, supplement the notes included in the Annual Report
on Form 10-K. Allocation of income and loss to Limited and General
Partners is based on cumulative income and loss. Adjustments, if any,
are reflected in the current quarter balances.
2. Net Realized Loss Per Unit
--------------------------
Net realized loss per Unit is calculated by dividing total net realized
loss allocated to the Limited Partners by the weighted average number of
Limited Partner Units outstanding of 79,716 and 73,008 for the nine
months ended September 30, 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 nine months ended
September 30, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Management fees $118,948 164,484
Syndication fees -- 234,333
Individual General Partners' compensation 23,284 24,022
Amortization of organizational costs 6,000 6,000
Reimbursable operating expenses 158,820 221,336
Expenses absorbed by General Partners (50,162) (52,168)
Expenses not subject to limitation 128,120 --
</TABLE>
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Managing General Partners and are adjusted to
actual costs periodically.
Pursuant to the Partnership Agreement, the Partnership shall reimburse
the Managing General Partners for operational costs incurred by the
Managing General Partners in conjunction with the business of the
Partnership. 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 the nine months ended
September 30, 1996 and 1995, the Managing General Partners absorbed
$50,162 and $52,168, respectively, in operating expenses. During 1996,
it was determined that operational costs paid directly by the
Partnership, which had previously been absorbed by the General Partners,
were not subject to this limitation; consequently, $128,120 was
reimbursed to related parties. Amounts due to related parties were
$2,955 and $26,270 at September 30, 1996, and December 31, 1995,
respectively.
Amounts due to related parties for management fees were $13,216 at both
September 30, 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 of 1995, the Partnership closed the offering with 19,076 additional
Units sold during early 1995.
During the nine months ended September 30, 1995, the Partnership paid
Technology Funding Securities Corporation ("TFSC"), the dealer-manager,
commissions and fees of $133,618 of which $118,711 was reallowed to
participating broker-dealers. In addition, the Partnership also paid
$7,424 for the nine months ended September 30, 1995, to TFSC for due
diligence expenses which TFSC paid to unaffiliated broker-dealers. No
such commissions and fees were paid for the same period in 1996.
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
September 30, 1996, consisted of
<TABLE>
<CAPTION>
January 1-
September 30, 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
- -------------
Acusphere, Inc. Series B
Preferred
shares 05/95 125,000 0 67,500
Acusphere, Inc. Series C
Preferred
shares 05/96 163,552 350,001 350,001
CV Therapeutics, Inc. Series G
Preferred
shares 03/96 19,034 16,368 38,068
CV Therapeutics, Inc. Common
share warrant
at $.25;
expiring
03/99 03/96 28,551 21,700 49,964
Prolinx, Inc. Series A
Preferred
shares 09/96 156,000 156,000 156,000
RedCell, Inc. Convertible
note (1) 02/96 $89,966 94,444 94,444
RedCell, Inc. Convertible
note (1) 07/96 $71,973 73,221 73,221
Medical/Diagnostic Equipment
- ----------------------------
Endocare, Inc. Common
shares 08/96 2,000 6,000 5,980
Endocare, Inc. Common
share
warrant
at $3.00
expiring
08/01 08/96 30,000 0 29,406
Endocare, Inc. Convertible
note (1) 08/96 $150,000 152,400 152,400
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
Health Information Systems
- --------------------------
CareCentric Series B
Solutions, Inc. Preferred
shares 09/96 76,764 130,499 130,499
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 nine months ended September 30, 1996 1,135,142 1,465,992
Other changes, net 43,882 46,973
--------- ---------
Total equity investments at September 30, 1996 $3,273,583 3,599,047
========= =========
(1) Convertible notes include accrued interest. Interest rates on notes issued in 1996
ranged from 8% to 16%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At September 30, 1996, marketable equity securities had an aggregate
cost of $135,442 and an aggregate fair value of $111,325. The
unrealized loss at September 30, 1996, did not include gross gains. At
December 31, 1995, there were no marketable equity securities.
Acusphere, Inc.
- -------------------
In May of 1996, the Partnership made an additional investment in the
company by purchasing 163,552 Series C Preferred shares for $350,001.
The pricing of this round indicated a fair value increase of $67,500 for
the Partnership's existing investment.
CV Therapeutics, Inc.
- ---------------------
In March of 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 for a total cost of $38,068. The fair values above
reflect the valuation of this financing, which resulted in an increase
in the change in fair value of $49,964.
CareCentric Solutions, Inc.
- ---------------------------
In September of 1996, the Partnership made an additional investment in
the company by purchasing 76,764 Series B Preferred shares for $130,499.
The pricing of this round, in which third parties participated,
indicated an increase in the change in fair value of $13,333 for the
Partnership's existing investment.
Endocare, Inc.
- --------------
In August of 1996, the Partnership issued $150,000 in convertible notes
receivable to the company and received a warrant to purchase 30,000
common shares. The Partnership also received 2,000 common shares of
Endocare, Inc., in lieu of loan fees. At September 30, 1996, the
Partnership recorded an increase in the change in fair value of $29,386
to reflect the publicly-traded market price of its common stock and
warrant investments; the fair value of which was adjusted to reflect a
discount for restricted securities.
Periodontix, Inc.
- -----------------
In February of 1996, the Partnership made an additional investment in
the company by purchasing 67,000 Series B Preferred shares for $134,000.
The pricing of this round indicated an increase in the change in fair
value of $100,000 for the Partnership's existing investment.
Prolinx, Inc.
- -------------
In September of 1996, the Partnership made an additional investment in
the company by purchasing 156,000 Series A Preferred shares for
$156,000.
R2 Technology, Inc.
- -------------------
In March of 1996, the Partnership purchased 17,134 Series B-1 Preferred
shares by converting the November, 1995, $33,332 note (including accrued
interest of $936). 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 and July of 1996, the Partnership issued $89,966 and
$71,973, respectively in convertible notes receivable to the company.
Each note bears an interest rate of 8% and matures in December of 1996.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 1996, and December 31, 1995,
consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand accounts $ 2,744 606
Money-market accounts 2,422,862 3,948,139
--------- ---------
Total $2,425,606 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 September 30, 1996, the Partnership had
unfunded commitments as follows:
<TABLE>
<S> <C>
Type
- ----
Equity investments $175,000
Term notes 150,000
Venture capital limited partnership investment 12,500
--------
Total $337,500
========
</TABLE>
<PAGE>
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, 1996, net cash used by
operating activities totaled $358,882. The Partnership paid management
fees of $118,948 to the Managing General Partners and reimbursed related
parties for operating expenses of $252,397. In addition, $23,284 was
paid to the Individual General Partners as compensation for their
services. Other operating expenses of $96,300 were paid. The
Partnership received $132,047 in interest income.
During the nine months ended September 30, 1996, the Partnership
purchased $1,164,257 in equity investments mostly in portfolio companies
in the biotechnology and medical/diagnostic equipment industries.
Cash and cash equivalents at September 30, 1996, were $2,425,606. At
September 30, 1996, the Partnership was committed to fund additional
investments totaling $337,500. 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 loss was $24,525 for the three months ended September 30, 1996,
compared to $45,863 for the same period in 1995. The decrease in net
loss was primarily due to a $58,700 increase in the change in net
unrealized fair value of equity investments.
During the quarter ended September 30, 1996, the $58,700 increase in
equity investments fair value was primarily attributable to a portfolio
company in the medical/diagnostic equipment industry. There was no such
increase recorded during the same period in 1995.
The Partnership recorded interest income of $43,461 and $64,523 during
the three months ended September 30, 1996 and 1995, respectively. The
decrease was primarily due to lower cash and cash equivalents balances
in 1996 which resulted from new and follow-on investments.
Total operating expenses were $77,517 for the quarter ended September
30, 1996, compared to $59,715 for the same period in 1995. The increase
from the same quarter in 1995 was mainly due to higher professional
fees.
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 loss was $1,426 for the nine months ended September 30, 1996,
compared to $265,100 during the same period in 1995. The decrease in net
loss was primarily due to a $344,878 increase in the change in net
unrealized fair value of equity investments and a $45,536 decrease in
management fees. These changes were partially offset by a $81,603
increase in total operating expenses and a $45,875 decrease in interest
income.
During the nine months ended September 30, 1996, the $333,941 increase
in equity investments fair value was substantially attributable to
increases in portfolio companies in the biotechnology,
medical/diagnostic equipment, and pharmaceuticals industries. There was
no such increase recorded during the same period in 1995.
The Partnership recorded management fees of $118,948 and $164,484 during
the nine months ended September 30, 1996 and 1995, respectively.
Management fees were higher in 1995 due to Unit sales.
Total operating expenses were $327,949 and $246,346 for the nine months
ended September 30, 1996 and 1995, respectively. The Managing General
Partners absorbed $50,162 and $52,168, respectively, as the 3% cap
limitation discussed in Note 3 to the financial statements was in effect
in both years. In addition, the Managing General Partners were
reimbursed $128,120 of prior year expenses not subject to the
limitation. Had this amount not been recorded as an expense in 1996 and
had the limitation not been in effect, total operating expenses would
have been $249,991 and $298,514 during the nine months ended September
30, 1996 and 1995, respectively. The 1995 amount was higher primarily
due to the recognition of $55,975 of the $89,086 contingent liability at
December 31, 1994, based on additional Units sold in 1995.
The Partnership recorded interest income of $140,814 and $186,689 for
the nine months ended September 30, 1996 and 1995, respectively. The
decrease was mainly due to lower cash and cash equivalents balances in
1996 resulting from new and follow-on investments.
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 September 30, 1996.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 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: November 8, 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 SEPTEMBER 30, 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> SEP-30-1996
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 3,273,583
<INVESTMENTS-AT-VALUE> 3,599,047
<RECEIVABLES> 0
<ASSETS-OTHER> 17,761
<OTHER-ITEMS-ASSETS> 2,425,606
<TOTAL-ASSETS> 6,042,414
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,740
<TOTAL-LIABILITIES> 45,740
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,671,210
<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> 325,464
<NET-ASSETS> 5,996,674
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 140,814
<OTHER-INCOME> 0
<EXPENSES-NET> (476,181)
<NET-INVESTMENT-INCOME> (335,367)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 333,941
<NET-CHANGE-FROM-OPS> (1,426)
<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> (1,426)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 118,948
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 476,563
<AVERAGE-NET-ASSETS> 5,997,387
<PER-SHARE-NAV-BEGIN> 75
<PER-SHARE-NII> (4)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 71
<EXPENSE-RATIO> 7.94
<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>
