<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 June 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)
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Equity investments(cost basis of
$2,734,742 and $2,094,559 in
1996 and 1995, respectively) $3,001,506 2,086,082
Cash and cash equivalents 3,179,002 3,948,745
Organizational costs (net of
accumulated amortization of
$22,000 and $18,000 in 1996
and 1995, respectively) 18,000 22,000
Other Assets -- 874
--------- ---------
Total $6,198,508 6,057,701
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 11,610 20,115
Due to related parties 165,699 39,486
--------- ---------
Total liabilities 177,309 59,601
Commitments (Notes 3 and 6)
Partners' capital:
Limited Partners (Units
outstanding of 79,716
in both 1996 and 1995) 5,761,540 6,011,161
General Partners (7,105) (4,584)
Net unrealized fair value increase
(decrease) from cost of equity
investments 266,764 (8,477)
--------- ---------
Total partners' capital 6,021,199 5,998,100
--------- ---------
Total $6,198,508 6,057,701
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30 June 30
------------------ ---------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $ 45,821 68,975 97,353 122,166
Costs and expenses:
Management fees 39,649 61,298 79,298 124,835
Individual General Partners'
compensation 10,569 10,500 15,765 15,000
Amortization of organizational
costs 2,000 2,000 4,000 4,000
Operating expenses :
Administrative and investor
services 53,391 48,149 83,028 138,195
Investment operations 23,386 16,679 39,244 49,661
Professional fees 24,337 13,918 31,948 35,461
Computer services 13,987 5,502 18,254 15,482
Expenses absorbed by General
Partners (25,901) (19,057) (50,162) (52,168)
Expenses not subject to
limitation 128,120 -- 128,120 --
------- ------ ------- -------
Total operating expenses 217,320 65,191 250,432 186,631
------- ------ ------- -------
Total costs and expenses 269,538 138,989 349,495 330,466
------- ------ ------- -------
Net realized loss (223,717) (70,014) (252,142) (208,300)
Change in net unrealized fair
value of equity investments 48,117 1,129 275,241 (10,937)
------- ------ ------- -------
Net (loss) income $(175,600) (68,885) 23,099 (219,237)
======= ====== ======= =======
Net realized loss per Unit $ (3) (1) (3) (3)
======= ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 94,205 122,166
Cash paid to vendors (67,811) (72,866)
Cash paid to related parties (159,102) (272,986)
--------- ---------
Net cash used by operating activities (132,708) (223,686)
--------- ---------
Cash flows from investing activities:
Purchase of equity investments (637,035) (319,631)
--------- ---------
Net cash used by investing activities (637,035) (319,631)
--------- ---------
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 -- (123,710)
Payments for syndication fees -- (234,333)
--------- ---------
Net cash provided by financing activities -- 1,509,669
--------- ---------
Net (decrease) increase in cash and
cash equivalents (769,743) 966,352
Cash and cash equivalents at beginning
of year 3,948,745 3,571,768
--------- ---------
Cash and cash equivalents at June 30 $3,179,002 4,538,120
========= =========
Reconciliation of net income (loss) to net
cash used by operating activities:
Net income (loss) $ 23,099 (219,237)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Amortization of organizational costs 4,000 4,000
Change in net unrealized fair value
of equity investments (275,241) 10,937
Changes in:
Accounts payable and accrued expenses (8,505) (10,128)
Due to/from related parties 126,213 (9,258)
Other changes, net (2,274) --
--------- ---------
Net cash used by operating activities $ (132,708) (223,686)
========= =========
</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 June 30, 1996, and December 31, 1995, and the related Statements of
Operations for the three and six months ended June 30, 1996 and 1995,
and Statements of Cash Flows for the six months ended June 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
June 30, 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. 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 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 70,619 for the six
months ended June 30, 1996 and 1995, respectively.
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations and Partners' Capital. Related party costs for
the six months ended June 30, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Management fees $ 79,298 124,835
Syndication fees -- 234,333
Individual General Partners' compensation 15,765 15,000
Amortization of organizational costs 4,000 4,000
Reimbursable operating expenses 112,294 176,061
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 six months ended
June 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 been previously absorbed by the General Partners, are not
subject to this limitation; consequently, $128,120 is included in due to
related parties. Amounts due to related parties were $152,483 and
$26,270 at June 30, 1996, and December 31, 1995, respectively.
Amounts due to related parties for management fees were $13,216 at both
June 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 six months ended June 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 six months ended June 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
June 30, 1996, consisted of
<TABLE>
<CAPTION>
January 1 -
June 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 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 92,605 92,605
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 six months ended June 30, 1996 615,183 916,266
Other changes, net 25,000 (842)
--------- ---------
Total equity investments at June 30, 1996 $2,734,742 3,001,506
========= =========
(1) Convertible notes include accrued interest. Interest rate on note issued in 1996
was 8%.
</TABLE>
Marketable Equity Securities
- ----------------------------
As of June 30, 1996, marketable equity securities had an aggregate cost
of $132,313 and an aggregate fair value of $92,596. The unrealized loss
at June 30, 1996, did not include gross gains. As of 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 a total cost
of $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 $49,583.
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.
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 of 1996, the Partnership issued $89,966 in convertible notes
to the company.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at June 30, 1996, and December 31, 1995,
consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand accounts $ 3,413 606
Money-market accounts 3,175,589 3,948,139
--------- ---------
Total $3,179,002 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 June 30, 1996, the Partnership had unfunded
commitments as follows:
<TABLE>
<S> <C>
Type
- ----
Equity investments $162,250
Term notes 100,000
Venture capital limited partnership
investments 25,000
-------
$287,250
=======
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the six months ended June 30, 1996, net cash used by operating
activities totaled $132,708. The Partnership paid management fees of
$79,298 to the Managing General Partners and reimbursed related parties
for operating expenses of $64,039. In addition, $15,765 was paid to the
Individual General Partners as compensation for their services. Other
operating expenses of $67,811 were paid. The Partnership received
$94,205 in interest income.
During the six months ended June 30, 1996, the Partnership purchased
$637,035 in equity investments mostly in portfolio companies in the
biotechnology and pharmaceuticals industries.
Cash and cash equivalents at June 30, 1996, were $3,179,002. At June
30, 1996, the Partnership was committed to fund additional investments
totaling $287,250. 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 loss was $175,600 for the three months ended June 30, 1996, compared
to $68,885 for the same period in 1995. The increase in net loss was
primarily due to a $152,129 increase in total operating expenses, which
was partially offset by a $46,988 increase in the change in net
unrealized fair value of equity investments.
Total operating expenses were $217,320 for the quarter ended June 30,
1996, compared to $65,191 for the same period in 1995. As explained in
Note 3 to the financial statements, the Managing General Partners
absorbed $25,901 and $19,057 during the quarters ended June 30, 1996 and
1995, respectively, and will be 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 $115,101 and $84,248 in
the second quarters of 1996 and 1995, respectively. The increase was
primarily due to higher professional fees and computer services
expenses.
The Partnership recorded increases in fair values of equity investments
of $48,117 and $1,129 during the three months ended June 30, 1996 and
1995, respectively. The 1996 increase was primarily due to an increase
in a portfolio company in the biotechnology industry.
The Partnership incurred management fees of $39,649 and $61,298 during
the quarters ended June 30, 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 the portfolio company investments may
significantly impact future operations.
Current Six Months Compared to Corresponding Six Months in the
- --------------------------------------------------------------
Preceding Year
- --------------
Net income was $23,099 for the six months ended June 30, 1996, compared
to a net loss of $219,237 during the same period in 1995. The change was
primarily due to a $286,178 increase in the change in net unrealized
fair value of equity investments, which was partially offset by a
$63,801 increase in total operating expenses.
The Partnership recorded an increase in fair value of equity investments
of $275,241 for the six months ended June 30, 1996, compared to a
decrease of $10,937 for the same period in 1995. The 1996 increase was
primarily due to increases in portfolio companies in the
pharmaceuticals, biotechnology, and diagnostic equipment industries.
Total operating expenses were $250,432 and $186,631 for the six months
ended June 30, 1996 and 1995, respectively. As discussed in the above
section, the Managing General Partners absorbed $50,162 and $52,168,
respectively, and will be reimbursed $128,120 as discussed above. 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
$172,474 and $238,799 during the six months ended June 30, 1996 and
1995, respectively. The 1995 amount was high primarily due 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 management fees of $79,298 and $124,835 during
the six months ended June 30, 1996 and 1995, respectively. As discussed
above, management fees were higher in 1995 due to the sale of new Units.
The Partnerships recorded interest income of $97,353 and $122,166 for
the six months ended June 30, 1996 and 1995, respectively. The decrease
was mainly due to lower cash and cash equivalents balances as a result
of 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 June 30, 1996.
(b) Financial Data Schedule for the six months ended and as of June 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: August 9, 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 JUNE 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> JUN-30-1996
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 2,734,742
<INVESTMENTS-AT-VALUE> 3,001,506
<RECEIVABLES> 0
<ASSETS-OTHER> 18,000
<OTHER-ITEMS-ASSETS> 3,179,002
<TOTAL-ASSETS> 6,198,508
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 177,309
<TOTAL-LIABILITIES> 177,309
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,754,435
<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> 266,764
<NET-ASSETS> 6,021,199
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 97,353
<OTHER-INCOME> 0
<EXPENSES-NET> (349,495)
<NET-INVESTMENT-INCOME> (252,142)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 275,241
<NET-CHANGE-FROM-OPS> 23,099
<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> 23,099
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 79,298
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 349,745
<AVERAGE-NET-ASSETS> 6,009,650
<PER-SHARE-NAV-BEGIN> 75
<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> 72
<EXPENSE-RATIO> 5.8
<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>
