<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, 1997
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,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Equity investments(cost basis of
$4,548,392 and $3,649,974 in
1997 and 1996, respectively) $5,963,398 4,019,458
Cash and cash equivalents 727,434 1,985,053
Organizational costs (net of
accumulated amortization of
$32,000 and $26,000 in 1997
and 1996, respectively) 8,000 14,000
Other assets 1,588 1,317
--------- ---------
Total $6,700,420 6,019,828
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 23,710 27,548
Due to related parties 11,338 28,692
--------- ---------
Total liabilities 35,048 56,240
Commitments (Note 2)
Partners' capital:
Limited Partners (Units
outstanding of 79,716
in both 1997 and 1996) 5,262,511 5,602,813
General Partners (12,145) (8,709)
Net unrealized fair value increase
from cost of equity investments 1,415,006 369,484
--------- ---------
Total partners' capital 6,665,372 5,963,588
--------- ---------
Total $6,700,420 6,019,828
========= =========
</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
------------------------ -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Notes receivable interest $ -- -- 10,770 --
Short-term investment interest 14,506 43,461 56,964 140,814
------- ------- --------- -------
Total income 14,506 43,461 67,734 140,814
Costs and expenses:
Management fees 39,649 39,650 118,948 118,948
Individual General Partners'
compensation 7,951 7,519 23,287 23,284
Amortization of organizational
costs 2,000 2,000 6,000 6,000
Operating expenses:
Administrative and investor
services 43,507 38,039 154,624 121,067
Investment operations 23,142 8,572 52,207 47,816
Professional fees 8,649 23,556 22,539 55,504
Computer services 14,760 7,350 35,023 25,604
Expenses absorbed by General
Partners -- -- -- (50,162)
Expenses previously absorbed
by General Partners -- -- -- 128,120
------- ------- --------- -------
Total operating expenses 90,058 77,517 264,393 327,949
------- ------- --------- -------
Total costs and expenses 139,658 126,686 412,628 476,181
------- ------- --------- -------
Net operating loss (125,152) (83,225) (344,894) (335,367)
Net realized gain from sales
of equity investments -- -- 1,156 --
------- ------- --------- -------
Net realized loss (125,152) (83,225) (343,738) (335,367)
Change in net unrealized fair
value of equity investments 955,983 58,700 1,045,522 333,941
------- ------- --------- -------
Net income (loss) $830,831 (24,525) 701,784 (1,426)
======= ======= ========= =======
Net realized loss per Unit $ (2) (1) (4) (4)
======= ======= ========= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1997 1996
----- -----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 56,964 132,047
Cash paid to vendors (83,494) (96,300)
Cash paid to related parties (344,596) (394,629)
--------- ---------
Net cash used by operating activities (371,126) (358,882)
--------- ---------
Cash flows from investing activities:
Purchase of equity investments (894,962) (1,164,257)
Proceeds from the sales of equity
investments 8,469 --
--------- ---------
Net cash used by investing activities (886,493) (1,164,257)
--------- ---------
Net decrease in cash and
cash equivalents (1,257,619) (1,523,139)
Cash and cash equivalents at beginning
of year 1,985,053 3,948,745
--------- ---------
Cash and cash equivalents at September 30 $ 727,434 2,425,606
========= =========
Reconciliation of net income (loss) to
net cash used by operating activities:
Net income (loss) $ 701,784 (1,426)
Adjustments to reconcile net income (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 (1,045,522) (333,941)
Net realized gain from sales of equity
investments (1,156) --
Changes in:
Accounts payable and accrued expenses (3,838) 9,454
Due to/from related parties (17,354) (23,315)
Other changes, net (11,040) (15,654)
--------- -------
Net cash used by operating activities $ (371,126) (358,882)
========= =======
</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, 1997, and December 31, 1996, and the related Statements of
Operations for the three and nine months ended September 30, 1997 and 1996,
and Statements of Cash Flows for the nine months ended September 30, 1997
and 1996, 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, 1996.
The following notes to financial statements for activity through September
30, 1997, supplement those 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. 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, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Management fees $118,948 118,948
Individual General Partners' compensation 23,287 23,284
Amortization of organizational costs 6,000 6,000
Reimbursable operating expenses 185,008 158,820
Expenses absorbed by General Partners -- (50,162)
Expenses previously absorbed by
General Partners -- 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. Amounts due to related parties totaled $11,338
and $28,692 at September 30, 1997 and December 31, 1996, respectively.
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. For the nine months ended September 30, 1996, the Managing General
Partners absorbed $50,162 in operating expenses. During 1996, it was also
determined that operational costs paid directly by the Partnership, which
had been previously absorbed by the General Partners, were not subject to
this limitation; consequently, $128,120 was payable to related parties. No
expenses were absorbed by the General Partners for the nine months ended
September 30, 1997.
3. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December 31,
1996, is in the 1996 Annual Report. Activity from January 1 through
September 30, 1997, consisted of
<TABLE>
<CAPTION>
January 1 through
September 30, 1997
------------------------
Principal
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $3,649,974 4,019,458
--------- ---------
Significant changes:
Biotechnology
- -------------
CV Therapeutics, Inc. Common
shares 11/96 26,455 0 110,473
RedCell, Inc. Series B
Preferred
shares 12/94 132,979 0 (125,000)
Medical/Diagnostic Equipment
- ----------------------------
Biex, Inc. Series E
Preferred
shares 08/97 120,000 300,000 252,000
Endocare, Inc. Convertible
note (1) 08/96 $150,000 (158,533) (158,533)
Endocare, Inc. Common
shares 01/97 66,400 166,000 254,843
Endocare, Inc. Common
shares 01/97 84,000 294,000 322,392
LifeCell Series B
Corporation Preferred
shares 11/96 2,500 (11,880) (11,880)
LifeCell Common
Corporation share
warrant at
$4.13;
expiring
11/01 11/96 56,451 0 216,699
LifeCell Series B
Corporation Preferred 02/97-
shares 08/97 127 11,880 11,880
Prolinx, Inc. Series A
Preferred
shares Various 400,000 0 300,000
Prolinx, Inc. Series B
Preferred
shares 07/97 164,835 288,461 288,461
Pharmaceuticals
- ---------------
Megabios Series C
Corp. Preferred
shares Various 100,424 0 493,325
--------- ---------
Total significant changes during
the nine months ended September 30, 1997 889,928 1,954,660
Other changes, net 8,490 (10,720)
--------- ---------
Total equity investments at September 30, 1997 $4,548,392 5,963,398
========= =========
(1) Convertible notes include accrued interest.
</TABLE>
Marketable Equity Securities
- ----------------------------
As of September 30, 1997, and December 31, 1996, marketable equity
securities had aggregate costs of $1,084,621 and $587,242, respectively,
and aggregate fair value of $1,189,396 and $249,469, respectively. The
net unrealized gain and loss at September 30, 1997, and December 31,
1996, included gross gains of $360,750 and $5,527, respectively.
Biex, Inc.
- ----------
In August 1997, the Partnership purchased 120,000 Series E Preferred
shares for $300,000. The final pricing of this round at $2.50 per share
is dependent upon regulatory approval of certain of the company's
products. At September 30, 1997, the Partnership recorded a $48,000
decrease in the fair value of its investment based upon the stated price
of $2.10 per share for this round.
CV Therapeutics, Inc.
- ---------------------
At September 30, 1997, the Partnership recorded an increase in the
change in fair value of $110,473 to reflect the publicly-traded market
price of its investments.
Endocare, Inc.
- --------------
In January of 1997, the Partnership made an additional investment in the
company by purchasing 84,000 common shares for $294,000. In addition
the Partnership converted its $150,000 note receivable, including
accrued interest of $16,000, into 66,400 common shares at a total cost
of $166,000. At September 30, 1997, the Partnership recorded an
increase in the change in fair value of $133,167 for its entire
Endocare, Inc., investment to reflect the publicly-traded market price
of its investments.
LifeCell Corporation
- --------------------
In February, May and August of 1997, the Partnership received stock
dividends totaling 127 Series B Preferred shares. A cost basis of
$11,880 was allocated to these shares from the Partnership's existing
Series B Preferred share investment. At September 30, 1997, the
Partnership recorded an increase in the change in fair value of $216,699
to reflect the fair value of its warrant investments.
Megabios Corp.
- --------------
In September of 1997, the company completed its initial public offering
("IPO"). Prior to the IPO, the company effected a reverse stock split
resulting in the Partnership's Preferred shares being converted to
100,424 common shares. At September 30, 1997, the Partnership recorded
an increase in the change in fair value of $493,325 to reflect the
publicly-traded market price of its investments. The Partnership may
not sell its shares until March 1998.
Prolinx, Inc.
- -------------
In July of 1997, the Partnership made an additional investment in the
company by purchasing 164,835 Series B Preferred shares for $288,461.
The pricing of this round, in which third parties participated,
indicated a $300,000 increase in the fair value of the Partnership's
existing investment.
RedCell, Inc.
- -------------
During the second quarter of 1997, the company had a new round of
financing in which the Partnership did not participate. The pricing of
this round indicated a decrease in fair value of $125,000 for the
Partnership's existing investment at September 30, 1997.
4. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 1997, and December 31, 1996,
consisted of:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Demand accounts $ 3,473 2,844
Money-market accounts 723,961 1,982,209
------- ---------
Total $727,434 1,985,053
======= =========
</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, 1997, net cash used by
operating activities totaled $371,126. The Partnership paid management
fees of $118,948 to the Managing General Partners and reimbursed related
parties for operating expenses of $202,361. In addition, $23,287 was
paid to the Individual General Partners as compensation for their
services. Other operating expenses of $83,494 were paid. The
Partnership received $56,964 in interest income.
During the nine months ended September 30, 1997, the Partnership
purchased $894,962 in equity investments mainly in portfolio companies
in the medical/diagnostic equipment and medical/biotechnology industries
and received $8,469 from equity investment sales.
Cash and cash equivalents at September 30, 1997, were $727,434.
Operating cash reserves and interest income earned on short-term
investments 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 $830,831 for the three months ended September 30, 1997,
compared to a net loss of $24,525 for the same period in 1996. The
increase in net income was primarily due to a $897,283 increase in net
unrealized fair value of equity investments.
The Partnership recorded increases in fair value of equity investments
of $955,983 and $58,700 for the nine months ended September 30, 1997 and
1996, respectively. The 1997 increase was primarily due to increases in
the pharmaceutical, medical/biotechnology and medical/diagnostic
equipment industries.
Total operating expenses were $90,058 for the quarter ended September
30, 1997, compared to $77,517 for the same period in 1996. In the third
quarter of 1997, the Partnership's administrative and investor service
operations were relocated to Santa Fe, New Mexico. This relocation is
expected to lower the future operational costs of the Partnership
sufficient to recoup the initial relocation expenses incurred, and
provide a meaningful reduction in ongoing operational costs.
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 income was $701,784 for the nine months ended September 30, 1997,
compared to net loss of $1,426 during the same period in 1996. The
change was primarily due to a $711,581 increase in the change in net
unrealized fair value of equity investments and a $63,556 decrease in
total operating expenses, which was partially offset by a $73,080
decrease in total income.
The Partnership recorded an increase in fair value of equity investments
of $1,045,522 and $333,941 for the nine months ended September 30, 1997
and 1996, respectively. The 1997 and 1996 increases were primarily due
to increases in portfolio companies in the pharmaceuticals,
biotechnology and medical/diagnostic equipment industries.
Total operating expenses were $264,393 and $327,949 for the nine months
ended September 30, 1997 and 1996, respectively. As discussed in Note 2
to the financial statement, the Managing General Partners absorbed
expenses of $50,162, at September 30, 1996, and were reimbursed $128,120
of previously absorbed expenses. 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 during the nine months ended
September 30, 1996.
The Partnership recorded total income of $67,734 and $140,814 for the
nine months ended September 30, 1997 and 1996, respectively. The
decrease was mainly due to lower cash and cash equivalents balances.
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, 1997.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 1997 (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 14, 1997 By: /s/Michael R. Brenner
-----------------------------------
Michael R. Brenner
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF September 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 4,548,392
<INVESTMENTS-AT-VALUE> 5,963,398
<RECEIVABLES> 0
<ASSETS-OTHER> 9,588
<OTHER-ITEMS-ASSETS> 727,434
<TOTAL-ASSETS> 6,700,420
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,048
<TOTAL-LIABILITIES> 35,048
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,250,366
<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> 1,415,006
<NET-ASSETS> 6,665,372
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 67,734
<OTHER-INCOME> 0
<EXPENSES-NET> (412,628)
<NET-INVESTMENT-INCOME> (344,894)
<REALIZED-GAINS-CURRENT> 1,156
<APPREC-INCREASE-CURRENT> 1,045,522
<NET-CHANGE-FROM-OPS> 701,784
<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> 701,784
<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> 412,848
<AVERAGE-NET-ASSETS> 6,314,480
<PER-SHARE-NAV-BEGIN> 70
<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> 66
<EXPENSE-RATIO> 6.5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
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>
