<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, 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)
March 31, December 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Equity investments(cost basis of
$3,959,931 and $3,649,974 in
1997 and 1996, respectively) $4,374,916 4,019,458
Cash and cash equivalents 1,582,870 1,985,053
Organizational costs (net of
accumulated amortization of
$28,000 and $26,000 in 1997
and 1996, respectively) 12,000 14,000
Other Assets 386 1,317
--------- ---------
Total $5,970,172 6,019,828
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 28,262 27,548
Due to related parties 19,287 28,692
--------- ---------
Total liabilities 47,549 56,240
Commitments and subsequent
events (Notes 2 and 3)
Partners' capital:
Limited Partners (Units
outstanding of 79,716
in both 1997 and 1996) 5,517,211 5,602,813
General Partners (9,573) (8,709)
Net unrealized fair value increase
from cost of equity investments 414,985 369,484
--------- ---------
Total partners' capital 5,922,623 5,963,588
--------- ---------
Total $5,970,172 6,019,828
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
Income:
Notes receivable interest $ 10,770 1,328
Short-term investment interest 22,116 50,204
------- -------
Total income 32,886 51,532
Costs and expenses:
Management fees 39,649 39,649
Individual General Partners' compensation 4,814 5,196
Amortization of organizational costs 2,000 2,000
Operating expenses:
Administrative and investor services 42,536 29,637
Investment operations 15,365 15,858
Computer services 9,870 4,267
Professional fees 6,274 7,611
Expenses absorbed by General Partners -- (24,261)
------- ------
Total operating expenses 74,045 33,112
------- -------
Total costs and expenses 120,508 79,957
------- -------
Net operating loss (87,622) (28,425)
Net realized gain from
sales of equity investments 1,156 --
------- -------
Net realized loss (86,466) (28,425)
Change in net unrealized fair value
of equity investments 45,501 227,124
------- -------
Net (loss) income $ (40,965) 198,699
======= =======
Net realized loss per Unit $ (1) --
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 22,116 50,203
Cash paid to vendors (14,615) (20,382)
Cash paid to related parties (111,653) (109,208)
--------- ---------
Net cash used by operating activities (104,152) (79,387)
--------- ---------
Cash flows from investing activities:
Proceeds from the sales of
equity investments 8,469 --
Purchase of equity investments (306,500) (262,034)
--------- ---------
Net cash used by investing activities (298,031) (262,034)
--------- ---------
Net decrease in cash and
cash equivalents (402,183) (341,421)
Cash and cash equivalents at beginning
of year 1,985,053 3,948,745
--------- ---------
Cash and cash equivalents at March 31 $1,582,870 3,607,324
========= =========
Reconciliation of net (loss) income to net
cash used by operating activities:
Net (loss) income $ (40,965) 198,699
Adjustments to reconcile net (loss) income
to net cash used by operating activities:
Amortization of organizational costs 2,000 2,000
Change in net unrealized fair value
of equity investments (45,501) (227,124)
Net realized gain from sales of
equity investments (1,156) --
Changes in:
Due to/from related parties (9,405) (50,940)
Other, net (9,125) (2,022)
--------- ---------
Net cash used by operating activities $ (104,152) (79,387)
========= =========
</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, 1997, and December 31, 1996, and the related Statements of
Operations and Statements of Cash Flows for the three months ended
March 31, 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 March 31, 1997, supplement those included in the
Annual Report on Form 10-K.
2. 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, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Management fees $ 39,649 39,649
Individual General Partners' compensation 4,814 5,196
Amortization of organizational costs 2,000 2,000
Reimbursable operating expenses 57,785 37,684
Expenses absorbed by General Partners -- (24,261)
</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 for such
expenses were $6,071 and $15,476 at March 31, 1997, and December 31,
1996, respectively.
Management fees payable was $13,216 at both March 31, 1997, and
December 31, 1996.
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. At March 31, 1996, the limitation was in effect and
$24,261 was absorbed by the Managing General Partners. Subsequent to
March 31, 1996, it was determined that certain operational costs paid
directly by the Partnership, which had previously been absorbed by the
General Partners, were not subject to this limitation; consequently,
the $24,261 was reimbursed to the General Partners.
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 March 31, 1997, consisted of
<TABLE>
<CAPTION>
January 1 -
March 31, 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 87,113
Redcell, Inc. Series B
Preferred
shares 12/94 132,979 (0) (125,000)
Medical/Diagnostic Equipment
- ----------------------------
Endocare, Inc. Convertible
note (1) 08/96 $150,000 (158,533) (158,533)
Endocare, Inc. Common
shares 01/97 66,400 166,000 195,747
Endocare, Inc. Common
shares 01/97 84,000 294,000 247,632
LifeCell Series B
Corporation Preferred
shares 11/96 2,500 (2,838) (2,838)
LifeCell Common
Corporation share
warrant at
$4.13;
expiring
11/01 11/96 56,451 0 96,140
LifeCell Series B
Corporation Preferred
shares 02/97 29 2,838 2,838
-------- ---------
Total significant changes during
the three months ended March 31, 1997 301,467 343,099
Other changes, net 8,490 12,359
--------- ---------
Total equity investments at March 31, 1997 $3,959,931 4,374,916
========= =========
(1) Convertible notes include accrued interest. The interest rate on notes issued in 1997
was 8%.
</TABLE
Marketable Equity Securities
- ----------------------------
At March 31, 1997, and December 31, 1996, marketable equity securities had
aggregate costs of $616,121 and $587,242, respectively, and aggregate fair
values of $332,689 and $249,469, respectively. The unrealized loss at
December 31, 1996, included gross gains of $5,527.
CV Therapeutics, Inc.
- ---------------------
At March 31, 1997, the Partnership recorded an increase in the change in
fair value of $87,113 to reflect the publicly-traded market price of its
investments; a portion of the fair value was adjusted to reflect a discount
for restricted securities.
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 March 31, 1997, the Partnership recorded an increase in the change in
fair value of $531 for its entire Endocare, Inc., investment to reflect the
publicly-traded market price of its investments; a portion of the fair value
was adjusted to reflect a discount for restricted securities.
LifeCell Corporation
- --------------------
In February of 1997, the Partnership received a stock dividend of 29 Series
B Preferred shares. A cost basis of $2,838 was allocated to these shares
from the Partnership's existing Series B Preferred share investment. At
March 31, 1997, the Partnership recorded an increase in the change in fair
value of $96,140 to reflect the publicly-traded market price of its warrant
investments; a portion of the fair value was adjusted to reflect a discount
for restricted securities.
RedCell, Inc.
- -------------
Subsequent to March 31, 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 March 31, 1997.
4. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at March 31, 1997, and December 31, 1996,
consisted of:
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Demand accounts $ 586 2,844
Money-market accounts 1,582,284 1,982,209
--------- ---------
Total $1,582,870 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 three months ended March 31, 1997, net cash used by operating
activities totaled $104,152. The Partnership paid management fees of
$39,649 to the Managing General Partners and reimbursed related parties for
operating expenses of $67,190. In addition, $4,814 was paid to the
Individual General Partners as compensation for their services. Other
operating expenses of $14,615 were paid. The Partnership received $22,116
in interest income.
During the quarter ended March 31, 1997, the Partnership purchased $306,500
in equity investments substantially in a portfolio company in the
medical/diagnostic equipment industry and received $8,469 from equity
investment sales.
Cash and cash equivalents at March 31, 1997, were $1,582,870. 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 $40,965 during the three months ended March 31, 1997, compared
to a net income of $198,699 for the same period in 1996. The change was
primarily due to a $181,623 decrease in the change in net unrealized fair
value of equity investments.
The Partnership recorded an increase in equity investment fair value of
$45,501 for the quarter ended March 31, 1997, compared to an increase of
$227,124 during the same period in 1996. The 1997 increase was primarily
due to portfolio companies in the medical/diagnostic equipment industry,
partially offset by decreases in portfolio companies in the biotechnology
industries. The 1996 increase was primarily due to increases in portfolio
companies in the medical/diagnostic equipment and pharmaceuticals
industries.
Total operating expenses were $74,045 and $33,112 for the quarters ended
March 31, 1997 and 1996, respectively. As explained in Note 2, the
Partnership may not pay or reimbursement 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 were
absorbed by the Managing General Partners in 1996. Had the limitation not
been in effect, total operating expenses would have been $74,045 and $57,373
for 1996 and 1995, respectively. The increase was primarily due to
increased administrative and investor services expenses from higher overall
portfolio activities.
The Partnership recorded interest income of $32,886 and $51,532 for the
quarters ended March 31, 1997 and 1996, respectively. The decrease was
mainly due to lower cash and cash equivalent balances.
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, 1997.
(b) Financial Data Schedule for the quarter ended and as of March 31,
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: May 9, 1997 By: /s/Debbie A. Wong
-----------------------------------
Debbie A. Wong
Vice President
and Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF MARCH 31, 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> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 3,959,931
<INVESTMENTS-AT-VALUE> 4,374,916
<RECEIVABLES> 0
<ASSETS-OTHER> 12,386
<OTHER-ITEMS-ASSETS> 1,582,870
<TOTAL-ASSETS> 5,970,172
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,549
<TOTAL-LIABILITIES> 47,549
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,507,638
<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> 414,985
<NET-ASSETS> 5,922,623
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,886
<OTHER-INCOME> 0
<EXPENSES-NET> (120,508)
<NET-INVESTMENT-INCOME> (87,622)
<REALIZED-GAINS-CURRENT> 1,156
<APPREC-INCREASE-CURRENT> 45,501
<NET-CHANGE-FROM-OPS> (40,965)
<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> (40,965)
<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> 120,608
<AVERAGE-NET-ASSETS> 5,943,106
<PER-SHARE-NAV-BEGIN> 70
<PER-SHARE-NII> (1)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 69
<EXPENSE-RATIO> 2.03
<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>
