<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, 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)
June 30, 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) $4,418,954 4,019,458
Cash and cash equivalents 1,441,371 1,985,053
Organizational costs (net of
accumulated amortization of
$30,000 and $26,000 in 1997
and 1996, respectively) 10,000 14,000
Other assets 1,745 1,317
--------- ---------
Total $5,872,070 6,019,828
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 17,799 27,548
Due to related parties 19,730 28,692
--------- ---------
Total liabilities 37,529 56,240
Commitments (Note 2)
Partners' capital:
Limited Partners (Units
outstanding of 79,716
in both 1997 and 1996) 5,386,413 5,602,813
General Partners (10,895) (8,709)
Net unrealized fair value increase
from cost of equity
investments 459,023 369,484
--------- ---------
Total partners' capital 5,834,541 5,963,588
--------- ---------
Total $5,872,070 6,019,828
========= =========
</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
------------------------ -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Notes receivable interest $ -- 1,840 10,770 3,168
Short-term investment interest 20,342 43,981 42,458 94,185
------- ------- ------- -------
Total income 20,342 45,821 53,228 97,353
Costs and expenses:
Management fees 39,649 39,649 79,298 79,298
Individual General Partners'
compensation 10,522 10,569 15,336 15,765
Amortization of organizational
costs 2,000 2,000 4,000 4,000
Operating expenses:
Administrative and investor
services 39,493 53,391 82,029 83,028
Investment operations 42,789 23,386 58,154 39,244
Professional fees 7,616 24,337 13,890 31,948
Computer services 10,393 13,987 20,263 18,254
Expenses absorbed by General
Partners -- (25,901) -- (50,162)
Expenses previously absorbed
by General Partners -- 128,120 -- 128,120
------- ------- ------- -------
Total operating expenses 100,291 217,320 174,336 250,432
------- ------- ------- -------
Total costs and expenses 152,462 269,538 272,970 349,495
------- ------- ------- -------
Net operating loss (132,120) (223,717) (219,742) (252,142)
Net realized gain from sales
of equity investments -- -- 1,156 --
------- ------- ------- -------
Net realized loss (132,120) (223,717) (218,586) (252,142)
Change in net unrealized fair
value of equity investments 44,038 48,117 89,539 275,241
------- ------- ------- -------
Net (loss) income $ (88,082) (175,600) (129,047) 23,099
======= ======= ======= =======
Net realized loss per Unit $ (2) (3) (3) (3)
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 42,458 94,205
Cash paid to vendors (71,974) (67,811)
Cash paid to related parties (216,135) (159,102)
--------- ---------
Net cash used by operating activities (245,651) (132,708)
--------- ---------
Cash flows from investing activities:
Purchase of equity investments (306,500) (637,035)
Proceeds from the sales of equity
investments 8,469 --
--------- ---------
Net cash used by investing activities (298,031) (637,035)
--------- ---------
Net decrease in cash and
cash equivalents (543,682) (769,743)
Cash and cash equivalents at beginning
of year 1,985,053 3,948,745
--------- ---------
Cash and cash equivalents at June 30 $1,441,371 3,179,002
========= =========
Reconciliation of net (loss) income to net
cash used by operating activities:
Net (loss) income $ (129,047) 23,099
Adjustments to reconcile net (loss) income
to net cash used by operating activities:
Amortization of organizational costs 4,000 4,000
Change in net unrealized fair value
of equity investments (89,539) (275,241)
Net realized gain from sales of equity
investments (1,156) --
Changes in:
Accounts payable and accrued expenses (9,749) (8,505)
Due to/from related parties (8,962) 126,213
Other changes, net (11,198) (2,274)
--------- ---------
Net cash used by operating activities $ (245,651) (132,708)
========= =========
</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, 1997, and December 31, 1996, and the related Statements of
Operations for the three and six months ended June 30, 1997 and 1996, and
Statements of Cash Flows for the six months ended June 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 June 30, 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 six months ended
June 30, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Management fees $ 79,298 79,298
Individual General Partners' compensation 15,336 15,765
Amortization of organizational costs 4,000 4,000
Reimbursable operating expenses 112,538 112,294
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 for such
expenses were $6,514 and $15,476 at June 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 six months ended June 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 six months ended
June 30, 1997.
Management fees payable was $13,216 at both June 30, 1997, and December 31,
1996.
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 June
30, 1997, consisted of
<TABLE>
<CAPTION>
January 1 -
June 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 69,124
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 66,400 166,000 220,721
Endocare, Inc. Common
shares 01/97 84,000 294,000 306,600
LifeCell Series B
Corporation Preferred
shares 11/96 2,500 (8,514) (8,514)
LifeCell Common
Corporation share
warrant at
$4.13;
expiring
11/01 11/96 56,451 0 110,120
LifeCell Series B
Corporation Preferred 02/97-
shares 05/97 89 8,514 8,514
Total significant changes during
the six months ended June 30, 1997 301,467 423,032
Other changes, net 8,490 (23,536)
--------- ---------
Total equity investments at June 30, 1997 $3,959,931 4,418,954
========= =========
(1) Convertible notes include accrued interest.
</TABLE>
Marketable Equity Securities
- ----------------------------
As of June 30, 1997, and December 31, 1996, marketable equity securities
had aggregate costs of $1,001,622 and $587,242, respectively, and
aggregate fair value of $877,557 and $249,469, respectively. The
unrealized loss at June 30, 1997, and December 31, 1996, included gross
gains of $175,184 and $5,527, respectively.
CV Therapeutics, Inc.
- ---------------------
At June 30, 1997, the Partnership recorded an increase in the change in
fair value of $69,124 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 June 30, 1997, the Partnership recorded an increase in
the change in fair value of $72,362 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 and May of 1997, the Partnership received stock dividends
totaling 89 Series B Preferred shares. A cost basis of $8,514 was
allocated to these shares from the Partnership's existing Series B
Preferred share investment. At June 30, 1997, the Partnership recorded
an increase in the change in fair value of $110,120 to reflect the
publicly-traded market price of its warrant investments.
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 June 30, 1997.
4. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at June 30, 1997, and December 31, 1996,
consisted of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Demand accounts $ -- 2,844
Money-market accounts 1,441,371 1,982,209
--------- ---------
Total $1,441,371 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 six months ended June 30, 1997, net cash used by operating
activities totaled $245,651. The Partnership paid management fees of
$79,298 to the Managing General Partners and reimbursed related parties
for operating expenses of $121,501. In addition, $15,336 was paid to
the Individual General Partners as compensation for their services.
Other operating expenses of $71,974 were paid. The Partnership received
$42,458 in interest income.
During the six months ended June 30, 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 June 30, 1997, were $1,441,371. 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 $88,082 for the three months ended June 30, 1997, compared
to $175,600 for the same period in 1996. The decrease in net loss was
primarily due to a $117,029 decrease in total operating expenses, which
was partially offset by a $25,479 decrease in total income.
Total operating expenses were $100,291 for the quarter ended June 30,
1997, compared to $217,320 for the same period in 1996. As explained in
Note 2 to the financial statements, the Managing General Partners
absorbed expenses of $25,901 during the quarter ended June 30, 1996, and
were reimbursed $128,120 in expenses previously absorbed. 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 $100,291
and $115,101 in the second quarters of 1997 and 1996, respectively. The
decrease was primarily due to lower professional fees and administrative
and investor services expenses, partially offset by higher investment
operations expenses.
The Partnership recorded total income of $20,342 and $45,821 for the
quarters ended June 30, 1997 and 1996, respectively. The decrease was
mainly due to lower cash and cash equivalents balances.
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 loss was $129,047 for the six months ended June 30, 1997, compared
to net income of $23,099 during the same period in 1996. The change was
primarily due to a $185,702 decrease in the change in net unrealized
fair value of equity investments and a $44,125 decrease in total income,
which was partially offset by a $76,096 decrease in total operating
expenses.
The Partnership recorded an increase in fair value of equity investments
of $89,539 and $275,241 for the six months ended June 30, 1997 and 1996,
respectively. The 1997 increase was primarily due to increases in
portfolio companies in the medical/diagnostic equipment industries. The
1996 increase was primarily due to increases in portfolio companies in
the pharmaceuticals, biotechnology and medical/diagnostic equipment
industries.
The Partnership recorded total income of $53,228 and $97,353 for the six
months ended June 30, 1997 and 1996, respectively. The decrease was
mainly due to lower cash and cash equivalents balances.
Total operating expenses were $174,336 and $250,432 for the six months
ended June 30, 1997 and 1996, respectively. As discussed in the above
section, the Managing General Partners absorbed expenses of $50,162, at
June 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 $174,336 and $172,474 during the six months ended June 30,
1997 and 1996, respectively.
The Partnership recorded management fees of $79,298 during both the six
months ended June 30, 1997 and 1996.
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, 1997.
(b) Financial Data Schedule for the six months ended and as of June 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: August 12, 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 JUNE 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> JUN-30-1997
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 3,959,931
<INVESTMENTS-AT-VALUE> 4,418,954
<RECEIVABLES> 0
<ASSETS-OTHER> 11,745
<OTHER-ITEMS-ASSETS> 1,441,371
<TOTAL-ASSETS> 5,872,070
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,529
<TOTAL-LIABILITIES> 37,529
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,375,518
<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> 459,023
<NET-ASSETS> 5,834,541
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 53,228
<OTHER-INCOME> 0
<EXPENSES-NET> (272,940)
<NET-INVESTMENT-INCOME> (219,742)
<REALIZED-GAINS-CURRENT> 1,156
<APPREC-INCREASE-CURRENT> 89,539
<NET-CHANGE-FROM-OPS> (129,047)
<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> (129,047)
<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> 273,140
<AVERAGE-NET-ASSETS> 5,899,065
<PER-SHARE-NAV-BEGIN> 70
<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> 67
<EXPENSE-RATIO> 4.6
<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>
