<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, 1998
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)
(650) 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,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Equity investments(cost basis of
$5,008,088 and $5,011,218 in
1998 and 1997, respectively) $6,327,504 6,481,986
Cash and cash equivalents 1,577 157,137
Organizational costs (net of
accumulated amortization of
$38,000 and $34,000 in 1998
and 1997, respectively) 2,000 6,000
Other assets 1,820 1,268
--------- ---------
Total assets $6,332,901 6,646,391
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 19,220 29,213
Due to related parties 84,212 31,958
--------- ---------
Total liabilities 103,432 61,171
Commitments (Note 3)
Partners' capital:
Limited Partners (Units
outstanding of 79,716
in both 1998 and 1997) 4,925,602 5,127,957
General Partners (15,549) (13,505)
Net unrealized fair value increase
from cost of equity investments 1,319,416 1,470,768
--------- ---------
Total partners' capital 6,229,469 6,585,220
--------- ---------
Total liabilities and
partners' capital $6,332,901 6,646,391
========= =========
</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,
----------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Notes receivable interest $ -- -- -- 10,770
Short-term investment interest 472 20,342 696 42,458
Dividend income 3,498 -- 7,947 --
-------- ------- ------- -------
Total income 3,970 20,342 8,643 53,228
Costs and expenses:
Management fees 39,649 39,649 79,298 79,298
Individual General Partners'
compensation 11,069 10,522 15,368 15,336
Amortization of organizational costs 2,000 2,000 4,000 4,000
Operating expenses:
Administrative and investor services 54,266 39,493 105,560 82,029
Investment operations 2,581 42,789 28,463 58,154
Professional fees 9,744 7,616 15,222 13,890
Computer services 12,291 10,393 27,266 20,263
Expenses absorbed by General
Partners (62,535) -- (62,535) --
-------- ------- ------- -------
Total operating expenses 16,347 100,291 113,976 174,336
-------- -------- ------- -------
Total costs and expenses 69,065 152,462 212,642 272,970
-------- -------- ------- -------
Net operating loss (65,095) (132,120) (203,999) (219,742)
Net realized (loss) gain from sales
of equity investments -- -- (400) 1,156
-------- ------- ------- -------
Net realized loss (65,095) (132,120) (204,399) (218,586)
Change in net unrealized fair
value of equity investments 102,757 44,038 (151,352) 89,539
-------- ------- ------- -------
Net income (loss) $ 37,662 (88,082) (355,751) (129,047)
======== ======= ======= =======
Net realized loss per Unit $ (1) (2) (3) (3)
======== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 696 42,458
Dividend income received 7,947 --
Cash paid to vendors (37,351) (71,974)
Cash paid to related parties (129,582) (216,135)
------- ---------
Net cash used by operating activities (158,290) (245,651)
------- ---------
Cash flows from investing activities:
Purchase of equity investments -- (306,500)
Proceeds from the sales of equity
investments 2,730 8,469
------- ---------
Net cash provided (used)
by investing activities 2,730 (298,031)
------- ---------
Net decrease in cash and
cash equivalents (155,560) (543,682)
Cash and cash equivalents at beginning
of year 157,137 1,985,053
------- ---------
Cash and cash equivalents at June 30 $ 1,577 1,441,371
======= =========
Reconciliation of net loss to
net cash used by operating activities:
Net loss $(355,751) (129,047)
Adjustments to reconcile net 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 151,352 (89,539)
Net realized loss (gain) from sales
of equity investments 400 (1,156)
Changes in:
Accounts payable and accrued expenses (9,993) (9,749)
Due to related parties 52,254 (8,962)
Other changes, net (552) (11,198)
------- ---------
Net cash used by operating activities $(158,290) (245,651)
======= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partners, the accompanying interim
financial statements reflect all adjustments necessary for a fair
presentation of the financial position, results of operations, and cash
flows for the interim periods presented. These statements should be read
in conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1997. 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. Financing of Partnership Operations
-----------------------------------
The Managing General Partners expect cash received from the future
liquidation of Partnership investments will provide the necessary liquidity
to fund Partnership operations. The Partnership may be dependent upon the
financial support of the Managing General Partners to fund operations if
future proceeds are not received timely. The Managing General Partners
have committed to support the Partnership's working capital requirements
through short-term advances as necessary.
3. 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, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Management fees $ 79,298 79,298
Individual General Partners' compensation 15,368 15,336
Amortization of organizational costs 4,000 4,000
Reimbursable operating expenses 149,705 112,538
Expenses absorbed by General Partners (62,535) --
</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 $18,130 and $5,525 at June 30, 1998 and at December 31, 1997,
respectively.
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 nor reimburse the Managing General Partners for
operational costs that aggregate more than 3% of total Limited Partner
capital contributions of the Partnership in each year through the first
five years of operations after the termination of unit sales and 1.5% in
any year thereafter. For purposes of this limitation, the Partnership's
operating year begins May 3rd. For the six months ended June 30,1998, the
Managing General Partners absorbed $62,535 in operating expenses. No such
expenses were absorbed for the six months ended June 30, 1997.
Management fees payable were $66,082 and $26,433 at June 30, 1998 and
December 31, 1997, respectively.
<PAGE>
4. Equity Investments
------------------
<TABLE>
A complete listing of the Partnership's equity investments at December 31, 1997 is in the 1997
Annual Report. Activity from January 1 through June 30, 1998 consisted of:
<CAPTION>
January 1 through
June 30, 1998
------------------------
Principal
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $5,011,218 6,481,986
--------- ---------
Significant changes:
Medical/Biotechnology
- ---------------------
Prolinx, Series A
Inc. Preferred 05/95-
shares 09/96 400,000 0 168,000
Prolinx, Series B
Inc. Preferred
shares 07/97 164,835 0 69,231
Medical/Diagnostic Equipment
- ----------------------------
Endocare, Common 08/96-
Inc. shares 01/97 152,400 0 (64,246)
Lifecell Common share
Corporation warrant at
$4.13;
expiring 11/01 11/96 56,451 0 90,886
Pharmaceuticals
- ---------------
Megabios Common 09/94-
Corporation shares 07/95 100,424 0 (372,974)
--------- ---------
Total significant changes 0 (109,103)
Other changes, net (3,130) (45,379)
--------- ---------
Total equity investments at June 30, 1998 $5,008,088 6,327,504
========= =========
</TABLE>
<PAGE>
Marketable Equity Securities
- ----------------------------
As of June 30, 1998, and December 31, 1997, marketable equity securities
had aggregate costs of $1,484,718 and $1,084,621, respectively, and
aggregate fair values of $1,655,946 and $1,180,687, respectively. The net
unrealized gains at June 30, 1998, and December 31, 1997, respectively,
included gross gains of $582,500 and $391,042, respectively.
Prolinx, Inc.
- -------------
During the second quarter of 1998, the company had a new round of financing
in which the Partnership did not participate. The pricing of this round
indicated an increase in fair value of $237,231 for the Partnership's
existing investment.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations or the elimination of a discount relating to selling
restrictions for publicly traded portfolio companies.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at June 30, 1998, and December 31, 1997,
consisted of:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Demand accounts $1,515 3,470
Money-market accounts 62 153,667
----- -------
Total $1,577 157,137
===== =======
</TABLE>
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, 1998, net cash used by operating
activities totaled $158,290. The Partnership paid management fees of
$39,649 to the Managing General Partners and paid related parties $74,565
for operating expenses. In addition, $15,368 was paid to the Individual
General Partners as compensation for their services. The Partnership paid
other operating expenses of $37,351. Interest income of $696 and dividend
income of $7,947 were received.
During the six months ended June 30, 1998 the Partnership received $2,730
from equity investment sales.
Cash and cash equivalents at June 30, 1998, were $1,577. Future proceeds
from investment sales, interest income earned on short-term investments and
operating cash reserves along with Managing General Partners' support 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 $37,662 for the three months ended June 30, 1998, compared
to a net loss of $88,082 for the same period in 1997. The improvement was
primarily due to a $83,944 decrease in operating expenses, and a $58,719
increase in net unrealized fair value of equity investments.
The Partnership recorded an increase in equity investment fair value of
$102,757 for the three months ended June 30, 1998 compared to an increase
of $44,038 for the same period in 1997. The 1998 increase was primarily
due to increases in the biotechnology and medical/diagnostic equipment
industries, partially offset by decreases in the pharmaceuticals industry.
The 1997 increase was primarily due to increases in the medical/diagnostic
equipment industry.
Total operating expenses were $16,347 for the quarter ended June 30, 1998,
compared to $100,291 for the same period in 1997. As disclosed in Note 3
to the financial statements, the General Partners absorbed expenses of
$62,535 for the three months ended June 30, 1998. Had the limitation not
been in effect, total operating expenses for the three months ended June
30, 1998 and 1997 would have been $78,882 and $100,291, respectively.
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 $355,751 for the six months ended June 30, 1998, compared to
net loss of $129,047 during the same period in 1997. The change was
primarily due to a $240,891 decrease in the change in net unrealized fair
value of equity investments and a $44,585 decrease in total income, which
was partially offset by a $60,360 decrease in total operating expenses.
During the six months ended June 30, 1998, the Partnership recorded a
decrease in fair value of equity investments of $151,352 compared to a
$89,539 increase for the six months ended June 30, 1997. The 1998 decrease
was primarily due to decreases in the pharmaceutical industry, partially
offset by increases in the biotechnology industry. The 1997 increase was
primarily due to increases in portfolio companies in the medical/diagnostic
equipment industries.
The Partnership recorded total income of $8,643 and $53,228 for the six
months ended June 30, 1998 and 1997, respectively. The decrease was mainly
due to lower cash and cash equivalents balances.
Total operating expenses were $113,976 and $174,336 for the six months
ended June 30, 1998 and 1997, respectively. As discussed in Note 3 to the
financial statements, the Managing General Partners absorbed expenses of
$62,535 for the six months ended June 30, 1998. Had the limitation not
been in effect, total operating expenses for the six months ended June 30,
1998 and 1997 would have been $176,511 and $174,336, respectively.
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, 1998.
b) Financial Data Schedule for the six months ended and as of June 30,
1998 (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, 1998 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, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 5,008,088
<INVESTMENTS-AT-VALUE> 6,327,504
<RECEIVABLES> 0
<ASSETS-OTHER> 3,820
<OTHER-ITEMS-ASSETS> 1,577
<TOTAL-ASSETS> 6,332,901
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 103,432
<TOTAL-LIABILITIES> 103,432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,910,053
<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> 1,319,416
<NET-ASSETS> 6,229,469
<DIVIDEND-INCOME> 7,947
<INTEREST-INCOME> 696
<OTHER-INCOME> 0
<EXPENSES-NET> 212,642
<NET-INVESTMENT-INCOME> (203,999)
<REALIZED-GAINS-CURRENT> (400)
<APPREC-INCREASE-CURRENT> (151,352)
<NET-CHANGE-FROM-OPS> (355,751)
<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> (355,751)
<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> 212,891
<AVERAGE-NET-ASSETS> 6,407,345
<PER-SHARE-NAV-BEGIN> 65
<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> 62
<EXPENSE-RATIO> 3.3
<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>
