<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 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
incorporation or organization) Identification No.)
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units
cannot be determined.
Documents incorporated by reference: Portions of the Prospectus
dated May 3, 1993, forming a part of Registration Statement No.
33-54002, as modified by Cumulative Supplement No. 4 dated January
4, 1995, filed pursuant to Rule 424(c) of the General Rules and
Regulations under the Securities Act of 1933 are incorporated by
reference in Parts I and III hereof. Portions (pages 23-25) of
the Prospectus of Technology Funding Venture Capital Fund VI, LLC,
as revised June 4, 1998 (accession number 0000950133-98-002220),
forming a part of the December 5, 1997 Pre-effective Amendment No.
1 to the Form N-2 Registration Statement No. 333-23913 dated July
11, 1997, and incorporated by reference in part III hereof.
<PAGE>
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Medical Partners I, L.P. (the
"Partnership") is a limited partnership organized under
the laws of the State of Delaware on September 3, 1992,
and was inactive until it commenced the sale of Units in
May 1993. The purpose of the Partnership is to make
venture capital investments in emerging growth companies
as described in the "Introductory Statement" and
"Business of the Partnership" sections of the Prospectus
dated May 3, 1993. The Partnership has elected to be a
business development company under the Investment Company
Act of 1940, as amended (the "Act"), and operates as a
non-diversified investment company as that term is
defined in the Act. Additional characteristics of the
Partnership's business are discussed in the "Risk
Factors" and "Conflicts of Interest" sections of the
Prospectus, which sections are also incorporated herein
by reference. The Partnership Agreement provides that
the Partnership will terminate December 31, 2002, subject
to the right of the Individual General Partners to extend
the term for up to two additional two-year periods.
Item 2. PROPERTIES
- ------ ----------
The Registrant has no material physical properties.
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
There are no material pending legal proceedings to which
the Registrant is party or of which any of its property
is the subject, other than routine litigation incidental
to the business of the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matter was submitted to a vote of the holders of
units of limited partnership interests ("Units") during
1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------ -------------------------------------------------
STOCKHOLDER MATTERS
-------------------
(a) There is no established public trading market for the
Units.
(b) At December 31, 1998, there were 832 record holders
of Units.
(c) The Registrant, being a partnership, does not pay
dividends. Distributions of cash and securities,
however, may be made to the partners in the
Partnership pursuant to the Registrant's Partnership
Agreement.
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
<TABLE>
<CAPTION>
For the Years Ended and As of December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Interest income $ 693 73,349 178,979 245,800 132,394
Dividend income 15,967 136 -- -- --
Net operating loss (599,338) (480,820) (410,597) (328,499) (188,769)
Net realized (loss) gain from
sales of equity investments (331,660) 1,168 (1,876) -- --
Realized losses from investment
write-downs (299,280) -- -- -- --
Net realized loss (1,230,278) (479,652) (412,473) (328,499) (188,769)
Change in net unrealized
fair value of
equity investments (7,477) 1,101,284 377,961 (8,447) --
Net (loss) income (1,237,755) 621,632 (34,512) (336,976) (188,769)
Net realized loss
per Unit (15) (6) (5) (4) (4)
Total assets 5,672,957 6,646,391 6,019,828 6,057,701 4,876,769
Distributions declared -- -- -- 77,789 132,394
Distributions declared
per Unit (1) -- -- -- 1 3
(1) Calculation is based on distributions declared to Limited Partners divided by weighted
average number of Units outstanding during the year.
Refer to the financial statement notes entitled "Summary of Significant Accounting Policies" and
"Allocation of Profits and Losses" for a description of the method of calculation of net realized
income (loss) per Unit.
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
Liquidity and Capital Resources
- -------------------------------
During 1998, net cash used by operating activities totaled
$531,105. The Partnership paid management fees of $161,597
to the Managing General Partners and paid related parties
$286,863 for operating expenses. In addition, $31,987 was
paid to the Individual General Partners as compensation for
their services. The Partnership paid other operating
expenses of $63,877 and interest on borrowings of $3,441, and
received $16,660 in interest and dividend income.
During 1998, the Partnership received proceeds from sales of
equity investments of $171,919. At December 31, 1998, the
Partnership was not committed to fund any additional
investments.
The Partnership has a borrowing account with a financial
institution. The borrowing capacity of this account which
fluctuates based on collateral value was $285,137 at December
31, 1998. The outstanding balance was $202,436 at December
31, 1998. The Partnership's investments in Megabios Corp.
and Axys Pharmaceuticals, Inc. are pledged as collateral.
The borrowing capacity of this account was $0 and the
outstanding balance was $241,800 at March 26, 1999. The
Partnership, if required to by the lender, intends to repay
this borrowing from the proceeds of investment sales or
support from the Managing General Partners.
Cash and cash equivalents at December 31, 1998, were $387.
Future proceeds from investment sales and the borrowing
capacity of the fund along with Managing General Partners'
support are expected to be adequate to fund Partnership
operations through the next twelve months.
Results of Operations
- ---------------------
1998 compared to 1997
- ---------------------
Net loss was $1,237,755 for 1998 compared to net income of
$621,632 in 1997. The increase in net loss was primarily due
to a $1,108,761 decrease in the net unrealized fair value of
equity investments, a $332,828 increase in losses from sales
of equity investments, and $299,280 in realized losses from
investment write-downs.
The Partnership recorded a decrease in equity investment fair
value of $7,477 in 1998, compared to an increase of
$1,101,284 in 1997. The 1998 decrease was primarily
attributable to decreases in portfolio companies in the
pharmaceuticals and medical/diagnostic equipment industries,
partially offset by increases in the biotechnology industry.
Realized losses from sales of equity investments totaled
$331,660 in 1998 and were primarily attributable to the sale
of CV Therapeutics, Inc.
During 1998, the Partnership recorded realized losses from
investment write-downs of $299,280 attributable to ConjuChem,
Inc. (formerly RedCell, Inc.).
Total operating expenses were $419,414 and $355,904 for 1998
and 1997, respectively. As disclosed in Note 3 to the
financial statements, the Partnership may not reimburse the
General Partners for certain expenses that aggregate more
than three percent of total Limited Partner capital
contributions. As a result, operating expenses of $62,535
and $0 were initially absorbed by the General Partners in
1998 and 1997, respectively. During 1998, it was determined
that certain operational costs, primarily rent and
professional fees, paid directly by the Partnership were not
subject to the general partner expense limitation.
Consequently, $66,383 of direct partnership expenses absorbed
by the General Partners in prior years were recognized as
additional expenses in 1998. Also discussed in Note 3, the
Managing General Partners re-evaluated allocations to the
Partnership in 1998 and determined that they had not fully
recovered allocable operating expenses, primarily salary,
benefits, and professional fees as permitted by the
Partnership Agreement. As a result, the Partnership was
charged $66,810 of additional operating expenses in 1998, of
which $10,802 and $56,008 related to 1997 and prior years,
respectively. If the additional expense had been recorded in
prior years and had the operating expense limitation
described in Note 3 not been in effect, total operating
expenses would have been $348,756 and $366,706 for 1998 and
1997, 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.
1997 compared to 1996
- ---------------------
Net income was $621,632 for 1997 compared to net loss of
$34,512 in 1996. The increase to net income was primarily
due to a $723,323 increase in the change in net unrealized
fair value of equity investments. This change was partially
offset by a $105,630 decrease in interest income.
The Partnership recorded an increase in equity investment
unrealized fair value of $1,101,284 in 1997, compared to an
increase of $377,961 in 1996. The 1997 increase was
primarily attributable to increases in portfolio companies in
the pharmaceuticals and biotechnology industries.
The Partnership recorded interest income of $73,349 and
$178,979 for the years ended December 31, 1997 and 1996,
respectively. The decrease was mainly due to lower cash and
cash equivalents balances in 1997 resulting from new and
follow-on investments.
Total operating expenses were $355,904 and $391,841 for 1997
and 1996, respectively. Included in 1997 operating expenses
are the costs of the Partnership's relocation of its
administrative and investor service operations to Santa Fe,
New Mexico. As disclosed in Note 3 to the financial
statements, a determination was made in 1996 that certain
operational costs paid directly by the Partnership, which had
been absorbed by the General Partners in prior years were not
subject to the 3% operational expense reimbursement
limitation. Accordingly, $128,120 was reimbursed by the
Partnership to the General Partners.
YEAR 2000
- ---------
Widespread use of computer programs that use two digits
rather than four to store, calculate, and display year values
in dates may cause computer systems to malfunction in the
year 2000, resulting in significant business delays and
disruptions.
The Partnership's State of Readiness
- ------------------------------------
Computer services are provided to the Partnership by its
Managing General Partner, Technology Funding Inc. ("TFI".)
For several years, TFI has sought to use Year 2000 compliant
storage formats and algorithms in its internally-developed
and maintained systems. TFI has also completed initial
evaluations of computer systems, software, and embedded
technologies. Those evaluations confirmed that certain
components of its network server hardware and operating
systems, voice mail system, e-mail system, and accounting
software may have Year 2000 compliance issues. These
resources and several less-critical components of the systems
environment were all scheduled as part of normal maintenance
and replacement cycles to be replaced or upgraded as Year
2000 compatible components became available from vendors
during 1998 and 1999. That program remains on schedule to
provide Year 2000 capable systems timely without significant
expenditures or disruption of Partnership operations.
However, the risk remains that TFI may not be able to verify
whether Year 2000 compatibility claims by vendors are
accurate, or whether changes undertaken to achieve Year 2000
compatibility will create other undetected problems in
associated systems. Therefore, TFI anticipates that Year
2000 compliance testing and maintenance of these systems will
continue as needed into the first quarter of 2000.
As part of Year 2000 evaluation, TFI has also assembled a
database listing its significant suppliers to assess the
extent to which it needs to prepare for any of those parties'
potential failure to remediate their Year 2000 compliance
issues. TFI is reviewing public Year 2000 statements of
those suppliers and preparing questionnaires to be sent to
mission-critical vendors whose public statements were not
adequate for assessment. TFI will continue to monitor its
significant suppliers as part of its Year 2000 evaluation.
However, there can be no guarantee that the systems of other
companies on which TFI relies will be timely converted, or
that failure to convert will not have a material adverse
effect on the Partnership and its operations. TFI is also
working with the Partnership's portfolio companies to
determine the extent to which their operations are vulnerable
to Year 2000 issues. There can be no guarantee that the
systems of portfolio companies in which the Partnership has
invested will be timely converted, or that failure to convert
will not have a material adverse effect on the Partnership.
The Cost to Address Year 2000 Issues
- ------------------------------------
Expenditures in 1998 related to Year 2000 issues were not
material to the Partnership's financial statements. TFI
expects that additional expenditures for Year 2000 compliance
will not be material to the Partnership.
The Risks Associated with Year 2000 Issues
- ------------------------------------------
Any failure by the portfolio companies in which the
Partnership has invested, or by those portfolio companies'
key suppliers or customers, to anticipate and avoid Year 2000
related problems at reasonable cost could have a material
adverse effect on the value of and/or the timing of
realization of value from the Partnership's investments. If
Year 2000 compliance issues are not resolved by December 31,
1999, internal system failures or miscalculations could cause
a temporary inability to process transactions, loss of
ability to send or receive e-mail and voice mail messages, or
disruptions in other normal business activities.
Additionally, failure of third parties on whom TFI relies to
remediate their Year 2000 issues timely could result in
disruptions in the Partnership's relationship with its
financial institutions, temporary disruptions in processing
transactions, unanticipated costs, and problems related to
the Partnership's daily operations. While TFI continues to
address its internal Year 2000 issues, until TFI receives and
evaluates responses from a significant number of its
suppliers, the overall risks associated with the Year 2000
issue remain difficult to describe and quantify. There can
be no guarantee that the Year 2000 issue will not have a
material adverse effect on the Partnership and its
operations.
TFI's Contingency Plan
- ----------------------
As part of its normal efforts to assure business continuation
in the event of natural disasters, systems failures, or other
disruptions, TFI has prepared contingency plans including an
extensive Year 2000 contingency plan. Taken together with
TFI's Year 2000 remediation plan, it identifies potential
points of failure, approaches to correcting known Year 2000
problems, dates by which the preferred corrections are
anticipated to be made and tested, and alternative approaches
if the corrections are not completed timely or are later
found to be inadequate. Although backup systems and
contingency approaches have been identified for most mission-
critical systems and vendor dependencies, there remain some
systems for which no good alternative exists, and there may
be some problems that prove more intractable than currently
anticipated.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The financial statements of the Registrant are set forth in
Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
As a partnership, the Registrant has no directors or
executive officers. The Management Committee is responsible
for the management and administration of the Partnership.
The members of the Management Committee consist of three
Individual General Partners and a representative from each of
Technology Funding Ltd., a California limited partnership
("TFL"), and its wholly owned subsidiary, Technology Funding
Inc., a California corporation ("TFI"). TFL and TFI are the
Managing General Partners. Information concerning the
ownership of TFL and the business experience of the key
officers of TFI and the partners of TFL is incorporated by
reference from the sections entitled "Management of the
Partnership - The Managing General Partners" and "Management
of the Partnership - Key Personnel of the Managing General
Partners" in the Prospectus as modified by Cumulative
Supplement No. 4 dated January 4, 1996, which are
incorporated herein by reference. Changes in this
information that have occurred since the date of the
Prospectus are included on pages 23-25 in the Technology
Funding Venture Capital Fund VI, LLC Prospectus as revised
June 4, 1998 (accession number 000950133-98-002220), forming
a part of the December 5, 1997 Pre-effective Amendment No 1
to the Form N-2 Registration Statement No 333-23913 dated
July 11, 1997, which are incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
As a partnership, the Registrant has no officers or
directors. In 1998, the Partnership incurred $158,597 in
management fees. The fees are designed to compensate the
Managing General Partners for General Partner Overhead
incurred in performing management duties for the Partnership
through December 31, 1998. General Partner Overhead (as
defined in the Partnership Agreement) includes the General
Partners' share of rent and utilities, and certain salaries
and benefits paid by the Managing General Partners in
performing their obligations to the Partnership. As
compensation for their services, the Individual General
Partners each receive $6,000 annually beginning on the
Commencement Date, plus $1,000 for each attended meeting of
the Individual General Partners, and related expenses. For
the year ended December 31, 1998, $31,987 of such fees were
paid.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
- ----------
Not applicable. No Limited Partner beneficially holds more
than 5% of the aggregate number of Units held by all Limited
Partners, and neither the General Partners nor any of their
officers, directors or partners own any Units. The three
Individual General Partners each own 20 Units; in March 1999,
one of the General Partners withdrew from his position and
his Units were transferred to his successor. The Individual
General Partners control the affairs of the Partnership
pursuant to the Partnership Agreement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Registrant, or its investee companies, have engaged in no
transactions with the General Partners or their officers and
partners other than as described above, in the notes to the
financial statements, or in the Partnership Agreement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- ------- -------------------------------------------------------
FORM 8-K
--------
(a) List of Documents filed as part of this Annual Report on
Form 10-K
(1) Financial Statements - the following financial
statements are filed as a part of this Report:
Independent Auditors' Report
Balance Sheets as of December 31, 1998
and 1997
Statements of Operations for the years
ended December 31, 1998, 1997 and 1996
Statements of Partners' Capital for the years
ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are
not applicable or the required information is
included in the financial statements or the notes
thereto.
(3) Exhibits
Registrant's Amended and Restated Limited
Partnership Agreement (incorporated by reference to
Exhibit A to Registrant's Prospectus dated May 3,
1993, included in Registration Statement No. 33-
54002 filed pursuant to Rule 424(b) of the General
Rules and Regulations under the Securities Act of
1933).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the year ended December 31, 1998.
(c) Financial Data Schedule for the year ended and as of
December 31, 1998 (Exhibit 27).
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Medical Partners I, L.P.:
We have audited the accompanying balance sheets of Technology
Funding Medical Partners I, L.P. (a Delaware limited partnership) as
of December 31, 1998 and 1997, and the related statements of
operations, partners' capital, and cash flows for each of the years
in the three-year period ended December 31, 1998. These financial
statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures
included confirmation of certain securities owned, by correspondence
with the individual investee companies, and a physical examination
of those securities held by a safeguarding agent as of December 31,
1998 and 1997. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Technology Funding Medical Partners I, L.P. as of December 31, 1998
and 1997, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1998,
in conformity with generally accepted accounting principles.
Albuquerque, New Mexico /S/KPMG LLP
March 26, 1999
<PAGE>
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
------ ------
<S> <C> <C>
ASSETS
Equity investments (cost basis of
$4,208,359 and $5,011,218 in 1998
and 1997, respectively) $5,671,650 6,481,986
Cash and cash equivalents 387 157,137
Organizational costs (net of accumulated
amortization of $40,000 and $34,000
in 1998 and 1997, respectively) -- 6,000
Other assets 920 1,268
--------- ---------
Total assets $5,672,957 6,646,391
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 38,899 29,213
Due to related parties 84,157 31,958
Short-term borrowings 202,436 --
--------- ---------
Total liabilities 325,492 61,171
Commitments and subsequent events
(Notes 3, 5, 8, and 9)
Partners' capital:
Limited Partners
(Units outstanding of 79,716
for both 1998 and 1997) 3,909,982 5,127,957
General Partners (25,808) (13,505)
Net unrealized fair value increase
from cost of equity investments 1,463,291 1,470,768
--------- ---------
Total partners' capital 5,347,465 6,585,220
--------- ---------
Total liabilities and partners'
capital $5,672,957 6,646,391
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Income:
Interest income $ 693 73,349 178,979
Dividend income 15,967 136 --
--------- --------- -------
Total income 16,660 73,485 178,979
Costs and expenses:
Management fees 158,597 158,597 158,597
Individual General
Partners' compensation 31,987 31,804 31,138
Amortization of
organizational costs 6,000 8,000 8,000
Operating expenses:
Administrative and
investor services 252,111 210,039 154,880
Investment operations 56,057 69,447 62,721
Computer services 59,282 45,699 38,897
Professional fees 44,675 30,719 61,233
Expenses absorbed by
General Partners (62,535) -- (54,010)
Expenses absorbed by
General Partners in
prior years 66,383 -- 128,120
Interest expense 3,441 -- --
--------- --------- -------
Total operating expenses 419,414 355,904 391,841
-------- --------- -------
Total costs and expenses 615,998 554,305 589,576
-------- --------- -------
Net operating loss (599,338) (480,820) (410,597)
Net realized (loss) gain from
sales of equity investments (331,660) 1,168 (1,876)
Realized losses from
investment write-downs (299,280) -- --
-------- --------- -------
Net realized loss (1,230,278) (479,652) (412,473)
Change in net unrealized fair
value of equity investments (7,477) 1,101,284 377,961
-------- --------- -------
Net (loss) income $(1,237,755) 621,632 (34,512)
======== ========= =======
Net realized loss per Unit $ (15) (6) (5)
======== ========= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996:
Net Unrealized Fair Value
Limited General (Decrease) Increase from
Partners Partners Cost of Equity Investments Total
---------- ---------- ---------------------------- -------
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1995 $6,011,161 (4,584) (8,477) 5,998,100
Change in net unrealized fair
value of equity investments -- -- 377,961 377,961
Net realized loss (408,348) (4,125) -- (412,473)
--------- ------ --------- ---------
Partners' capital,
December 31, 1996 5,602,813 (8,709) 369,484 5,963,588
Change in net unrealized fair
value of equity investments -- -- 1,101,284 1,101,284
Net realized loss (474,856) (4,796) -- (479,652)
--------- ------ --------- ---------
Partners' capital,
December 31, 1997
5,127,957 (13,505) 1,470,768 6,585,220
Change in net unrealized fair
value of equity investments -- -- (7,477) (7,477)
Net realized loss (1,217,975) (12,303) -- (1,230,278)
--------- ------ --------- ---------
Partners' capital,
December 31, 1998
$3,909,982 (25,808) 1,463,291 5,347,465
========= ====== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating
activities:
Interest received $ 693 62,579 160,695
Dividends received 15,967 136 --
Cash paid to vendors (63,877) (100,938) (111,299)
Interest paid on
short-term borrowings (3,441) -- --
Cash paid to related
parties (480,447) (440,388) (480,081)
------- --------- ---------
Net cash used by
operating activities (531,105) (478,611) (430,685)
------- --------- ---------
Cash flows from investing
activities:
Purchases of equity
investments -- (1,357,786) (1,533,007)
Proceeds from sales of
equity investments 171,919 8,481 --
------- --------- ---------
Net cash provided (used)
by investing activities 171,919 (1,349,305) (1,533,007)
------- --------- ---------
Cash flows from financing
activities:
Proceeds from short-term
borrowings, net 202,436 -- --
------- --------- ---------
Net cash provided by
financing activities 202,436 -- --
------- --------- ---------
Net decrease in cash and
cash equivalents (156,750) (1,827,916) (1,963,692)
Cash and cash equivalents
at beginning of year 157,137 1,985,053 3,948,745
------- --------- ---------
Cash and cash equivalents
at end of year $ 387 157,137 1,985,053
======= ========= =========
Reconciliation of net (loss)
income to net cash used by
operating activities:
Net (loss) income $(1,237,755) 621,632 (34,512)
Adjustments to reconcile net
(loss) income to net cash
used by operating activities:
Amortization of
organizational costs 6,000 8,000 8,000
Change in net unrealized
fair value of equity
investments 7,477 (1,101,284) (377,961)
Net realized loss (gain)
from sales of equity
investments 331,660 (1,168) 1,876
Realized losses from
investment write-downs 299,280 -- --
Changes in:
Accounts payable and
accrued expenses 9,686 1,665 1,433
Due to related parties 52,199 3,266 (10,794)
Other, net 348 (10,722) (18,727)
--------- --------- -------
Net cash used by operating
activities $ (531,105) (478,611) (430,685)
========= ========= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Organization
- ------------
Technology Funding Medical Partners I, L.P. (the "Partnership") is a
limited partnership organized under the laws of the State of Delaware
on September 3, 1992. The purpose of the Partnership is to make
venture capital investments in emerging growth companies. The
Partnership elected to be a business development company under the
Investment Company Act of 1940, as amended (the "Act"), and operates
as a non-diversified investment company as that term is defined in the
Act. The Managing General Partners are Technology Funding Ltd.
("TFL"), and Technology Funding Inc. ("TFI"), a wholly owned
subsidiary of TFL. There are also three Individual General Partners;
in March 1999, one Individual General Partner withdrew from his
position and a successor was designated. A wholly owned subsidiary of
TFI, Technology Funding Securities Corporation ("TFSC"), was the
dealer-manager for the offering.
For the period from September 3, 1992, through May 3, 1993, the
Partnership was inactive. The Partnership's registration statement
was declared effective by the Securities and Exchange Commission on
May 3, 1993, and the Partnership began selling units of limited
partnership interests ("Units") in May of 1993.
On October 8, 1993, the Commencement Date, the minimum number of Units
required to begin Partnership operations (12,000) had been sold. The
offering terminated with 79,716 Units sold on May 3, 1995. The
Partnership Agreement provides that the Partnership will continue
until December 31, 2002, unless further extended for up to two
additional two-year periods from such date if the Individual General
Partners so determine or unless sooner dissolved.
Preparation of Financial Statements and Use of Estimates
- --------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. Estimates are used when accounting for investments,
change in unrealized fair value of investments, liabilities and
contingencies. Because of the inherent uncertainty of valuation, the
estimated fair value of investments may differ significantly from the
values that would have been used had a ready market for investments
existed, and the differences could be material.
Equity Investments
- ------------------
The Partnership's method of accounting for investments, in accordance
with generally accepted accounting principles, is the fair value basis
used for investment companies. The fair value of Partnership equity
investments is their initial cost basis with changes as noted below:
The fair value for publicly traded equity investments (marketable
equity securities) is based upon the five-day-average closing sales
price or bid/ask price that is available on a national securities
exchange or over-the-counter market. Certain publicly traded equity
investments may not be marketable due to selling restrictions and for
those securities, an illiquidity discount of up to 33% is applied when
determining the fair value; the actual discount percentage is based on
the type and length of the restrictions. Investments valued under
this method were $868,154 and $1,180,687 at December 31, 1998 and
1997, respectively.
All investments which are not publicly traded are valued at fair
market value as determined by the Managing General Partners in the
absence of readily ascertainable market values. Investments valued
under this method were $4,803,496 and $5,301,299 at December 31, 1998
and 1997, respectively. Generally, investments in privately held
companies are valued at original cost unless there is clear evidence
of a change in fair value, such as a recent round of third-party
financings or events that, in the opinion of the Managing General
Partners, indicate a change in value.
Convertible and subordinated notes receivable are stated at cost plus
accrued interest, which is equivalent to fair value, and are included
in equity investments as repayment of these notes generally occurs
through conversion into equity investments.
Venture capital limited partnership investments are initially recorded
at cost and are valued based on the fair value of the underlying
investments. Limited partnership distributions that are a return of
capital reduce the cost basis of the Partnership's investment.
Distributions from limited partnership cumulative earnings are
reflected as realized gains by the Partnership.
Where, in the opinion of the Managing General Partners, events
indicate that the fair value of equity and venture capital investments
and convertible and subordinated notes receivable may not be
recoverable, a write-down to estimated fair value is recorded.
Temporary changes in fair value result in increases or decreases to
the unrealized fair value of equity investments. Adjustments to fair
value basis are reflected as "Change in net unrealized fair value of
equity investments." In the case of an other than temporary decline
in value below cost basis, an appropriate reduction in the cost basis
is recognized as a realized loss with the fair value being adjusted to
match the new cost basis. Cost basis adjustments are reflected as
"Realized losses from investment write-downs" or "Net realized loss
from venture capital limited partnership investments" on the
Statements of Operations.
Sales of equity investments are recorded on the trade date. The basis
on which cost is determined in computing realized gains or losses is
specific identification.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents are principally comprised of cash invested
in demand accounts and money market instruments and are stated at cost
plus accrued interest. The Partnership considers all money market and
short-term investments with an original maturity of three months or
less to be cash equivalents.
Organizational Costs
- --------------------
Organizational costs of $40,000 are amortized over 60 months using the
straight-line method.
Net Realized Income (Loss) Per Unit
- -----------------------------------
Net realized income (loss) per Limited Partner Unit is calculated by
dividing the weighted average number of Limited Partner Units
outstanding of 79,716 for the years ended December 31, 1998, 1997 and
1996, into total net realized loss allocated to the Limited Partners.
The Managing General Partners contributed 0.1% of total Limited
Partner capital contribution and did not receive any Partnership
units.
Provision for Income Taxes
- --------------------------
No provision for income taxes has been made by the Partnership as the
Partnership is not directly subject to taxation. The partners are to
report their respective shares of Partnership income or loss on their
individual tax returns.
The accompanying financial statements are prepared using generally
accepted accounting principles which may not equate to tax accounting.
The difference in the total book and tax cost basis as of December 31,
1998, is not material.
Syndication Fees
- ----------------
Syndication fees, which consist of commissions and certain
organizational and offering costs, are deducted from the partners'
capital accounts. Pursuant to the Partnership Agreement, selling
commissions are allocated solely to the Limited Partners. All other
syndication fees are allocated 99% to the Limited Partners and 1% to
the Managing General Partners. Syndication fees are not deductible
for income tax purposes. Such fees may result in a reduction of any
gain (or an increase in any loss) realized for tax purposes by the
partners upon dissolution of the Partnership or a transfer of their
interests.
2. Financing of Partnership Operations
-----------------------------------
The Managing General Partners expect cash received from the future
liquidation of Partnership investments and short-term borrowings 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
--------------------------
Included in costs and expenses are related party costs as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Management fees $158,597 158,597 158,597
Individual General Partners'
compensation 31,987 31,804 31,138
Amortization of organizational
costs 6,000 8,000 8,000
Reimbursable operating expenses:
Administrative and investor
services 229,092 145,407 114,191
Investment operations 49,840 63,311 52,354
Computer services 59,282 44,535 38,897
Expenses absorbed by
General Partners (62,535) -- (54,010)
Expenses absorbed by General
Partners in prior years 66,383 -- 128,120
</TABLE>
Management fees are equal to 2% of the total Limited Partner capital
contributions for the first year of Partnership operations through the
sixth year. Beginning in the seventh year, management fees will
decline by 10% per year from the initial 2%. Management fees
compensate the Managing General Partners solely for General Partner
Overhead (as defined in the Partnership Agreement) incurred in
supervising the operation and management of the Partnership and the
Partnership's investments. 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. Management fees payable
were $23,433 and $26,433 at December 31, 1998 and 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 reimburse the Managing General
Partners for certain 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 on May 3. Amounts
due to related parties were $60,724 and $5,525 at December 31, 1998
and 1997, respectively.
In 1998 and 1996, the Managing General Partners absorbed $62,535 and
$54,010, respectively, in operating expenses. In late 1998, it was
determined that certain overhead costs, primarily rent, absorbed by
the General Partners in prior years, were not subject to this
limitation; consequently, $66,383 was reimbursed to the General
Partners. No expenses were absorbed by the General Partners in 1997.
In 1996, it was determined that certain operational costs paid
directly to the Partnership, which had been absorbed by the General
Partners in prior years were not subject to this limitation;
consequently $128,120 was reimbursed to the General Partners.
The Managing General Partners allocate operating expenses incurred in
connection with the business of the Partnership based on employee
hours incurred. In 1998, operating cost allocations to the
Partnership were re-evaluated. The Managing General Partners
determined that they had not fully recovered allocable operating
expenses, primarily salary, benefits, and professional fees, as
permitted by the Partnership Agreement. As a result, the Partnership
was charged additional operating expenses of $66,810 consisting of
$10,802, $16,842,and $39,166 for 1997, 1996 and prior years,
respectively. Had the additional expenses been recorded in prior
years and had the operating expense limitation not been in effect,
operating expenses would have been $348,756, $366,706 and $334,573 for
1998, 1997, and 1996, respectively.
As compensation for their services, the Individual General Partners
each receive $6,000 annually beginning on the Commencement Date, plus
$1,000 for each of the management committee meetings attended and
related expenses. The three Individual General Partners each own 20
Units; in March 1999, one of the Individual General Partners withdrew
form his position and his units were transferred to his successor.
Effective November 1, 1997, TFL assigned its California office lease
to Technology Funding Property Management LLC (TFPM), an entity that
is affiliated to the Managing General Partner. Under the terms of a
rent agreement, TFPM charges the Partnership for its share of office
rent and related overhead costs. These amounts are included in
administrative and investor service costs.
Under the terms of a computer service agreement, Technology
Administrative Management, a division of TFL, charges the Partnership
for its share of computer support costs. These amounts are included
in computer services expenses.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of
portfolio companies. It is the Managing General Partners' policy that
all such compensation be transferred to the investing partnerships.
If the options are non-transferable, they are not recorded as an asset
of the Partnership. Any profit from the exercise of such options will
be transferred if and when the options are exercised and the
underlying stock is sold by the officers.
4. Allocation of Profits and Losses
--------------------------------
Net realized profit and loss of the Partnership are allocated based on
the beginning-of-year partners' capital balances as follows:
(a) Profits:
(i) first, to those partners with deficit capital account
balances in proportion to such deficits until the
deficits have been eliminated; then
(ii) second, to the partners as necessary to offset net loss
and sales commissions previously allocated to such
partners; then
(iii)third, 75% to the Limited Partners as a group in
proportion to the number of Units, 5% to the Limited
Partners in proportion to the Unit months of each Limited
Partner, and 20% to the Managing General Partners. Unit
months are the number of half months a Unit would be
outstanding if held from the date the original holder of
such Unit was deemed admitted into the Partnership until
the termination of the offering of Units.
(b) Losses:
(i) first, to the partners as necessary to offset net profit
previously allocated to the partners under (a)(iii) above
plus losses from unaffiliated venture capital limited
partnership investments; then
(ii) 99% to the Limited Partners as a group and 1% to the
Managing General Partners.
Losses allocable to Limited Partners in excess of their capital
account balances will be allocated to the Managing General Partners.
Net profit thereafter, otherwise allocable to those Limited Partners,
would be allocated to the Managing General Partners to the extent of
such losses.
As indicated above, losses from unaffiliated venture capital limited
partnership investments are allocated pursuant to section (b). Gains
are allocated first to offset previously allocated losses pursuant to
(b)(i) above, and then 99% to Limited Partners and 1% to the Managing
General Partners.
Income earned from short-term investments during the Offering Period
was allocated monthly, 99% to the Limited Partners and 1% to the
Managing General Partners.
In no event shall the General Partners' interest in profits and losses
be less than 1%.
5. Equity Investments
------------------
At December 31, 1998, and December 31, 1997, equity investments consisted of:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Principal ------------------ -----------------
Investment Amount or Cost Fair Cost Fair
Industry/Company Position Date Shares Basis Value Basis Value
- ---------------- -------- ---- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Medical/Biotechnology
- ---------------------
Acusphere, Inc. Series B
Preferred
shares 05/95 125,000 $ 200,000 412,500 200,000 375,000
Acusphere, Inc. Series C
Preferred
shares 05/96 163,552 350,001 539,722 350,001 490,656
Acusphere, Inc. Series D
Preferred
shares 11/97 52,083 156,250 171,874 156,250 156,250
Biex, Inc. Series E
Preferred
shares 8/97 120,000 300,000 300,000 300,000 300,000
ConjuChem, Inc. Series B
(formerly Preferred
RedCell, Inc.) shares 12/94 132,979 0 0 125,000 0
ConjuChem, Inc. Convertible
(formerly note
RedCell, Inc.) 02/96 $89,966 0 0 98,149 98,149
ConjuChem, Inc. Series C
(formerly Preferred
RedCell, Inc.) share
Warrant at
exercise $13,495
price TBD; aggregate
expiring purchase
02/01 02/96 price 0 0 0 0
ConjuChem, Inc. Convertible
(formerly note
RedCell, Inc.) 07/96 $71,973 0 0 76,131 76,131
ConjuChem, Inc. Series C
(formerly Preferred
RedCell, Inc.) share
warrant at
exercise $10,796
price TBD; aggregate
expiring purchase
07/01 07/96 price 0 0 0 0
CV Therapeutics, Common
Inc. share
warrant at
$20.00;
expiring
09/00 09/95 1,920 768 0 768 0
CV Therapeutics, Common
Inc. shares 11/96 26,455 -- -- 487,224 240,211
Prolinx, Inc. Series A
Preferred
shares 05/95 119,631 119,631 259,599 119,631 209,354
Prolinx, Inc. Series A
Preferred
shares 12/95 124,369 124,369 269,881 124,369 217,646
Prolinx, Inc. Series A
Preferred
shares 09/96 156,000 156,000 338,520 156,000 273,000
Prolinx, Inc. Series B
Preferred
shares 07/97 164,835 288,461 417,308 288,461 288,461
Medical/Diagnostic Equipment
- ----------------------------
Endocare, Inc. Common
shares 08/96 2,000 6,000 3,976 6,000 7,160
Endocare, Inc. Common
share
warrant at
$3.00;
expiring
08/01 08/96 30,000 0 0 0 13,050
Endocare, Inc. Common
shares 01/97 66,400 166,000 132,003 166,000 214,480
Endocare, Inc. Common
shares 01/97 84,000 294,000 166,992 294,000 300,720
LifeCell Series B
Corporation Preferred
shares 11/96 2,500 232,089 349,860 232,089 232,089
LifeCell Common
Corporation share
warrant at
$4.13;
expiring
11/01 11/96 56,451 2,500 11,742 2,500 37,258
LifeCell Series B
Corporation Preferred
shares 02/97 29 2,692 4,058 2,692 2,692
LifeCell Series B
Corporation Preferred
shares 05/97 60 5,570 8,397 5,570 5,570
LifeCell Series B
Corporation Preferred
shares 08/97 38 3,528 5,318 3,528 3,528
LifeCell Series B
Corporation Preferred
shares 11/97 39 3,621 5,458 3,621 3,621
R2 Technology, Series A-1
Inc. Preferred
shares 05/94 100,000 100,000 184,000 100,000 184,000
R2 Technology, Series B
Inc. Preferred
share warrant
at $2.00;
expiring
11/00 11/95 2,417 0 0 0 0
R2 Technology, Series B-1
Inc. Preferred
shares 03/96 17,134 34,268 34,268 34,268 34,268
Health Information Systems
- --------------------------
ADESSO Specialty Series D
Services Preferred
Organization shares
Inc. 12/97 11,905 100,002 100,002 100,002 100,002
CareCentric Series A
Solutions, Inc. Preferred
shares 10/95 66,667 100,000 70,000 100,000 65,710
CareCentric Series B
Solutions, Inc. Preferred
shares 09/96 86,999 130,499 91,349 130,499 85,749
CareCentric Series C
Solutions, Inc. Preferred
shares 12/97 31,051 32,604 32,604 32,604 32,604
CareCentric Common
Solutions, Inc. share
warrant at
$.15;
expiring
12/02 12/97 15,525 13,972 13,972 13,972 13,972
Pharmaceuticals
- ---------------
Axys Common
Pharmaceuticals, shares
Inc. 12/95 9,464 125,000 53,831 125,000 78,930
Megabios Corp. Common
shares 09/94 64,375 250,000 320,266 250,000 725,957
Megabios Corp. Common
shares 12/94 19,312 75,001 96,077 75,001 217,781
Megabios Corp. Common
shares 07/95 16,737 64,999 83,267 64,999 188,743
Neurex Common
Corporation shares 09/96 149 -- -- 3,129 2,004
Periodontix, Series A
Inc. Preferred
shares 12/93 100,000 100,000 245,000 100,000 245,000
Periodontix, Series B
Inc. Preferred
shares 02/96 67,000 134,000 164,150 134,000 164,150
Environmental
- -------------
Naiad Technologies,Series A
Inc. Preferred
shares 12/95 50,000 25,000 162,500 25,000 162,500
Naiad Technologies,Series B
Inc. Preferred
Shares 11/96 62,602 125,204 203,457 125,204 203,457
Naiad Technologies,Series C
Inc. Preferred
Shares 11/97 49,230 159,998 159,998 159,998 159,998
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Medical Science Limited
Partners II, L.P. Partnership
Interests various $250,000 226,332 259,701 239,558 272,135
--------- --------- --------- ---------
Total Equity Investments $4,208,359 5,671,650 5,011,218 6,481,986
========= ========= ========= =========
-- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
</TABLE>
Marketable Equity Securities
- ----------------------------
At December 31, 1998 and 1997, marketable equity securities had an
aggregate cost of $984,268 and $1,084,621, respectively, and an
aggregate fair value of $868,154 and $1,180,687, respectively. The
unrealized loss/gain at December 31, 1998 and 1997, included gross
gains of $118,852 and $391,042, respectively.
Acusphere, Inc.
- ---------------
In October 1998, the company had a new round of financing in which
the Partnership did not participate. The pricing of this round, in
which third parties participated, indicated a fair value increase of
$102,190 for the Partnership's existing investment.
ConjuChem, Inc. (formerly RedCell, Inc.)
- ---------------------------------------
In December 1998, the Partnership wrote off the remaining fair value
and cost basis of its investment and realized a loss of $299,280.
This was based on the opinion of the Managing General Partners that
the operating status of the company indicated a permanent decline in
value.
CV Therapeutics, Inc.
- ---------------------
In September 1998, the Partnership sold its common shares in the
company for total proceeds of $157,011 and realized a loss of
$330,213.
Prolinx, Inc.
- -------------
During 1998, the company had a new round of financing in which the
Partnership did not participate. The pricing of this round, in which
third parties participated, indicated an increase in fair value of
$296,847 for the Partnership's existing investment.
Venture Capital Limited Partnership Investment
- ----------------------------------------------
The Partnership recorded a cost basis decrease of $13,226 as a
result of stock distributions which were recorded as returns of
capital from venture capital limited partnership investments in
1998.
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.
Subsequent to December 31, 1998, the fair value of the Partnership's
Endocare, Inc. investment increased to $730,800 as a result of an
increase in the publicly traded market price at March 22, 1999.
6. Change in Net Unrealized Fair Value of Equity Investments
---------------------------------------------------------
In accordance with the accounting policy as stated in Note 1, the
Statements of Operations include a line item entitled "Change in net
unrealized fair value of equity investments. " The table below
discloses details of the changes:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
(Decrease) increase in
fair value from cost of
marketable equity
securities $ (116,114) 96,066 (337,773)
Increase in fair value from
cost of non-marketable
equity securities 1,579,405 1,374,702 707,257
--------- --------- -------
Net unrealized fair
value increase from
cost at end of year 1,463,291 1,470,768 369,484
Net unrealized fair value
increase (decrease) from
cost at beginning of year 1,470,768 369,484 (8,477)
--------- --------- -------
Change in net unrealized
fair value of equity
investments $ (7,477) 1,101,284 377,961
========= ========= =======
</TABLE>
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1998 and 1997,
consisted of:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Demand accounts $263 3,470
Money-market accounts 124 153,667
--- -------
Total $387 157,137
=== =======
</TABLE>
8. Short-Term Borrowings
---------------------
The Partnership has a borrowing account with a financial
institution. At December 31, 1998, the borrowing capacity of this
account, which fluctuates based on collateral value, was $285,137;
as of March 26, 1999, the borrowing capacity was $0 and the
outstanding balance was $241,800. The Partnership, if required to
by the lender, intends to repay this borrowing from the proceeds of
investment sales or support from the Managing General Partners.
Interest is charged at the prime rate plus one half percent. The
weighted-average interest rate for the year ended December 31, 1998
was 8.75%. Interest expense was $3,441 for the year ended December
31, 1998. The Partnership's investments in Megabios Corp., and Axys
Pharmaceuticals, Inc. are pledged as collateral.
9. 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
December 31, 1998, the Partnership had no unfunded commitments.
The Partnership uses the same credit policies in making these
commitments and conditional obligations as it does for on-balance-
sheet instruments. Commitments to extend financing are agreements
to lend to a company as long as there are no violations of any
conditions established in the contract. The credit lines generally
have fixed termination dates or other termination clauses. Since
many of the commitments are expected to expire without being fully
drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
<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: March 29, 1999 By: /s/Michael Brenner
------------------------------
Michael Brenner
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/Charles R. Kokesh President, Chief March 29, 1999
- ------------------------ Executive Officer,
Charles R. Kokesh Chief Financial
Officer and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
The above represents the Board of Directors of Technology Funding
Inc. and the General Partners of Technology Funding Ltd.
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FORM 10-K AS OF DECEMBER 31, 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> DEC-31-1998
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 4,208,359
<INVESTMENTS-AT-VALUE> 5,671,650
<RECEIVABLES> 0
<ASSETS-OTHER> 920
<OTHER-ITEMS-ASSETS> 387
<TOTAL-ASSETS> 5,672,957
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 325,492
<TOTAL-LIABILITIES> 325,492
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,884,174
<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> 1,463,291
<NET-ASSETS> 5,347,465
<DIVIDEND-INCOME> 15,967
<INTEREST-INCOME> 693
<OTHER-INCOME> 0
<EXPENSES-NET> 615,998
<NET-INVESTMENT-INCOME> (599,338)
<REALIZED-GAINS-CURRENT> (630,940)
<APPREC-INCREASE-CURRENT> (7,477)
<NET-CHANGE-FROM-OPS> (1,237,755)
<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> (1,237,755)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 158,597
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 616,598
<AVERAGE-NET-ASSETS> 5,966,342
<PER-SHARE-NAV-BEGIN> 64
<PER-SHARE-NII> (15)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 49
<EXPENSE-RATIO> 10.3
<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.
</FN>
</TABLE>
