<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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)
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Equity investments (cost basis of
$4,208,359 in 1999 and 1998) $5,911,544 5,671,650
Cash and cash equivalents 1,085 387
Other assets 4,970 920
--------- ---------
Total assets $5,917,599 5,672,957
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 25,672 38,899
Due to related parties 190,867 84,157
Short-term borrowings 247,059 202,436
--------- ---------
Total liabilities 463,598 325,492
Commitments, contingencies and
subsequent event (Notes 3, 4, and 6)
Partners' capital:
Limited Partners (79,716 Units
outstanding) 3,777,957 3,909,982
General Partners (27,141) (25,808)
Net unrealized fair value increase
from cost of equity investments 1,703,185 1,463,291
--------- ---------
Total partners' capital 5,454,001 5,347,465
--------- ---------
Total liabilities and
partners' capital $5,917,599 5,672,957
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Income:
Short-term investment interest $ -- 224
Dividend income 4,032 4,449
------- -------
Total income 4,032 4,673
Costs and expenses:
Management fees 39,649 39,649
Individual General Partners'
compensation 9,635 4,299
Amortization of organizational
costs -- 2,000
Operating expenses:
Administrative and investor
services 52,075 51,294
Investment operations 12,643 25,882
Professional fees 6,564 5,478
Computer services 12,201 14,975
Interest expense 4,623 --
------- -------
Total operating expenses 88,106 97,629
------- -------
Total costs and expenses 137,390 143,577
------- -------
Net operating loss (133,358) (138,904)
Net realized loss from sales
of equity investments -- (400)
------- -------
Net realized loss (133,358) (139,304)
Change in net unrealized fair
value of equity investments 239,894 (254,109)
------- -------
Net income (loss) $106,536 (393,413)
======= =======
Net realized loss per Unit $ (1.66) (1.73)
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 1998
------ ------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ -- 224
Dividend income received 4,032 4,449
Cash paid to vendors (44,788) (25,470)
Cash paid to related parties (3,169) (135,153)
------- ---------
Net cash used by operating activities (43,925) (155,950)
------- ---------
Cash flows from investing activities:
Proceeds from the sales of equity
investments -- 2,730
------- ---------
Net cash provided by investing activities -- 2,730
------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings, net 44,623 --
------- ---------
Net cash provided by financing activities 44,623 --
Net increase (decrease) in cash and
cash equivalents 698 (153,220)
Cash and cash equivalents at beginning
of year 387 157,137
------- ---------
Cash and cash equivalents at March 31 $ 1,085 3,917
======= =========
Reconciliation of net income (loss) to
net cash used by operating activities:
Net income (loss) $ 106,536 (393,413)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Amortization of organizational costs -- 2,000
Change in net unrealized fair value
of equity investments (239,894) 254,109
Net realized loss from sales of equity
investments -- 400
Changes in:
Accounts payable and accrued expenses (13,227) (3,102)
Due to/from related parties 106,710 (16,442)
Other changes, net (4,050) 498
------- ---------
Net cash used by operating activities $ (43,925) (155,950)
======= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partners, the Balance Sheets as of
March 31, 1999, and December 31, 1998, and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 1999 and 1998, 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, 1998.
The following notes to financial statements for activity through March 31,
1999, supplement those included in the Annual Report on Form 10-K.
Allocation of income and loss to Limited and General Partners is based on
cumulative income and loss. Adjustments, if any, are reflected in the
current quarter balances.
2. 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
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the three months ended
March 31, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Management fees $ 39,649 39,649
Individual General Partners' compensation 9,635 4,299
Amortization of organizational costs -- 2,000
Reimbursable operating expenses 60,595 74,763
</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 $164,434 and $60,724 at March 31, 1999 and at December 31,
1998, 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 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. As of March 31, 1999 and 1998, no operational
expenses were absorbed by the General Partners.
Management fees payable were $26,433 and $23,433 at March 31, 1999 and
December 31, 1998, respectively.
<PAGE>
4. Equity Investments
------------------
<TABLE>
A complete listing of the Partnership's equity investments at December 31, 1998, is in the
1998 Annual Report on Form 10-K. Activity from January 1 through March 31, 1999, consisted
of:
<CAPTION>
January 1 through
March 31, 1999
------------------------
Principal
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $4,208,359 5,671,650
--------- ---------
Significant changes:
Medical/Diagnostic Equipment
- ----------------------------
Endocare, Common 08/96-
Inc. shares 01/97 152,400 0 311,353
Pharmaceuticals
- ---------------
Megabios Common 09/94-
Corp. shares 07/95 100,424 0 (74,014)
--------- ---------
Total significant changes 0 237,339
Other changes, net 0 2,555
--------- ---------
Total equity investments at March 31, 1999 $4,208,359 5,911,544
========= =========
</TABLE>
Marketable Equity Securities
- ----------------------------
Marketable equity securities had aggregate costs of $984,268 at both March
31, 1999, and December 31, 1998 and aggregate fair values of $1,080,169 and
$868,154 at March 31, 1999 and December 31, 1998, respectively. The net
unrealized gain and loss at March 31, 1999, and December 31, 1998, included
gross gains of $183,920 and $118,852, respectively.
Megabios Corp.
- --------------
In May 1999, the company changed its name to Valentis, Inc.
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 March 31, 1999, and December 31, 1998,
consisted of:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Demand accounts $1,016 263
Money-market accounts 69 124
----- -------
Total $1,085 387
===== =======
</TABLE>
6. Short-Term Borrowings
---------------------
The Partnership has a borrowing account with a financial institution. At
March 31, 1999, the borrowing capacity of this account, which fluctuates
based on collateral value, was $0 and the outstanding balance was $247,059.
The weighted-average interest rate for the three months ended March 31,
1999 was 8.25%. Interest expense was $4,623 for the three months ended
March 31, 1999. The Partnership's investments in Megabios Corp. and Axys
Pharmaceuticals, Inc. are pledged as collateral.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the three months ended March 31, 1999, net cash used by operating
activities totaled $43,925. The Partnership paid management fees of
$36,649 to the Managing General Partners and received advances from the
Managing General Partners totaling $43,115 to fund its operations. In
addition, $9,635 was paid to the Individual General Partners as
compensation for their services. The Partnership paid other operating
expenses of $44,788. Dividend income of $4,032 was received.
The Partnership has a borrowing account with a financial institution. The
borrowing capacity of this account which fluctuates based on collateral
value was $0 and the outstanding balance was $247,059 at March 31, 1999.
The Partnership's investments in Megabios Corp. and Axys Pharmaceuticals,
Inc. are pledged as collateral. 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 March 31, 1999, were $1,085. Future proceeds
from investment sales 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 $106,536 for the three months ended March 31, 1999, compared
to a net loss of $393,413 for the same period in 1998. The improvement was
primarily due to a $494,003 increase in net unrealized fair value of equity
investments.
The Partnership recorded an increase in equity investment fair value of
$239,894 for the three months ended March 31, 1999 compared to a decrease
of $254,109 for the same period in 1998. The 1999 increase was primarily
due to an increase in the medical/diagnostic equipment industries,
partially offset by a decrease in the pharmaceuticals industry. The 1998
decrease was primarily due to decreases in the pharmaceutical and
medical/diagnostic equipment industries.
Total operating expenses were $88,106 for the quarter ended March 31, 1999,
compared to $97,629 for the same period in 1998. The decrease is
attributable to decreased investment monitoring activity.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
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 1999 to date 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.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Partnership during the
quarter ended March 31, 1999.
(b) Financial Data Schedule for the three months ended and as of March 31,
1999 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING MEDICAL PARTNERS I, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: May 14, 1999 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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 4,208,359
<INVESTMENTS-AT-VALUE> 5,911,544
<RECEIVABLES> 0
<ASSETS-OTHER> 4,970
<OTHER-ITEMS-ASSETS> 1,085
<TOTAL-ASSETS> 5,917,599
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 463,598
<TOTAL-LIABILITIES> 463,598
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,750,816
<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> 1,703,185
<NET-ASSETS> 5,454,001
<DIVIDEND-INCOME> 4,032
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 137,390
<NET-INVESTMENT-INCOME> (133,358)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 239,894
<NET-CHANGE-FROM-OPS> 106,536
<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> 106,536
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39,649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 137,440
<AVERAGE-NET-ASSETS> 5,400,733
<PER-SHARE-NAV-BEGIN> 49
<PER-SHARE-NII> (2)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 47
<EXPENSE-RATIO> 2.5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
A zero value is used since the change in net unrealized fair value is
not allocated to General Partners and Limited Partners as it is not
taxable.
</FN>
</TABLE>
