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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, 2000
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 Registrant's
Proxy Statement relating to the Registrant's Meeting of Limited
Partners held on December 8, 2000 are incorporated by reference
into Part III of this Form 10-K where indicated.
Forward-Looking Statements
- --------------------------
The Private Securities Litigation Reform Act of 1995 (the Act)
provides a safe harbor for forward-looking statements made by or
on behalf of the Partnership. The Partnership and its
representatives may from time to time make written or oral
statements that are "forward-looking", including statements
contained in this report and other filings with the Securities and
Exchange Commission, and reports to the Partnership's shareholders
and news releases. All statements that express expectations,
estimates, forecasts and projections are forward-looking
statements within the meaning of the Act. In addition, other
written or oral statements which constitute forward-looking
statements may be made by or on behalf of the Partnership. Words
such as "expects", "anticipates", "intends", "plans", "believes",
"seeks", "estimates", "projects", "forecasts", "may", "should",
variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are
not guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in or suggested by such forward-
looking statements. The Partnership undertakes no obligation to
update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
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. 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 interest (Units)
in May 1993. On October 8, 1993, the minimum number of
Units required to commence Partnership operations (12,000)
had been sold. The offering terminated with 79,716 Units
sold on May 3, 1995. The Partnership's original
contributed capital was $7,937,676, consisting of
$7,929,744 from Limited Partners for 79,716 units and
$7,932 from the General Partners, Technology Funding Ltd.
(TFL) and Technology Funding Inc. (TFI). The General
Partners do not own any units.
The principal investment objectives of the Partnership are
long-term capital appreciation from venture capital
investments in new and developing companies and
preservation of Limited Partner capital through risk
management and active involvement with such companies
(portfolio companies). The Partnership's investments in
portfolio companies primarily consist of equity securities
such as common and preferred shares, but also include debt
convertible into equity securities and warrants and options
to acquire equity securities. Although venture capital
investments offer the opportunity for significant gains,
such investments involve a high degree of business and
financial risk that can result in substantial losses.
Among these are the risks associated with investment in
companies in an early stage of development or with little
or no operating history, companies operating at a loss or
with substantial variations in operating results from
period to period, and companies with the need for
substantial additional capital to support expansion or to
achieve or maintain a competitive position. Such companies
may face intense competition, including competition from
companies with greater financial resources, more extensive
development, manufacturing, marketing and service
capabilities, and a larger number of qualified managerial
and technical personnel. There is no ready market for many
of the Partnership's investments. The Partnership's
investments in portfolio companies are generally subject to
restrictions on sale because they were acquired from the
issuer in private placement transactions or because the
Partnership is an affiliate of the issuer.
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. 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
- ------ ---------------------------------------------------
A meeting of the Limited Partners of the Partnership was
held on December 8, 2000. At that meeting, the Limited
Partners elected three Individual General Partners, each
to serve until the next meeting of Limited Partners:
Harold M. Ginsberg, M.D. (77,308 Units voting for, 2,408
Units voting against or abstaining), Richard A. Marcum
(77,208 Units voting for, 2,508 Units voting against or
abstaining) and Carroll J. Schroeder (77,158 Units voting
for, 2,558 Units voting against or abstaining). Two
Managing General Partners were also elected, each to serve
until the next meeting of Limited Partners: Technology
Funding Inc. (76,947 Units voting for, 2,769 voting
against or abstaining) and Technology Funding Limited
(76,847 Units voting for, 2,869 voting against or
abstaining). The Limited Partners also ratified the
selection of Arthur Andersen LLP as independent public
accountants (75,495 Units voting for, 900 Units voting
against and 3,321 Units abstaining). In addition, the
Limited Partners approved: (1) an amendment to Article 2,
Section (m) of the Partnership Agreement so that the
salary and benefits of a controlling person of a Managing
General Partner directly involved in carrying out the
business of the Partnership are expenses of the
Partnership (63,317 Units voting for, 10,963 Units voting
against and 5,436 Units abstaining), (2) an amendment to
Article 4.01(c) of the Partnership Agreement to remove the
limit on reimbursement of operational costs to the
Managing General Partners or their affiliates (60,238
Units voting for, 14,072 Units voting against and 5,406
Units abstaining), (3) an amendment to Article 1.03 of the
Partnership Agreement to clarify that the Partnership's
investment objective is to maximize long-term capital
appreciation for the Limited Partners up to and including
the final day of the Partnership's operations prior to
dissolution (72,251 Units voting for, 3,298 Units voting
against and 4,167 Units abstaining), and (4) an amendment
to Article 5.04 of the Partnership Agreement to clarify
the Limited Partners' right to vote under the Investment
Company Act of 1940, as amended (73,243 Units voting for,
2,598 Units voting against and 3,875 Units abstaining).
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, 2000, there were 838 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
- ------ -----------------------
For the Years Ended and As of December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Interest income $ 114 3 693 73,349 178,979
Dividend income 8,093 15,953 15,967 136 --
Net investment loss (690,329) (539,268) (599,338) (480,820) (410,597)
Net realized gain (loss) from
sales of equity investments 17,364 94,817 (331,660) 1,168 (1,876)
Realized losses from
impairment write-downs (300,000) -- (299,280) -- --
Net (decrease) increase in
unrealized appreciation of
equity investments (1,818,021) 716,138 (7,477) 1,101,284 377,961
Net (decrease) increase
in partners' capital resulting
from operations (2,790,986) 271,687 (1,237,755) 621,632 (34,512)
Net (decrease) increase in
partners' capital resulting from
operations per Unit (1) (34.66) 3.30 (15.37) (7.66) (0.43)
Total assets 3,514,513 5,693,057 5,672,957 6,646,391 6,019,828
(1) See Notes 1 and 4 to the Financial Statements for a description of the method of calculation
of net increase (decrease) in partners' capital resulting from operations per Unit.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
Liquidity and Capital Resources
- -------------------------------
The Partnership operates as a business development company
under the Investment Company Act of 1940 and makes venture
capital investments in new and developing companies. The
Partnership's financial condition is dependent upon the
success of the portfolio companies. There is no ready market
for many of the Partnership's investments. It is possible
that some of its venture capital investments may be a
complete loss or may be unprofitable and that others will
appear likely to become successful, but may never realize
their potential. The valuation of the Partnership's
investments in securities for which there are no available
market quotes is subject to the estimate of the Managing
General Partners in accordance with the valuation guidance
described in Note 1 to the financial statements. In the
absence of readily obtainable market values, the estimated
fair value of the Partnership's investments may differ
significantly from the values that would have been used had a
ready market existed.
During the year ended December 31, 2000, net cash used by
operating activities totaled $75,520. The Partnership paid
management fees of $52,865 to the Managing General Partners
and received advances from the Managing General Partners
totaling $166,730 to fund its operations. In addition,
$35,817 was paid to the Individual General Partners as
compensation for their services. The Partnership paid other
operating expenses of $157,428 and interest on borrowings of
$4,238 and received $8,098 in interest and dividend income.
During the year ended December 31, 2000, the Partnership
funded equity investments of $224,874 to portfolio companies
in the biotechnology, medical/diagnostic equipment, health
information systems and pharmaceuticals industries. Proceeds
from sales of equity investments were $143,131 and cash
distributions of $20,864 were received from a venture capital
limited partnership investment. Net repayments of short-term
borrowings were $2,646.
Cash and cash equivalents at December 31, 2000, were $36,945.
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
- ---------------------
2000 compared to 1999
- ---------------------
The net decrease in partners' capital resulting from
operations was $2,790,986 for the year ended December 31,
2000, compared to a net increase in partners' capital
resulting from operations of $271,687 for the year ended
December 31, 1999. The change was primarily due to a
decrease in unrealized appreciation on equity investments, an
increase in realized losses from impairment write-downs on
investments, increased operating expenses and a decrease in
net gains from sales of equity investments.
Unrealized appreciation on equity investments was $361,408
and $2,179,429 at December 31, 2000 and 1999, respectively.
During the year ended December 31, 2000, the Partnership
recorded a decrease in net unrealized appreciation on equity
investments of $1,818,021 compared to an increase of $716,138
during 1999. The 2000 decrease was primarily due to a
decrease in fair value of $4,392,070 for the change in
valuation methodology discussed in Note 1 to the financial
statements. This change was partially offset by increases in
portfolio companies in the biotechnology and
medical/diagnostic equipment industries. The 1999 increase
in net unrealized appreciation on investments was primarily
due to increases in the medical/diagnostic equipment
industry, partially offset by decreases in the biotechnology,
environmental and pharmaceuticals industries.
During the year ended 2000, the Partnership recorded realized
losses from impairment write-downs on investments of
$300,000, which represents the Partnership's total investment
in Biex, Inc. Biex, Inc. suspended operations in November
2000 after it was unable to obtain additional funding. There
were no impairment write-downs in 1999.
Operating expenses were $504,122 and $358,304 for the years
ended December 31, 2000 and 1999, respectively. At a meeting
on December 8, 2000, the Limited Partners approved an
amendment to the Partnership Agreement which removed the
limit on reimbursement of operational costs effective January
1, 2000. If the amendment had not been approved, expenses in
excess of the limitation would have been $163,344 in 2000.
In the second quarter of 2000, the Managing General Partners
billed the Partnership an additional $36,071 for investment
management expenses incurred by the General Partners in 1998
and 1999, but not previously billed to the Partnership. In
the fourth quarter of 2000, the Managing General Partners
billed the Partnership an additional $122,108 for operating
expenses relating to prior years that had not been fully
recovered as permitted by the Partnership Agreement. If
these expenses had been billed in prior years, operating
expenses for 2000 and 1999 would have been $345,943 and
$401,081, respectively. On December 8, 2000, the Limited
Partners of the Partnership approved an amendment to the
Partnership Agreement so that the salary and benefits of a
controlling person of a Managing General Partner directly
involved in carrying out the business of the Partnership are
expenses of the Partnership. This resulted in additional
operating expenses in 2000 of $6,193.
Net realized gains from sales of equity investments totaled
$17,364 and $94,817 for the years ended December 31, 2000 and
1999, respectively. The 1999 gain was primarily attributable
to the sale of Valentis, Inc., partially offset by losses on
the sales of Naiad Technologies, Inc. and CareCentric
Solutions, Inc.
Given the inherent risk associated with the business of the
Partnership, the future performance of the portfolio company
investments may significantly impact future operations.
1999 compared to 1998
- ---------------------
The net increase in partners' capital resulting from
operations was $271,687 for 1999, compared to a net decrease
in partners' capital resulting from operations of $1,237,755
in 1998. The improvement was primarily due to increased
unrealized appreciation on equity investments, an increase in
net realized gains from sales of equity investments, and a
decrease in realized losses from impairment write-downs on
investments.
Unrealized appreciation on equity investments was $2,179,429
and $1,463,291 at December 31, 1999 and 1998, respectively.
The Partnership recorded an increase in unrealized
appreciation on equity investments of $716,138 in 1999,
compared to a decrease in unrealized appreciation on equity
investments of $7,477 in 1998. The 1999 increase was
primarily attributable to increases in portfolio companies in
the medical/diagnostic equipment industry, partially offset
by decreases in the biotechnology, environmental and
pharmaceuticals industries.
Realized gains from sales of equity investments totaled
$94,817 in 1999 compared to losses of $331,660 in 1998. The
gain in 1999 was primarily attributable to the sale of
Valentis, Inc., partially offset by losses on the sales of
CareCentric Solutions, Inc. and Naiad Technologies, Inc.
During 1998, the Partnership recorded realized losses from
impairment write-downs on investments of $299,280
attributable to ConjuChem, Inc. There were no write-downs in
1999.
Total operating expenses were $358,304 and $419,414 for 1999
and 1998, 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 3% of total Limited Partner capital contributions. As a
result, operating expenses of $62,535 were initially absorbed
by the General Partners in 1998. 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
related to prior years. In 2000, the Managing General
Partners billed the Partnership an additional $158,179 for
investment management expenses consisting of $42,777, $39,316
and $76,086 for 1999, 1998 and prior years, respectively,
that were incurred by the General Partners but not previously
billed to the Partnership. 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 $401,081 and $388,072 for
1999 and 1998, respectively.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------- ---------------------------------------------------------
The Partnership is subject to financial market risks,
including changes in interest rates with respect to its
investments in debt securities and interest bearing cash
equivalents as well as changes in marketable equity security
prices. The Partnership does not use derivative financial
instruments to mitigate any of these risks. The return on
the Partnership's investments is generally not affected by
foreign currency fluctuations.
The Partnership does not have a significant exposure to
modest public market price fluctuations as the Partnership
primarily invests in private business enterprises. However,
should significant changes in market equity prices occur,
there could be a longer-term effect on valuations of private
companies, which could affect the carrying value and the
amount and timing of gains realized on these investments.
Since there is typically no public market for the
Partnership's investments in private companies, the valuation
of the investments is subject to the estimate of the
Partnership's Managing General Partners. In the absence of a
readily ascertainable market value, the estimated value of
the Partnership's investments in private companies may differ
significantly from the values that would be placed on the
portfolio if a ready market existed. The Partnership's
portfolio also includes common stocks in publicly traded
companies. These investments are directly exposed to equity
price risk, in that a hypothetical ten percent change in
these equity prices would result in a similar percentage
change in the fair value of these securities. The
Partnership 's investments also include some debt securities.
Since the debt securities are generally priced at a fixed
rate, changes in interest rates do not directly impact
interest income. The Partnership 's debt securities are
generally held to maturity or converted into equity
securities of private companies.
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 Individual General Partners are
responsible for the management and administration of the
Partnership. The Individual General Partners consist of
three Independent 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. Reference is made
to the information regarding Individual General Partners and
the Managing General Partners in the Registrant's Proxy
Statement related to the Meeting of Limited Partners held on
December 8, 2000, which information is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
As a partnership, the Registrant has no officers or
directors. In 2000, 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, 2000. General partner overhead (as
defined in the Partnership Agreement) includes the General
Partners' share of rent, utilities, property taxes and the
cost of capital equipment and the general and administrative
expenses 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 and related expenses for each attended meeting of the
Individual General Partners or committees thereof. For the
year ended December 31, 2000, $35,817 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. 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:
Report of Independent Public Accountants as of and
for the year ended December 31, 2000
Independent Auditors' Report as of
December 31, 1999 and for the years ended
December 31, 1999 and 1998
Balance Sheets as of December 31, 2000 and 1999
Statements of Investments as of
December 31, 2000 and 1999
Statements of Operations for the years ended
December 31, 2000, 1999 and 1998
Statements of Partners' Capital for the years ended
December 31, 2000, 1999 and 1998
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
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
None
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Registrant on
November 13, 2000, to report the appointment of Arthur
Andersen LLP as the Partnership's independent public
accountants. No financial statements were filed.
(c) Financial Data Schedule for the year ended and as of
December 31, 2000 (Exhibit 27).
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
To the Partners of
Technology Funding Medical Partners I, L.P.:
We have audited the accompanying balance sheet of Technology Funding
Medical Partners I, L.P. (a Delaware limited partnership) (the
Fund), including the statement of investments, as of December 31,
2000, and the related statements of operations, partners' capital,
and cash flows for the year then ended. These financial statements
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. 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 physical inspection of securities owned as
of December 31, 2000. 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 audit provides 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, 2000,
and the results of its operations, changes in partners' capital and
its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
Los Angeles, California /S/ARTHUR ANDERSEN LLP
March 16, 2001
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Medical Partners I, L.P.:
We have audited the accompanying balance sheet of Technology Funding
Medical Partners I, L.P. (a Delaware limited partnership), including
the statement of investments, as of December 31, 1999, and the
related statements of operations, partners' capital, and cash flows
for each of the years in the two-year period ended December 31,
1999. 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 auditing standards
generally accepted in the United States of America. 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, 1999. 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, 1999,
and the results of its operations and its cash flows for each of the
years in the two-year period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States
of America.
Albuquerque, New Mexico /S/KPMG LLP
March 29, 2000
BALANCE SHEETS
- --------------
December 31,
-------------------
2000 1999
------ ------
ASSETS
Equity investments (cost basis of
$3,114,946 and $3,336,595 in 2000
and 1999, respectively) $3,476,354 5,516,024
Cash and cash equivalents 36,945 175,990
Other assets 1,214 1,043
--------- ---------
Total assets $3,514,513 5,693,057
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 46,855 35,528
Due to related parties 639,492 35,731
Short-term borrowings -- 2,646
--------- ---------
Total liabilities 686,347 73,905
Commitments and contingencies
Partners' capital
(79,716 Limited Partner Units
outstanding) 2,828,166 5,619,152
--------- ---------
Total liabilities and partners'
capital $3,514,513 5,693,057
========= =========
The accompanying notes are an integral part of these financial
statements
STATEMENTS OF INVESTMENTS
- -------------------------
Principal
Amount or December 31, 2000 December 31, 1999
Industry shares at ------------------ -----------------
(1) Investment December 31, Cost Fair Cost Fair
Company Position Date 2000 Basis Value Basis Value
- ------------- -------- ---- ----------- ----- ----- ----- -----
Equity Investments
- ------------------
Medical/Biotechnology
- ---------------------
57.4% and 41.1% at December 31, 2000 and 1999, respectively
- -----------------------------------------------------------
Acusphere, Inc. Preferred 1995-
(a) shares 1997 340,635 $ 706,251 970,810 706,251 1,124,096
Biex, Inc. (a) (b) Preferred
shares 1997 -- -- -- 300,000 300,000
Curis Common
Corporation shares 2000 2,313 27,033 20,528 -- --
CV Therapeutics, Common
Inc. share
warrant at
$20.00;
exercised 1995 -- -- -- 768 9,913
ConjuChem Inc. Preferred
(a) share
warrant at
exercise aggregate
price TBD; purchase
expiring price
2001 1996 $24,291 0 0 0 0
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Prolinx, Inc. Preferred 1995-
(a) shares 1998 592,308 688,461 621,924 688,461 876,616
Prolinx, Inc. Convertible
(a) note (2) 2000 $26,700 26,809 9,383 -- --
--------- --------- --------- ---------
1,448,554 1,622,645 1,695,480 2,310,625
--------- --------- --------- ---------
Medical/Diagnostic Equipment
- ----------------------------
51.4% and 42.0% at December 31, 2000 and 1999, respectively
- -----------------------------------------------------------
Endocare, Inc. Common 1996-
(b) shares 2000 182,400 556,000 1,162,800 466,000 1,268,730
Endocare, Inc. Common
(b) share
warrant at
$3.00;
exercised 1996 -- -- -- 0 159,750
LifeCell Preferred 1996-
Corporation shares (2) 2000 2,745 247,500 141,137 247,500 441,895
LifeCell Common
Corporation share
warrant at
$4.13;
expiring
2001 1996 56,451 2,500 0 2,500 56,903
R2 Technology, Preferred 1994-
Inc. (a) shares 1996 117,134 134,268 148,364 134,268 428,608
R2 Technology, Preferred
Inc. (a) share warrant
at $2.00;
expired 1995 -- -- -- 0 3,662
--------- --------- --------- ---------
940,268 1,452,301 850,268 2,359,548
--------- --------- --------- ---------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Health Information Systems
- --------------------------
1.4% and 2.4% at December 31, 2000 and 1999, respectively
- ---------------------------------------------------------
Adesso Healthcare
Technology
Services, Inc.
(formerly ADESSO
Specialty
Services
Organization Preferred 1997-
Inc.)(a) (b) shares 2000 13,753 131,048 0 100,002 100,002
Adesso Healthcare
Technology
Services, Inc.
(formerly ADESSO
Specialty
Services
Organization Convertible
Inc.)(a) (b) note (2) 2000 $30,128 30,128 22,596 -- --
CareCentric
Solutions,
Inc., (formerly
Simione Central
Holdings, Inc.) Preferred
shares 1999 6,312 94,899 15,898 94,899 33,736
--------- --------- --------- ---------
256,075 38,494 194,901 133,738
--------- --------- --------- ---------
Pharmaceuticals
- ---------------
3.2% and 7.4% at December 31, 2000 and 1999, respectively
- ---------------------------------------------------------
Axys
Pharmaceuticals, Common
Inc. shares 2000 10,000 47,000 56,250 125,000 38,689
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Periodontix, Preferred 1993-
Inc. (a) shares 1996 167,000 234,000 35,100 234,000 375,750
--------- --------- --------- ---------
281,000 91,350 359,000 414,439
--------- --------- --------- ---------
Environmental
- -------------
0.1% and 0.2% at December 31, 2000 and 1999, respectively
- ---------------------------------------------------------
Triangle
Biomedical
Sciences, Common
Inc. (a) shares 1999 366 10,248 3,587 10,248 10,248
Triangle Common
Biomedical share
Sciences, warrant
Inc. (a) at $28.00;
expiring
2009 1999 366 366 128 366 366
--------- --------- --------- ---------
10,614 3,715 10,614 10,614
--------- --------- --------- ---------
Venture Capital Limited Partnership Investments
- -----------------------------------------------
9.5% and 5.1% at December 31, 2000 and 1999, respectively
- ---------------------------------------------------------
Medical Science Limited
Partners II, L.P. Partnership
(a) Interests various $250,000 178,435 267,849 226,332 287,060
--------- --------- --------- ---------
178,435 267,849 226,332 287,060
--------- --------- --------- ---------
Total equity investments - 123.0% and 98.2%
at December 31, 2000 and 1999, respectively $3,114,946 3,476,354 3,336,595 5,516,024
========= ========= ========= =========
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Legend and footnotes:
-- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(a) Equity security acquired in a private placement transaction; resale may be subject to
certain selling restrictions.
(b) Portfolio company is an affiliate of the Partnership; resale may be subject to certain
selling restrictions.
(1) Represents the total fair value of a particular industry segment as a percentage of
Partners' Capital at 12/31/00 and 12/31/99.
(2) The Partnership has no income-producing equity investments except for LifeCell Corporation
Preferred shares and convertible notes, which include accrued interest. Interest rates on
such notes range from 9.5% to 10%.
The accompanying notes are an integral part of these financial statements
STATEMENTS OF OPERATIONS
- ------------------------
For the Years Ended December 31,
------------------------------------
2000 1999 1998
------ ------ ------
Investment Income:
Interest income $ 114 3 693
Dividend income 8,093 15,953 15,967
--------- ------- ---------
Total investment income 8,207 15,956 16,660
Costs and expenses:
Management fees 158,597 158,597 158,597
Individual General
Partners' compensation 35,817 38,323 31,987
Amortization of
organizational costs -- -- 6,000
Operating expenses:
Administrative and
investor services 171,568 223,119 252,111
Investment operations 199,446 28,756 56,057
Computer services 39,158 40,720 59,282
Professional fees 89,712 43,071 44,675
Expenses absorbed by
General Partners -- -- (62,535)
Expenses absorbed by
General Partners in
prior years -- -- 66,383
Interest expense 4,238 22,638 3,441
--------- ------- ---------
Total operating expenses 504,122 358,304 419,414
--------- ------- ---------
Total costs and expenses 698,536 555,224 615,998
--------- ------- ---------
Net investment loss (690,329) (539,268) (599,338)
--------- ------- ---------
Net realized gain (loss) from
sales of equity investments 17,364 94,817 (331,660)
Realized losses from
impairment write-downs (300,000) -- (299,280)
--------- ------- ---------
Net realized (loss) income (282,636) 94,817 (630,940)
--------- ------- ---------
Net (decrease) increase in
unrealized appreciation
of equity investments (1,818,021) 716,138 (7,477)
--------- ------- ---------
Net (decrease) increase in
partners' capital
resulting from
operations $(2,790,986) 271,687 (1,237,755)
========= ======= =========
Net (decrease) increase in
partners' capital
resulting from
operations per Unit $ (34.66) 3.30 (15.37)
========= ======= =========
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
For the years ended December 31, 2000, 1999 and 1998:
Limited General
Partners Partners Total
-------- -------- -----
Partners' capital,
January 1, 1998 $6,579,054 6,166 6,585,220
Net investment loss (593,345) (5,993) (599,338)
Net realized loss (624,631) (6,309) (630,940)
Net decrease in unrealized
appreciation (7,402) (75) (7,477)
--------- ------ ---------
Partners' capital,
December 31, 1998 5,353,676 (6,211) 5,347,465
Net investment loss (520,302) (18,966) (539,268)
Net realized income 91,482 3,335 94,817
Net increase in unrealized
appreciation 691,641 24,497 716,138
--------- ------ ---------
Partners' capital,
December 31, 1999 5,616,497 2,655 5,619,152
Net investment loss (683,425) (6,904) (690,329)
Net realized loss (279,810) (2,826) (282,636)
Net decrease in unrealized
appreciation (1,799,841) (18,180) (1,818,021)
--------- ------ ---------
Partners' capital,
December 31, 2000 $2,853,421 (25,255) 2,828,166
========= ====== =========
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF CASH FLOWS
- ------------------------
For the Years Ended December 31,
-----------------------------------
2000 1999 1998
------ ------ ------
Cash flows from operating
activities:
Interest received $ 5 3 693
Dividends received 8,093 15,953 15,967
Cash paid to vendors (157,428) (134,375) (63,877)
Interest paid on
short-term borrowings (4,238) (22,638) (3,441)
Cash received from (paid to)
related parties 78,048 (450,131) (480,447)
--------- ------- ---------
Net cash used by
operating activities (75,520) (591,188) (531,105)
--------- ------- ---------
Cash flows from investing
activities:
Proceeds from sales of
equity investments 143,131 966,581 171,919
Purchases of equity
investments (224,874) -- --
Distribution from venture
capital limited partnership 20,864 -- --
--------- ------- ---------
Net cash (used) provided
by investing activities (60,879) 966,581 171,919
--------- ------- ---------
Cash flows from financing
activities:
(Repayment of) proceeds from
short-term borrowings, net (2,646) (199,790) 202,436
--------- ------- ---------
Net cash (used) provided
by financing activities (2,646) (199,790) 202,436
--------- ------- ---------
Net (decrease) increase in
cash and cash equivalents (139,045) 175,603 (156,750)
Cash and cash equivalents
at beginning of year 175,990 387 157,137
--------- ------- ---------
Cash and cash equivalents
at end of year $ 36,945 175,990 387
========= ======= =========
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
For the Years Ended December 31,
-----------------------------------
2000 1999 1998
------ ------ ------
Reconciliation of net (decrease)
increase in partners' capital
resulting from operations
to net cash used by
operating activities:
Net (decrease) increase in
partners' capital resulting
from operations $(2,790,986) 271,687 (1,237,755)
Adjustments to reconcile net
(decrease) increase in
partners' capital resulting
from operations to net cash
used by operating activities:
Amortization of
organizational costs -- -- 6,000
Net decrease (increase) in
unrealized appreciation
of equity investments 1,818,021 (716,138) 7,477
Net realized (gain) loss
from sales of equity
investments (17,364) (94,817) 331,660
Realized losses from
impairment write-downs 300,000 -- 299,280
Changes in:
Accounts payable and
accrued expenses 11,328 (3,371) 9,686
Due to related parties 603,761 (48,426) 52,199
Other, net (280) (123) 348
--------- ------- ---------
Net cash used by operating
activities $ (75,520) (591,188) (531,105)
========= ======= =========
The accompanying notes are an integral part of these financial
statements.
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 treated as 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.
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 interest (Units) in May 1993. On October 8, 1993, the
minimum number of Units required to commence Partnership operations
(12,000) had been sold. The offering terminated with 79,716 Units
sold on May 3, 1995. The Partnership's original contributed capital
was $7,937,676, consisting of $7,929,744 from Limited Partners for
79,716 units and $7,932 from General Partners. The General Partners
do not own any units. 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 accompanying financial statements have been prepared on the
accrual basis of accounting. The preparation of financial statements
in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates. Significant estimates include the estimate of 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.
Reclassifications
- -----------------
Certain reclassifications have been made to prior-year balances to
conform to the current year presentation.
Equity Investments
- ------------------
Investments are carried at fair value.
Under the direction and control of the Independent General Partners,
the Managing General Partners are delegated the authority to establish
valuation procedures and periodically apply such procedures to the
Partnership's investment portfolio. In fulfilling this
responsibility, the Managing General Partners periodically update and
revise the valuation procedures used to determine fair value in order
to reflect new events, changing market conditions, more experience
with investee companies or additional information, any of which may
require the revision of previous estimating procedures. The valuation
procedures were revised and updated by the Managing General Partners
during the year ended December 31, 2000.
Unrestricted publicly traded securities are valued at the closing
sales price or bid price that is available on a national securities
exchange or over-the-counter market. Valuation discounts of 5% to 50%
are applied to publicly traded securities subject to resale
restrictions resulting from Rule 144 or contractual lock-ups, such as
those commonly associated with underwriting agreements or knowledge of
material non-public information.
The fair value of all other investments is determined in good faith by
the Managing General Partners under the delegated authority of the
Independent General Partners after consideration of available relevant
information. There is no ready market for the Partnership's
investments in private companies or unregistered securities of public
companies. Fair value is generally defined as the amount the
Partnership could reasonably expect to receive for an investment in an
orderly disposition based on a current sale. Significant factors
considered in the estimation of fair value include the inherent
illiquidity of and lack of marketability associated with venture
capital investments in private companies or unregistered securities,
the investee company's enterprise value established in the last round
of venture financing, changes in market conditions since the last
round of venture financing or since the last reporting period, the
value of a minority interest in the investee company, contractual
restrictions on resale typical of venture financing instruments, the
investee company's financial position and ability to obtain any
necessary additional financing, the investee company's performance as
compared to its business plan, and the investee company's progress
towards initial public offering. The values determined for the
Partnership's investments in these securities are based upon available
information at the time the good faith valuations are made and do not
necessarily represent the amount which might ultimately be realized,
which could be higher or lower than the reported fair value.
At December 31, 2000 and December 31, 1999, the investment portfolio
included investments totaling $1,811,892 and $3,219,346, respectively,
whose fair values were established in good faith by the Managing
General in the absence of readily ascertainable market values. In
addition, investments in publicly traded securities which have been
subjected to a discount for legal or contractual restrictions as
determined by the Managing General Partners amounted to $1,163,312 and
$33,738 at December 31, 2000 and December 31, 1999, respectively.
Because of the inherent uncertainty in the valuation, the values may
differ significantly from the values that would have been used had a
ready market for the securities existed, and the differences could be
material.
Venture capital limited partnership investments 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.
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 new cost basis being adjusted to equal the fair
value of the investment. Cost basis adjustments are reflected as
"Realized losses from impairment 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.
Net Increase (Decrease) in Partners' Capital Resulting from Operations
- ----------------------------------------------------------------------
Per Unit
- --------
Net increase (decrease) in partners' capital resulting from operations
per Unit is calculated by dividing the weighted average number of
Units outstanding of 79,716 for the years ended December 31, 2000,
1999 and 1998, into the total net increase (decrease) in partners'
capital resulting from operations allocated to the Limited Partners.
The Managing General Partners contributed 0.1% of total Limited
Partner capital contributions 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 accounting
principles generally accepted in the United States which may not
equate to tax accounting. The cost of investments on a tax basis at
December 31, 2000 and 1999, was $3,187,729 and $3,408,219,
respectively. At December 31, 2000 and 1999, gross unrealized
appreciation and depreciation on investments based on cost for federal
income tax purposes were as follows:
December 31, December 31,
2000 1999
------------ ------------
Unrealized appreciation $1,068,550 2,384,124
Unrealized depreciation (779,925) (276,319)
--------- ---------
Net unrealized appreciation $ 288,625 2,107,805
========= =========
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:
For the Years Ended December 31,
-------------------------------
2000 1999 1998
------ ------ ------
Management fees $158,597 158,597 158,597
Individual General Partners'
compensation 35,817 38,323 31,987
Amortization of organizational
costs -- -- 6,000
Reimbursable operating expenses:
Administrative and investor
services 98,363 140,015 229,092
Investment operations 193,778 24,050 49,840
Computer services 39,158 40,720 59,282
Expenses absorbed by
General Partners -- -- (62,535)
Expenses absorbed by General
Partners in prior years -- -- 66,383
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 (May 2001), 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. Management fees due to the Managing
General Partners were $118,948 and $13,216 and were included in due to
related parties at December 31, 2000 and 1999, respectively.
The Partnership reimburses the Managing General Partners for certain
operating expenses incurred in connection with the business of the
Partnership. Reimbursable operating expenses paid by the Managing
General Partners include expenses (other than organizational and
offering expenses and general partner overhead) such as administrative
and investor services, investment operations, and computer services.
Prior to 2000, the Partnership Agreement stated that the Partnership
could not reimburse the Managing General Partners for certain
operational costs that aggregate more than 3% of total Limited Partner
capital contributions. On December 8, 2000, the Limited Partners
approved an amendment to the Partnership Agreement which removed the
limit on reimbursement of operational costs effective January 1, 2000.
If the amendment had not been approved, expenses in excess of the
limitation would have been $163,344 in 2000. Amounts due to related
parties were $520,544 and $22,515 at December 31, 2000 and 1999,
respectively.
In 1998, the Managing General Partners absorbed $62,535 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 1999.
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 relating to prior
years. In 2000, the Managing General Partners billed the Partnership
an additional $158,179 for investment management expenses consisting
of $42,777, $39,316 and $76,086 for 1999, 1998 and prior years,
respectively, that were incurred by the General Partners but not
previously billed to the Partnership. Had the additional expenses
been recorded in prior years and had the operating expense limitation
not been in effect in 1999 and 1998, operating expenses would have
been $345,943, $401,081 and $388,072 for 2000, 1999 and 1998,
respectively.
On December 8, 2000, the Limited Partners of the Partnership approved
an amendment to the Partnership Agreement so that the salary and
benefits of a controlling person of a Managing General Partner
directly involved in carrying out the business of the Partnership are
expenses of the Partnership. This resulted in additional operating
expenses in 2000 of $6,193.
As compensation for their services, the Individual General Partners
each receive $6,000 annually beginning on the Commencement Date, plus
$1,000 and related expenses for each attended meeting of the
Individual General Partners or committee thereof. The three
Individual General Partners each own twenty Units.
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. Effective December 31,
1998, TFPM was acquired by TFL. Under the terms of a rent agreement,
TFL charges the Partnership for its share of office rent and related
overhead costs on a cost recovery basis. In 2000 and 1999, these
costs totaled $18,091 and $11,103, respectively, and 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. Any such profit is
allocated amongst the Partnership and affiliated partnerships based on
their proportionate investments in the portfolio company. At
December 31, 2000, the Partnership and affiliated partnerships had an
indirect interest in non-transferable Endocare, Inc. options with a
fair value of $135,469.
4. Allocation of Profits and Losses
--------------------------------
In accordance with the Partnership Agreement (see Note 1), net profits
and losses of the Partnership are allocated based on the beginning-of-
the-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 decrease
in partners' capital resulting from operations 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 99% to 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
------------------
All investments are valued at fair value as determined in good faith
by the Managing General Partners. See Note 1--Equity Investments.
Marketable Equity Securities
- ----------------------------
At December 31, 2000 and 1999, marketable equity securities had an
aggregate cost of $395,208 and $841,768, respectively, and an
aggregate fair value of $233,301 and $1,975,880, respectively. The
unrealized loss/gain at December 31, 2000 and 1999, included gross
gains of $9,250 and $1,220,423, respectively.
Restricted Securities
- ---------------------
At December 31, 2000 and 1999, restricted securities had aggregate
market values of $3,243,053 and $3,540,144, respectively, representing
114.7% and 63.0%, respectively, of the net assets of the Partnership.
Significant purchases and sales of investments during the year ended
December 31, 2000 are as follows:
Acusphere, Inc.
- ---------------
In April 2000, the company completed a new round of financing at a
higher valuation. The Partnership did not participate in the round.
Adesso Healthcare Technology Services, Inc. (formerly ADESSO Specialty
- ----------------------------------------------------------------------
Services Organization, Inc.)
- ---------------------------
In March 2000, the Partnership purchased 1,848 Series E Preferred
shares for $31,046.
In December 2000, the Partnership funded a bridge loan in the amount
of $30,128 with an interest rate of 9.5% and a maturity date of
January 12, 2002.
Axys Pharmaceuticals, Inc.
- --------------------------
In the fourth quarter of 2000, the Partnership purchased 10,000 common
shares for $47,000. The Partnership sold 9,464 common shares in
December 2000 for proceeds of $37,855 and realized a loss of $87,145.
Biex, Inc.
- ----------
The company was unable to complete a round of financing in November
2000 and suspended operations and laid off all employees. As a
result, the Partnership recorded a realized loss from impairment
write-downs of $300,000, its entire investment in the company. As of
January 2001, an offer to purchase the company was being negotiated;
however, proceeds from the sale were expected to satisfy only a
majority of the company's creditors with nothing remaining for equity
investors.
CareCentric Solutions, Inc. (formerly Simione Central Holdings, Inc.)
- ---------------------------------------------------------------------
In March 2000, the company's shareholders approved a one-for-five
reverse stock split in order to meet requirements to maintain the
company's listing on the Nasdaq National Market.
CV Therapeutics, Inc.
- --------------------
In September 2000, the Partnership net exercised a common share
warrant for 1,920 shares at $20 each and received 1,316 common shares
with a cost basis of $26,329. The Partnership realized a gain of
$26,329 on the warrant exercise.
During 2000, the Partnership sold 1,316 common shares for proceeds of
$105,276 and realized a gain of $78,947.
Endocare, Inc.
- --------------
In December 2000, the Partnership purchased 30,000 common shares in
the company for $90,000.
Subsequent to December 31, 2000, the fair value of the Partnership's
investment in the company decreased by $290,700 as a result of a
decrease in the publicly traded market price on March 16, 2001.
Prolinx, Inc.
- -------------
In June 2000, the company completed a new round of financing at a
higher valuation. The Partnership did not participate in the round.
In December 2000, the Partnership funded a convertible note to the
company in the amount of $26,700, with an interest rate of 10% and a
maturity date of February 15, 2001.
Venture Capital Limited Partnership Investment
- ----------------------------------------------
The Partnership received a cash distribution totaling $20,864 and a
stock distribution of Curis Corporation with a fair value of $27,033.
All distributions were recorded as returns of capital.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations for publicly traded portfolio companies or changes in the
fair value of private companies as determined in accordance with the
policy described in Note 1 to the financial statements.
6. Net Increase (Decrease) in Unrealized Appreciation of Equity
------------------------------------------------------------
Investments
-----------
In accordance with the accounting policy as stated in Note 1, the
Statements of Operations include a line item entitled "Net increase
(decrease) in unrealized appreciation of equity investments." The
table below discloses details of the changes:
For the Years Ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
Unrealized (depreciation)
appreciation from cost
of marketable equity
securities $ (161,907) 1,134,112 (116,114)
Unrealized appreciation
from cost of non-marketable
equity securities 523,315 1,045,317 1,579,405
--------- --------- ---------
Unrealized appreciation
from cost at end of year 361,408 2,179,429 1,463,291
Unrealized appreciation from
cost at beginning of year 2,179,429 1,463,291 1,470,768
--------- --------- ---------
Net (decrease) increase in
unrealized appreciation
of equity investments $(1,818,021) 716,138 (7,477)
========= ========= =========
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 2000 and 1999,
consisted of:
2000 1999
------ ------
Demand accounts $36,873 175,922
Money-market accounts 72 68
------ -------
Total $36,945 175,990
====== =======
8. Short-Term Borrowings
---------------------
The Partnership has a borrowing account with a financial institution.
At December 31, 2000, the borrowing capacity of this account was
approximately $300,000 and there was no outstanding balance. The
Partnership's investment in Endocare, Inc. is pledged as collateral.
9. Commitments and Contingencies
-----------------------------
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 investment fundings,
venture capital limited partnership investments, equipment financing
commitments, or accounts receivable lines of credit that are
outstanding but not currently fully utilized by a borrowing company.
As they do not represent current outstanding balances, these unfunded
commitments are properly not recognized in the financial statements.
At December 31, 2000, there were no unfunded investment commitments to
portfolio companies and venture capital limited partnerships.
The Partnership is involved in various claims and legal actions
incident to its operations, which in the opinion of the Managing
General Partners, based upon advice of counsel, will not materially
affect the financial position or results of operations of the
Partnership.
SIGNATURES
----------
Pursuant to the requirements 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 30, 2001 By: /s/Charles R. Kokesh
---------------------
Charles R. Kokesh
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed 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 30, 2001
- ------------------------ 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 a majority of the Board of Directors of
Technology Funding Inc. and the General Partners of Technology Funding
Ltd.