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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, 2002
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.)
1107 Investment Boulevard, Suite 180
El Dorado Hills, California 95762
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(916) 941-1400
--------------------------------------------------
(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.
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Medical Partners I, L.P. (the Partnership or
the Registrant) 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 defined
in the Act. The Partnership term expired on December 31, 2002,
per the Partnership Agreement, and the Independent General
Partners elected not to extend the term as provided in the
Partnership Agreement.
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 matters were voted on during 2002.
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, 2002, there were 842 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,
-------------------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
Interest income $ 27,993 $ 3,538 $ 114 $ 3 $ 693
Dividend income -- 198 8,093 15,953 15,967
Net investment loss (888,186) (598,897) (690,329) (539,268) (599,338)
Net realized gain (loss) from
sales of equity investments 75,402 2,642,536 17,364 94,817 (331,660)
Realized loss from
investment write-offs -- (162,925) (300,000) -- (299,280)
Realized gain from recovery of
investments previously
written off -- 87,228 -- -- --
Net realized gain from
venture capital limited
partnership investments 5,833 -- -- -- --
Net (increase) decrease in
unrealized depreciation of
equity investments (1,193,899) (794,482) (1,818,021) 716,138 (7,477)
Net (decrease) increase
in partners' capital resulting
from operations (2,000,850) 1,173,455 (2,790,986) 271,687 (1,237,755)
Net (decrease) increase in
partners' capital resulting from
operations per Unit (1) (24.85) 14.26 (34.66) 3.30 (15.37)
Total assets 2,164,295 4,046,194 3,514,513 5,693,057 5,672,957
(1) See Notes 2 and 4 to the Financial Statements for a description of the method of calculation
of net (decrease) increase 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 2 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.
The Partnership term expired on December 31, 2002, per the
Partnership Agreement, and the Independent General Partners
elected not to extend the term as provided in the Partnership
Agreement. In December 2002, the Managing General Partners
adopted a plan of liquidation. In anticipation of the
liquidation and dissolution, the Individual General Partners, in
March 2002, approved the retention of an independent third party
to value the Partnership's private holding and subsequently
engaged the third party to seek buyers for those investments.
One of those holdings was sold prior to December 31, 2002. No
buyers were located for the remaining holdings. Based upon the
results of the independent third party's actions, the Managing
General Partners determined that the fair value of the
Partnership's investments in portfolio companies totaled
$338,171. The Individual General Partners, acting as trustee
for the Partnership, will proceed with liquidating the remaining
assets of the Partnership in a timely fashion. It is possible
there will be no willing buyers of the assets. The Liquidating
Trustee will consider a number of options including abandonment
of the assets or distribution to the Limited Partners.
During the year ended December 31, 2002, net cash used by
operating activities totaled $768,862. The Partnership paid
management fees of $137,055 to the Managing General Partners and
reimbursed related parties for operating expenses of $220,630.
In addition, $30,000 was paid to the Individual General Partners
as compensation for their services. The Partnership paid
operating expenses of $48,690 to related parties as part of an
employee retention program. The Partnership paid other
operating expenses of $360,480 and received $27,993 in interest
income.
During the year ended December 31, 2002, proceeds from sales of
equity investments totaled $209,670 and the Partnership received
a cash distribution from a venture capital limited partnership
investment totaling $5,833.
Results of Operations
- ---------------------
2002 compared to 2001
- ---------------------
The net decrease in partners' capital resulting from operations
was $2,000,850 for the year ended December 31, 2002, as compared
to a net increase in partners' capital resulting from operations
of $1,173,455 for the year ended December 31, 2001.
Net realized gains from sales of equity investments totaled
$75,402 and $2,642,536 for the years ended December 31, 2002 and
2001, respectively. The 2002 gain is attributable to the sale of
the Partnership's entire investment in R2 Technology, Inc. In
2001, the gain was a result of the sale of investments in
Endocare, Inc., CareCentric Solutions, Inc. and other smaller
holdings. These sales were in accordance with the directive of
the Individual General Partners in September 2001 to proceed
with the earliest reasonable termination of the Partnership.
Unrealized depreciation on equity investments was $1,626,973 and
$433,074 at December 31, 2002 and 2001, respectively. During
the year ended December 31, 2002, the Partnership recorded an
increase in net unrealized depreciation on equity investments of
$1,193,899 compared to an increase of $794,482 during 2001. The
2002 increase was primarily due to the decrease in the fair
value of private portfolio companies in the biotechnology
industry and a decrease in the fair value of the underlying
assets of the venture capital limited partnership investment.
The 2001 increase in unrealized depreciation was primarily due
to the sale of the Partnership's entire investment in Endocare,
Inc. and unfavorable events and market conditions for a private
portfolio company in the biotechnology industry.
During the year ended December 31, 2001, the Partnership
recorded realized losses from investment write-offs of $162,925,
related to the Partnership's total investment in Adesso
Healthcare Technology, Inc. Adesso ceased operations in 2001.
There were no write offs during 2002.
Investment expenses were $916,179 and $602,633 for the years
ended December 31, 2002 and 2001, respectively. In June 2002
the Managing General Partners billed the Partnership $20,543 and
$5,773 for operating expenses incurred during 2001 and prior
years, respectively, but not previously billed. Had these
expenses been billed in the prior years the investment expenses
for 2002 and 2001 would have been $899,863 and $623,176,
respectively. The increase is primarily due to increased
professional fees related to the valuation of the Partnership's
remaining assets.
Realized gain from the recovery of investments previously
written off was $87,223 for the year ended December 31, 2001.
There was no realized gain from recovery of investments in 2002.
During the year ended December 31, 2002, the Partnership
realized a gain from the venture capital limited partnership
investment of $5,833. There were no gains during 2001. The gain
represents a distribution from profits of the venture capital
limited partnership investment.
Investment income for the years ending December 31, 2002 and
2001, was $27,993 and $3,736, respectively. The increase is due
to increased short-term investments.
Given the inherent risk associated with the business of the
Partnership, the future performance of the portfolio company
investments may significantly impact future operations.
2001 compared to 2000
- ---------------------
The net increase in partners' capital resulting from operations
was $1,173,455 for the year ended December 31, 2001, as compared
to a net decrease in partners' capital resulting from operations
of $2,790,986 for the year ended December 31, 2000.
Net realized gains from sales of equity investments totaled
$2,642,536 and $17,364 for the years ended December 31, 2001 and
2000, respectively. The 2001 gain is attributable to the sale of
the Partnership's entire investments in Endocare, Inc.,
CareCentric Solutions, Inc. and other smaller holdings in
accordance with the directive of the Individual General Partners
in September 2001 to proceed with the earliest reasonable
termination of the Partnership.
Unrealized depreciation on equity investments was $433,074 at
December 31, 2001, and unrealized appreciation on equity
investments was $361,408 at December 31, 2000. During the year
ended December 31, 2001, the Partnership recorded an increase in
net unrealized depreciation on equity investments of $794,482
compared to a decrease in net unrealized appreciation of
$1,818,021 during 2000. The 2001 increase in unrealized
depreciation was primarily due to the sale of the Partnership's
entire investment in Endocare, Inc. and unfavorable events and
market conditions for a portfolio company in the biotechnology
industry. The 2000 decrease in unrealized appreciation was
primarily attributable to decreases in the value of the
Partnership's marketable equity securities and the fair value of
the Partnership's investments in restricted securities.
During the years ended December 31, 2001 and 2000, the
Partnership recorded realized losses from investment write-offs
of $162,925 and $300,000, respectively. The loss in 2001
represents the Partnership's total investment in Adesso
Healthcare Technology, Inc. Adesso ceased operations in 2001.
The loss in 2000 represents the Partnership's total investment
in Biex, Inc. Biex, Inc. suspended operations in November 2000
after it was unable to obtain additional funding.
Investment expenses were $602,633 and $698,536 for the years
ended December 31, 2001 and 2000, respectively. In 2002 the
Managing General Partners billed the Partnership for unbilled
operating expenses of $20,543 and $3,299 incurred during 2001
and 2000, respectively. In 2000, the Managing General Partners
billed the Partnership $158,179 for operating expenses relating
to prior years that had not been fully recovered as permitted by
the Partnership Agreement. Had these expenses been billed in
the prior years the investment expenses for 2001 and 2000 would
have been $623,176 and $543,656, respectively. The increase is
primarily due to increased interest expense and increased
administrative and investor services.
Realized gain from the recovery of investments previously
written off was $87,223 in 2001. There were no realized gains
from recovery of investments in 2000.
New Accounting Pronouncement
- ----------------------------
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities ("SFAS No. 146").
SFAS No. 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities, such as
restructurings, involuntarily terminating employees, and
consolidating facilities initiated after December 31, 2002. The
implementation of SFAS No. 146 will not require the restatement
of previously issued financial statements. The Partnership has
implemented early adoption of SFAS No. 146 to all applicable
costs associated with exit or disposal activities incurred
during 2002. See Note 2 to the financial statements.
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 10 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
- ------ --------------------
The financial statements of the Registrant are set forth in Item
15.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------ -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
A Form 8-K was filed by the Partnership on July 1, 2002, to
report the appointment of Grant Thornton LLP as the
Partnership's independent public accountants.
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
Independent General Partners 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. 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 2002, the Partnership incurred $135,918 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. 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, plus $1,000 for each attended meeting of the
Independent General Partners or committees thereof. For the
year ended December 31, 2002, $30,000 of such fees were paid.
The Individual General Partners are reimbursed for all out-of-
pocket expenses relating to attendance of the meetings of the
Independent General Partners or the committees thereof.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
- ----------
Not applicable. No Limited Partner beneficially holds more than
5 percent 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.
Item 14. PROCEDURES AND CONTROLS
- ------- -----------------------
The undersigned is responsible for establishing and maintaining
disclosure controls and procedures for Technology Funding
Medical Partners I, L.P. Such officer has concluded (based upon
his evaluation of these controls and procedures as of a date
within 90 days of the filing of this report) that Technology
Funding Medical Partners I, L.P.'s disclosure controls and
procedures are effective to ensure that information required to
be disclosed by Technology Funding Medical Partners I, L.P. in
this report is accumulated and communicated to Technology
Funding Medical Partners I, L.P.'s management, including its
principal executive officers as appropriate, to allow timely
decisions regarding required disclosure.
The certifying officer also has indicated that there were no
significant changes in Technology Funding Medical Partners I,
L.P.'s internal controls or other factors that could
significantly affect such controls subsequent to the date of
their evaluation, and there were no corrective actions with
regard to significant deficiencies and material weaknesses.
PART IV
Item 15. 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 Certified Public Accountants as
of and for the year ended December 31, 2002
Report of Independent Public Accountants as of and
for the years ended December 31, 2001 and 2000
Statement of Net Assets in Liquidation as of
December 31, 2002
Statement of Net Assets as of December 31, 2002
Statement of Investments in Liquidation as of
December 31, 2002
Statements of Investments as of December 31, 2001
Statements of Changes in Net Assets in Liquidation
for the year ended December 31, 2002
Statements of Changes in Net Assets for the years
ended December 31, 2001 and 2000
Statements of Partners' Capital for the years ended
December 31, 2002, 2001 and 2000
Statements of Changes in Cash Flows for the years
ended December 31, 2002, 2001 and 2000
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
(1) On July 1, 2002, the Partnership reported on Form
8-K the appointment of Grant Thornton LLP as the
Partnership's independent public accountants.
(2) On July 8, 2002, the Partnership filed its
Amended and Restated Limited Partnership Agreement
on Form 8-K.
(3) On October 16, 2002, the Partnership filed Form 8-K
pursuant to the SEC's Release No. 34-43069 regarding
Commission Guidance on Mini-Tender Offers. No
financial statements were filed.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------
To the Partners of Technology Funding Medical Partners I, L.P.:
We have audited the accompanying statement of net assets in liquidation
of Technology Funding Medical Partners I, L.P. (a Delaware limited
partnership) (the Fund), including the statement of investments in
liquidation, as of December 31, 2002, and the related statements of
changes in net assets in liquidation, partners' capital, and changes in
cash flows for the year ended December 31, 2002. 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. The financial statements of Technology Funding
Medical Partners I, L.P. as of December 31, 2001, and for the years ended
December 31, 2001 and 2000, were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified opinion on
those financial statements in their report dated March 15, 2002.
We conducted our audit 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
physical inspection of securities owned as of December 31, 2002. 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.
As described in Note 1 to the financial statements, in December of 2002,
the Independent General Partners of the Fund adopted a plan of
liquidation and commenced liquidation of the Fund on December 31, 2002.
As a result, as of December 31, 2002, the Fund changed its basis of
accounting from the accrual basis to the liquidation basis. Accordingly,
the carrying values of the remaining assets as of December 31, 2002, are
presented at estimated realizable values and all liabilities are
presented at estimated settlement amounts.
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, 2002, and the results
of its operations, changes in partners' capital, and its cash flows for
the year ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America applied on
the basis described in the preceding paragraph.
Albuquerque, New Mexico /S/GRANT THORNTON LLP
March 17, 2003
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
To the Partners of
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) (the Fund),
including the statements of investments, as of December 31, 2001 and
2000, and the related statements of operations, partners' capital, and
cash flows for the years 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 audits.
We conducted our audits 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, 2001 and 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, 2001 and 2000, and
the results of its operations, changes in partners' capital, and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Los Angeles, California /S/ARTHUR ANDERSEN LLP
March 15, 2002
THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP IN CONNECTION WITH TECHNOLOGY FUNDING MEDICAL PARTNERS I LP'S FILING
ON FORM 10-K FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000. THIS AUDIT
REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH
THIS FILING ON FORM 10-K.
STATEMENTS OF NET ASSETS IN LIQUIDATION
- ---------------------------------------
December 31,
-------------------
2002 2001
------ ------
ASSETS
Equity investments (cost basis of
$1,965,144 and $2,099,412 in 2002
and 2001, respectively) $ 338,171 $1,666,338
Cash and cash equivalents 1,825,441 2,378,800
Other assets 683 1,056
--------- ---------
Total assets $2,164,295 $4,046,194
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 24,216 $ 40,801
Due to related parties 139,308 3,772
--------- ---------
Total liabilities 163,524 44,573
Commitments and contingencies
(See Note 9)
Partners' capital
(79,716 Limited Partner Units
outstanding) 2,000,771 4,001,621
--------- ---------
Total liabilities and partners'
capital $2,164,295 $4,046,194
========= =========
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF INVESTMENTS IN LIQUDATION
- ---------------------------------------
Principal
amount or December 31, 2002 December 31, 2001
Industry shares at ----------------- -----------------
(1) Investment December 31, Cost Fair Cost Fair
Company Position Date 2002 Basis Value Basis Value
- ------------- -------- ------ ------------ ----- ----- ----- -----
Equity Investments
- ------------------
Medical/Biotechnology
- ---------------------
1.0% and 26.8% at December 31, 2002 and 2001, respectively
- -----------------------------------------------------------
Acusphere, Inc. Preferred 1995-
(a) shares 1997 340,635 $ 706,251 $ 0 $ 706,251 $ 970,810
Prolinx, Inc. Preferred
(a) (b) shares 2001 30,417 27,355 2,733 27,355 13,688
Prolinx, Inc. Common 1995-
(a) (b) shares 1998 197,436 688,461 17,768 688,461 88,846
Prolinx, Inc. Preferred
(a) (b) share
warrants
at $.90;
expiring
2010 2001 7,416 293 0 293 0
--------- --------- --------- ---------
1,422,360 20,501 1,422,360 1,073,344
--------- --------- --------- ---------
STATEMENTS OF INVESTMENTS IN LIQUIDATION (continued)
- ----------------------------------------------------
Medical/Diagnostic Equipment
- ----------------------------
14.6% and 10.7% at December 31, 2002 and 2001, respectively
- -----------------------------------------------------------
LifeCell Common 1996-
Corporation shares 2001 103,877 247,500 312,670 247,500 229,967
R2 Technology, Preferred 1994-
Inc. (a) shares 1996 -- -- -- 134,268 197,820
--------- --------- --------- ---------
247,500 312,670 381,768 427,787
--------- --------- --------- ---------
Pharmaceuticals
- ---------------
0.0% and 0.0% at December 31, 2002 and 2001, respectively
- ---------------------------------------------------------
Periodontix, Preferred 1993-
Inc. (a) shares 1996 167,000 234,000 0 234,000 0
--------- --------- --------- ---------
234,000 0 234,000 0
--------- --------- --------- ---------
Environmental
- -------------
0.0% and 0.0% at December 31, 2002 and 2001, respectively
- ---------------------------------------------------------
Triangle
Biomedical
Sciences, Common
Inc. (a) shares 1999 366 10,248 0 10,248 1,025
STATEMENTS OF INVESTMENTS IN LIQUIDATION (continued)
- ----------------------------------------------------
Triangle Common
Biomedical share
Sciences, warrant
Inc. (a) at $28.00;
expiring
2009 1999 366 366 0 366 37
--------- --------- --------- ---------
10,614 0 10,614 1,062
--------- --------- --------- ---------
Venture Capital Limited Partnership Investments
- -----------------------------------------------
0.2% and 4.1% at December 31, 2002 and 2001, respectively
- ---------------------------------------------------------
Medical Science Limited
Partners II, L.P. Partnership
(a) Interests various $250,000 50,670 5,000 50,670 164,145
--------- --------- --------- ---------
50,670 5,000 50,670 164,145
--------- --------- --------- ---------
Total equity investments-15.8% and 41.6%
at December 31, 2002 and 2001, respectively $1,965,144 $ 338,171 $2,099,412 $1,666,338
========= ========= ========= =========
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 December 31, 2002 and 2001.
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
- --------------------------------------------------
For the Years Ended December 31,
------------------------------------
2002 2001 2000
------ ------ ------
Investment income:
Interest income $ 27,993 $ 3,538 $ 114
Dividend income -- 198 8,093
--------- --------- ---------
Total investment income 27,993 3,736 8,207
Investment expenses:
Management fees 135,918 148,024 158,597
Individual General
Partners' compensation 30,000 38,096 35,817
Administrative and
investor services 273,845 208,476 171,568
Investment operations 29,193 34,583 199,446
Computer services 33,283 54,461 39,158
Professional fees 273,940 86,834 89,712
Interest expense -- 32,159 4,238
Liquidation expense 140,000 -- --
--------- --------- ---------
Total investment expenses 916,179 602,633 698,536
--------- --------- ---------
Net investment loss (888,186) (598,897) (690,329)
--------- --------- ---------
Realized gain from
venture capital limited
partnership investment 5,833 -- --
Net realized gain from
sale of equity investments 75,402 2,642,536 17,364
Realized loss from
investment write-offs -- (162,925) (300,000)
Realized gain from recovery
of investments previously
written off -- 87,223 --
--------- --------- ---------
Net realized income (loss) 81,235 2,566,834 (282,636)
--------- --------- ---------
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (continued)
- -------------------------------------------------------------
Net increase in unrealized
depreciation of equity
investments (1,193,899) (794,482) (1,818,021)
--------- --------- ---------
Net (decrease) increase in
partners' capital resulting
from operations $(2,000,850) $1,173,455 $(2,790,986)
========= ========= =========
Net (decrease) increase in
partners' capital resulting
from operations per Unit $ (24.85) $ 14.26 $ (34.66)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
For the years ended December 31, 2002, 2001 and 2000:
Limited General
Partners Partners Total
-------- -------- -----
Partners' capital,
January 1, 2000 $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
Net investment loss (579,880) (19,017) (598,897)
Net realized income 2,485,330 81,504 2,566,834
Net increase in unrealized
depreciation (768,732) (25,750) (794,482)
--------- ------ ---------
Partners' capital,
December 31, 2001 3,990,139 11,482 4,001,621
Net investment loss (879,304) (8,882) (888,186)
Net realized income 80,423 812 81,235
Net increase in unrealized
depreciation (1,181,960) (11,939) (1,193,899)
--------- ------ ---------
Partners' capital,
December 31, 2002 $2,009,298 $(8,527) $2,000,771
========= ====== =========
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN CASH FLOWS
- -----------------------------------
For the Years Ended December 31,
-----------------------------------
2002 2001 2000
------ ------ ------
Net (decrease) increase in
partners' capital resulting
from operations $(2,000,850) $1,173,455 $(2,790,986)
Adjustments to reconcile net
(decrease) increase in
partners' capital resulting
from operations to net cash
used by operating activities:
Net increase in unrealized
depreciation of equity
investments 1,193,899 794,482 1,818,021
Net realized gain from
sales of equity investments (75,402) (2,642,536) (17,364)
Realized gain from venture
capital limited partnerships (5,833) -- --
Realized losses from
investment write-offs -- 162,925 300,000
Realized gain from recovery
of investments previously
written off -- (87,223) --
(Decrease) increase in accounts
payable and accrued expenses (16,585) (6,054) 11,328
Increase (decrease) in due to
related parties 135,536 (635,720) 603,761
Other changes, net 373 (2,429) (280)
--------- --------- ---------
Net cash used by
operating activities (768,862) (1,243,100) (75,520)
--------- --------- ---------
Cash flows from investing
activities:
Proceeds from sales of
equity investments 209,670 3,497,732 143,131
Purchases of equity
investments -- -- (224,874)
Proceeds from recovery of
investments previously
written off -- 87,223 --
Distribution from venture
capital limited partnership
investment 5,833 -- 20,864
--------- --------- ---------
Net cash provided (used)
by investing activities 215,503 3,584,955 (60,879)
--------- --------- ---------
STATEMENTS OF CHANGES IN CASH FLOWS (continued)
- ----------------------------------------------
For the Years Ended December 31,
-----------------------------------
2002 2001 2000
------ ------ ------
Cash flows from financing
activities:
Repayment of short-term
borrowings -- -- (2,646)
--------- --------- ---------
Net cash used by
financing activities -- -- (2,646)
--------- --------- ---------
Net (decrease) increase in
cash and cash equivalents (553,359) 2,341,855 (139,045)
Cash and cash equivalents
at beginning of year 2,378,800 36,945 175,990
--------- --------- ---------
Cash and cash equivalents
at end of year $ 1,825,441 $2,378,800 $ 36,945
========= ========= =========
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. General
-------
Organization
- ------------
Technology Funding Medical Partners I, L.P. (the Partnership or the
Registrant) 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 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 term expired on
December 31, 2002, according to the Partnership Agreement, and the
Independent General Partners elected not to extend the term as provided in
the Partnership Agreement.
Dissolution of Partnership
- --------------------------
In December 2002, the Managing General Partners adopted a plan of
liquidation. In anticipation of the liquidation and dissolution, the
Individual General Partner, in March 2002, approved the retention of an
independent third party to value the Partnership's private holdings and
subsequently engaged the third party to seek buyers for those investments.
One of those holdings was sold prior to December 31, 2002. No buyers were
located for the remaining holdings. Based upon the results of the
independent third party's actions, the Managing General Partners determined
that the fair value of the Partnership's investments in portfolio companies
totaled $338,171. The Individual General Partners, acting as trustee for
the Partnership, will proceed with liquidating the remaining assets of the
Partnership in a timely fashion. It is possible there will be no willing
buyers of the assets. The Liquidating Trustee will consider a number of
options including abandonment of the assets or distribution to the Limited
Partners.
It is anticipated that the General Partners will incur costs of $140,000 to
wind up the affairs of the Partnership. In accordance with the liquidation
basis of accounting, these amounts have been accrued as of December 31,
2002.
As of December 31, 2002, the gross amount of the Partnership's assets
exceeds liabilities. Upon settlement of the liabilities of the
Partnership, the remaining funds will be distributed to the Limited and
General Partners, according to the Partnership Agreement.
2. Summary of Significant Accounting Policies
------------------------------------------
Preparation of Financial Statements and Use of Estimates
- --------------------------------------------------------
The accompanying financial statements have been prepared on the liquidation
basis of accounting which requires that assets be presented at their
realizable values and liabilities at their settlement amounts. 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.
Equity Investments
- ------------------
Investments are carried at fair value.
Under the direction and control of the Individual 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.
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 percent to 50 percent
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 Individual
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, 2002 and 2001, the investment portfolio included
investments totaling $20,501 and $1,272,222, respectively, whose fair
values were established in good faith by the Managing General Partner in
the absence of readily ascertainable market values. 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 loss from
investment write-offs" on the Statements of Changes in Net Assets in
Liquidation.
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 (Decrease) Increase in Partners' Capital Resulting from Operations
- ----------------------------------------------------------------------
Per Unit
- --------
Net (decrease) increase 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, 2002, 2001 and 2000,
into the total net (decrease) increase in partners' capital resulting from
operations allocated to the Limited Partners. The Managing General
Partners contributed 0.1 percent 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,
2002 and 2001, was $2,131,918 and $2,290,848, respectively. At December
31, 2002 and 2001, gross unrealized depreciation and appreciation on
investments based on cost for federal income tax purposes were as follows:
December 31, December 31,
2002 2001
------------ ------------
Unrealized appreciation $ 65,170 $ 386,084
Unrealized depreciation (1,858,917) (1,010,594)
--------- ----------
Net unrealized depreciation $(1,793,747) $ (624,510)
========= ==========
New Accounting Pronouncement
- ----------------------------
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities, such as restructurings, involuntarily terminating
employees, and consolidating facilities initiated after December 31, 2002.
The implementation of SFAS No. 146 will not require the restatement of
previously issued financial statements. The Partnership has implemented
early adoption of SFAS No. 146 to all applicable costs associated with exit
or disposal activities incurred during 2002.
3. Related Party Transactions
--------------------------
Included in costs and expenses are related party costs as follows:
For the Years Ended December 31,
-------------------------------
2002 2001 2000
------ ------ ------
Management fees 135,918 $148,024 $158,597
Individual General Partners'
compensation 30,000 38,096 35,817
Reimbursable operating expenses:
Administrative and investor
services 210,940 150,075 98,363
Investment operations 20,633 28,581 193,778
Computer services 33,283 54,461 39,158
Liquidation expense 140,000 -- --
Management fees are equal to 2 percent 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
declined by 10 percent per year from the initial 2 percent. 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
$10,758 and $11,895 and were included in due to related parties at December
31, 2002 and 2001, 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 percent 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. The amount due from related parties at December
31, 2002 and 2001, was $128,550 and $8,123, respectively.
The Managing General Partners allocate operating expenses incurred in
connection with the business of the Partnership based on employee hours
incurred. In 2002, the Managing General Partners billed the Partnership
for previously unbilled operating expenses of $20,543, $3,299 and $2,474
incurred during 2001, 2000 and prior years, respectively. In 2000, the
Managing General Partners billed the Partnership an additional $158,179 for
investment management expenses for prior years that were incurred by the
General Partners but not previously billed to the Partnership. Had the
additional expenses been billed in the years in which they were incurred,
the investment expenses for 2002, 2001 and 2000 would have been $899,863,
$623,176 and $543,656, 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 attended meeting of the Independent General Partners or committee
thereof. The Individual General Partners are reimbursed for all out-of-
pocket expenses relating to attendance of the meetings, committees or
otherwise of the Independent General Partners. The three Individual
General Partners each own twenty Units.
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.
Retention bonuses were offered to and accepted by key employees of the
Managing General Partners in late 2002. The expense for these bonuses,
which were approved by the Individual General Partners during the September
2002 Independent General Partner meeting, was $48,690 and was paid and
fully expensed in 2002. The bonuses, incremented by annual salary
increases, will be paid to those individuals who are still full-time
employees of the Managing General Partners in April 2007. Upon the
resignation of personnel no adjustment to the retention bonus amount
previously paid by the Partnership to the Managing General Partners shall
occur until a replacement person is hired.
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, 2002, the Partnership and affiliated
partnerships had an indirect interest in non-transferable Endocare, Inc.
options with a fair value below the exercise price.
4. Allocation of Profits and Losses
--------------------------------
In accordance with the Partnership Agreement (see Note 2), 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 percent to the Limited Partners as a group in
proportion to the number of Units, 5 percent to the Limited
Partners in proportion to the Unit months of each Limited
Partner, and 20 percent 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 percent to the Limited Partners as a group and 1 percent
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 percent to Limited Partners and 1 percent to the Managing
General Partners.
In no event shall the General Partners' interest in profits and losses be
less than 1 percent.
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, 2002 and 2001, marketable equity securities had an
aggregate cost of $247,500 and an aggregate fair value of $312,670 and
$229,967, respectively. The gross gains at December 31, 2002, were $65,170.
At December 31, 2001, there were no gross gains.
Restricted Securities
- ---------------------
At December 31, 2002 and 2001, restricted securities had aggregate costs of
$1,717,644 and $1,851,912, respectively, and aggregate fair values of
$25,501 and $1,436,371, respectively, representing 1.2 percent and 35.9
percent, respectively, of the net assets of the Partnership.
Significant purchases and sales of investments during the year ended
December 31, 2002, are as follows:
R2 Technology, Inc.
- -------------------
In November 2002, the Partnership sold its entire investment in the company
for $209,670 and realized a gain of $75,402.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
During 2002, the Partnership received a cash distribution of $5,833. This
distribution was recorded as a realized gain.
In the year ended December 31, 2002, the Partnership recorded a $159,145
decrease in fair value primarily as a result of a net decrease in the fair
value of the underlying investments of the partnership.
Other Equity Investments
- ------------------------
Other significant changes reflected in the Statements of Investments 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 2 to the financial statements.
6. Net Increase in Unrealized Depreciation of Equity Investments
-------------------------------------------------------------
In accordance with the accounting policy as stated in Note 2, the
Statements of Changes in Net Assets in Liquidation include a line item
entitled "Net increase in unrealized depreciation of equity investments."
The table below discloses details of the changes:
For the Years Ended December 31,
------------------------------------
2002 2001 2000
-------- -------- --------
Unrealized appreciation
(depreciation) from cost
of marketable equity
securities $ 65,170 $ (17,533) $ (161,907)
Unrealized (depreciation)
appreciation from cost of
non-marketable equity
securities (1,692,143) (415,541) 523,315
--------- ------- ---------
Unrealized (depreciation)
appreciation from cost at
end of year (1,626,973) (433,074) 361,408
Unrealized (depreciation)
appreciation from cost at
beginning of year (433,074) 361,408 2,179,429
--------- ------- ---------
Net increase in unrealized
depreciation of equity
investments $(1,193,899) $(794,482) $(1,818,021)
========= ======= =========
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 2002 and 2001,
consisted of:
2002 2001
------ ------
Demand accounts $ 71,400 $ 13,501
Money-market accounts 1,754,041 2,365,299
--------- ---------
Total $1,825,441 $2,378,800
========= =========
8. Short-Term Borrowings
---------------------
The Partnership had a borrowing account with a financial institution which
was secured by the Partnership's Endocare shares. The outstanding balance
of $932,778 was repaid upon the sale of these shares in December 2001. The
weighted-average interest rate for the year ended December 31, 2001, was
6.29 percent. Interest expense totaled $32,159 and $4,238 for the years
ended December 31, 2001 and 2000, respectively.
9. Commitments and Contingencies
-----------------------------
From time to time, the Partnership becomes 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, 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, 2002, there were no unfunded investment
commitments to portfolio companies and venture capital limited
partnerships.
From time to time, the Partnership is subject to routine litigation
incidental to the business of the Partnership. Although there can be no
assurances as to the ultimate disposition of these matters and the
proceeding disclosed above, it is the opinion of the Managing General
Partners, based upon the information available at this time, that the
expected outcome of these matters, individually or in the aggregate, will
not have a materially adverse effect on the results of operations and
financial condition of the Partnership.
10. Financial Highlights
--------------------
For The Years Ended December 31,
-----------------------------------
2002 2001 2000
------ ------ ------
(all amounts on a per Unit basis)
Net asset value,
beginning of period $49.84 $36.08 $69.82
Income (loss) from investment
operations:
Net investment loss (11.03) (7.27) (8.57)
Net realized and unrealized
(loss) gain on investments (13.82) 21.53 (26.09)
----- ----- -----
Total from investment
operations (24.85) 14.26 (34.66)
----- ----- -----
Net asset value, end of period $24.99 $50.34 $35.16
===== ===== =====
Total Return (49.86)% 39.52% (49.64)%
Ratios to average net assets:
Net investment income (loss) (29.48)% (16.83)% (16.33)%
Expenses 30.72% 17.49% 16.69%
Pursuant to the Partnership Agreement, net profit shall be allocated first
to those Partners with deficit capital account balances until such deficits
have been eliminated. The net asset values shown above assume the
Partnership is in liquidation and capital has been contributed by the
General Partners equal to the amount of deficit capital after liquidation
at December 31, 2002. As of December 31, 2002, the General Partners have a
negative capital balance of $8,527. Net asset value has been calculated in
accordance with this provision of the Partnership Agreement.
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.
TECHNOLOGY FUNDING LTD.
Managing General Partners
Date: March 25, 2003 By: /s/Charles R. Kokesh
---------------------
Charles R. Kokesh
President, Chief Executive Officer,
Chief Financial Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Ltd.
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 25, 2003
- ------------------------ 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.
CERTIFICATION
-------------
I, Charles R. Kokesh, President, Chief Executive Officer, Chief Financial
Officer and Chairman of Technology Funding Inc. and Managing General
Partner of Technology Funding Limited, certify that:
1. I have reviewed this annual report on Form 10-K of Technology Funding
Medical Partners I, L.P.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to me by others within
the entity, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and
c) presented in this annual report my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 25, 2003 By: /s/Charles R. Kokesh
--------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Limited
Technology Funding Medical Partners I, L.P. 12:42 PM 03/25/03
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Technology Funding Medical Partners I, L.P.