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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, 2003
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.
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(Exact name of Registrant as specified in its charter)
DELAWARE 94-3166762
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1107 Investment Boulevard, Suite 180
El Dorado Hills, California 95762
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(Address of principal executive offices) (Zip Code)
(916) 941-1400
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(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 whether the registrant is an accelerated filer
(as defined in Rule 12B-2 of the Act). Yes No X
--- ---
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
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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
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The Registrant has no material physical properties.
Item 3. LEGAL PROCEEDINGS
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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
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No matters were voted on by the Limited Partners in 2003.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS
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(a) There is no established public trading market for the
Units.
(b) At December 31, 2003, 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
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For the Years Ended and As of December 31,
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2003 2002 2001 2000 1999
------ ------ ------ ------ ------
Interest income $ 13,589 $ 27,993 $ 3,538 $ 114 $ 3
Dividend income -- -- 198 8,093 15,953
Net investment loss (309,380) (888,186) (598,897) (690,329) (539,268)
Net realized gain
from sales of equity
investments -- 75,402 2,642,536 17,364 94,817
Realized (gain) loss from
investment write-offs 950,109 -- (162,925) (300,000) --
Realized gain from recovery
of investments previously
written off -- -- 87,228 -- --
Net realized gain from
venture capital limited
partnership investments -- 5,833 -- -- --
Net decrease (increase) in
unrealized depreciation of
equity investments 1,667,312 (1,193,899) (794,482) (1,818,021) 716,138
Net increase (decrease) in
partners' capital resulting
from operations 407,823 (2,000,850) 1,173,455 (2,790,986) 271,687
Net increase (decrease) in
partners' capital resulting
from operations per Unit (1) 4.91 (24.85) 14.26 (34.66) 3.30
Total assets 2,422,184 2,164,295 4,046,194 3,514,513 5,693,057
(1) See Notes 2 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
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AND RESULTS OF OPERATIONS
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Liquidity and Capital Resources
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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 holdings and subsequently
engaged the third party to seek buyers for those investments.
One of those holdings was sold in 2002. No buyers were located
for the remaining holdings. In October 2003, Acusphere, Inc., a
private company in the biotechnology industry, conducted an
initial public offering. Prior to the offering, the
Partnership's shares were subject to a reverse split. Those
shares are subject to a 180-day lock-up period. The Individual
General Partners, acting as Trustee for the Partnership,
directed the Managing General Partners to sell the Partnership's
publicly traded holdings at the earliest possible time in light
of existing market conditions. It is possible there will be no
liquidity events or willing buyers for the remaining privately
held assets. The Liquidating Trustee will consider a number of
options including abandonment of the assets, donation to an
appropriate beneficiary or distribution to the Limited Partners.
Upon dissolution of the Partnership, a final distribution will
be made to Limited Partners.
During the year ended December 31, 2003, net cash used by
operating activities totaled $461,625. The Partnership paid
management fees of $123,388 to the Managing General Partners and
reimbursed related parties for operating expenses of $238,157.
In addition, $28,940 was paid to the Individual General Partners
as compensation for their services. The Partnership paid other
operating expenses of $84,729 and received $13,589 in interest
income.
During the year ended December 31, 2003, there were no proceeds
from sales of equity investments and the Partnership did not
receive any cash distributions from venture capital limited
partnership investments.
Results of Operations
- ---------------------
2003 compared to 2002
- ---------------------
The net increase in partners' capital resulting from operations
was $407,823 for the year ended December 31, 2003, as compared
to a net decrease in partners' capital resulting from operations
of $2,000,850 for the year ended December 31, 2002.
There were no net realized gains from sales of equity
investments for the year ended December 31, 2003. Net realized
gains from sales of equity investments totaled $75,402 for the
year ended December 31, 2002. The 2002 gain is attributable to
the sale of the Partnership's entire investment in R2
Technology, Inc. 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 appreciation on equity investments was $40,339 and
$1,626,973 at December 31, 2003 and 2002, respectively. During
the year ended December 31, 2003, the Partnership recorded a
decrease in net unrealized depreciation on equity investments of
$1,667,312 compared to an increase of $1,193,899 during 2002.
The 2003 decrease in unrealized depreciation was primarily due
to the write-off of Prolinx, Inc. and Periodontix, Inc. 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.
During the year ended December 31, 2003, the Partnership
recorded realized losses from investment write-offs of $950,109,
related to the Partnership's investments in Prolinx, Inc. and
Periodontix, Inc. There were no write-offs during 2002.
Investment expenses were $322,969 and $916,179 for the years
ended December 31, 2003 and 2002, 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 would have been $899,863. The increase is primarily
due to increased professional fees related to the valuation of
the Partnership's remaining assets.
There were no realized gains from recovery of investments in
2003 or 2002.
During the year ended December 31, 2002, the Partnership
realized a gain from the venture capital limited partnership
investment of $5,833. The gain represented a distribution from
profits of the venture capital limited partnership investment.
There was no such gain in the year ended December 31, 2003.
Investment income for the years ending December 31, 2003 and
2002, was $13,589 and $27,993, respectively. The decrease is due
to decreased 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.
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
attributable to 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.
New Accounting Pronouncements
- -----------------------------
In July 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities." 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 implemented early adoption of SFAS
No. 146 to all applicable costs associated with exit or disposal
activities incurred during 2003 and 2002. See Note 2 to the
financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45
(FIN 45), "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 requires a guarantor to recognize a liability
at the inception of the guarantee for the fair value of
obligations it has assumed under that guarantee and also
requires more detailed disclosure in its financial statements
with respect to such guarantees. FIN 45 is effective for
guarantees issued or modified after December 31, 2002, and
requires additional disclosure for existing guarantees. The
adoption of FIN 45 did not have a material effect on the
Partnership's results of operation or financial position.
In December 2003, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position 03-4 (SOP 03-
4), "Reporting Financial Highlights and Schedule of Investments
by Nonregistered Investment Partnerships: An Amendment to the
Audit and Accounting Guide 'Audits of Investment Companies' (the
Guide) and AICPA Statement of Position 95-2 (SOP 95-2),
'Financial Reporting by Nonpublic Investment Partnerships.'"
SOP 03-4 provides guidance on the application of certain
provisions in the Accounting Guide and SOP 95-2 that are
directed to the reporting by nonregistered investment
partnerships of financial highlights and the schedule of
investments. It amends certain provisions of the Guide and SOP
95-2 by adapting those provisions to nonregistered investment
partnerships based on their differences in organizational
structures from registered investment companies. SOP 03-4 is
effective for annual financial statements issued for fiscal
years ending after December 15, 2003. The adoption of SOP 03-4
did not have a material effect on the Partnership.
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
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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
------------------------
None
Item 9A. CONTROLS AND PROCEDURES
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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 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.
Code of Ethics
- --------------
The Partnership's Code of Ethics applies to the Independent
General Partners as well as Technology Funding corporate
officers and employees. The Independent General Partners review
and approve the Code of Ethics on an annual basis. The Code of
Ethics is attached as an exhibit (see Item 15 - Exhibits) and is
also available on the Partnership's web site,
www.techfunding.com. Any amendments to, or waivers from, any
provision of the Code that applies to any of the Independent
General Partners or executive officers will be disclosed on the
web site..
Audit Committee
- ---------------
The Independent General Partners have established an Audit
Committee of the Whole to oversee the accounting and financial
reporting processes on behalf of the Independent General
Partners. The Audit Committee of the Whole currently consists of
all of the Independent General Partners for each Technology
Funding partnership with John Muncaster acting as liaison with
the Managing General Partners. The Independent General Partners
are "independent" as defined by the Securities and Exchange
Commission. The Independent General Partners have determined
that the Audit Committee of the Whole does not currently have
any member that would be considered an "audit committee
financial expert" as that term is defined in Section 407 of the
Sarbanes-Oxley Act of 2002. Given the anticipated termination
date for the Partnership, the Independent General Partners have
determined that the expense and the difficulty of recruiting a
financial expert to serve on the Audit Committee outweigh any
benefit to the Fund.
Item 11. EXECUTIVE COMPENSATION
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As a partnership, the Registrant has no officers or directors.
In 2003, the Partnership incurred $123,388 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, 2003, $28,940 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. PRINCIPAL ACCOUNTANT FEES AND SERVICES
- ------- --------------------------------------
Fees Paid to Independent Public Accountants
- -------------------------------------------
Audit Fees
- ----------
The Partnership paid aggregate fees of approximately $32,526 and
$20,000 to its independent public accountants, Grant Thornton
LLP, for professional services rendered to the Partnership with
respect to audits of the annual financial statements and reviews
of the quarterly financial statements for the years ended
December 31, 2003 and 2002, respectively.
Tax Fees
- --------
The Partnership paid aggregate fees of approximately $6,647 and
$1,500 to Grant Thornton LLP for tax-related services rendered
to the Partnership for the years ended December 31, 2003 and
2002, respectively. These services included preparation of the
Partnership's tax returns.
All Other Fees
- --------------
The Partnership did not pay any fees to Grant Thornton LLP for
services, other than the services referred to above, for the
years ended December 31, 2003 and 2002, respectively.
Audit Committee Pre-Approval Policies and Procedures
- ----------------------------------------------------
The Independent General Partners have established procedures for
the pre-approval of auditing services and non-auditing services
to be performed by the Partnership's independent public
accountants. Such pre-approval can be given as part of the
Independent General Partners' annual approval of the scope of
the engagement of the independent public accountants or on an
individual basis. Approved non-auditing services must be
disclosed in the Partnership's periodic public reports. The
Independent General Partners pre-approved all of the non-audit
services provided by the independent public accountants in 2003.
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 years ended December 31, 2003 and 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, 2003 and 2002
Statement of Investments in Liquidation as of
December 31, 2003 and 2002
Statements of Changes in Net Assets in Liquidation
for the years ended December 31, 2003 and 2002
Statements of Changes in Net Assets for the year
ended December 31, 2001
Statements of Partners' Capital for the years ended
December 31, 2003, 2002 and 2001
Statements of Changes in Cash Flows for the years
ended December 31, 2003, 2002 and 2001
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
14.1 Code of Ethics for the Registrant
31.1 Section 302 Sarbanes-Oxley Certifications
32.1 Section 906 Sarbanes-Oxley Certifications
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during
the year ended December 31, 2003.
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, 2003 and 2002, and the related statements
of changes in net assets in liquidation, partners' capital, and changes in
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. The
financial statements of Technology Funding Medical Partners I, L.P. for the
year ended December 31, 2001, 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 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 physical inspection
of securities owned as of December 31, 2003 and 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 audits provide a reasonable basis for our
opinion.
As described in Note 1 to the financial statements, in December 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, 2003 and 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, 2003 and 2002, 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 of America applied on the basis described in
the preceding paragraph.
Albuquerque, New Mexico /S/GRANT THORNTON LLP
March 12, 2004
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,
-------------------
2003 2002
------ ------
ASSETS
Equity investments (cost basis of
$1,015,035 and $1,965,144 in 2003
and 2002, respectively) $1,055,374 $ 338,171
Cash and cash equivalents 1,363,816 1,825,441
Other assets 2,994 683
--------- ---------
Total assets $2,422,184 $2,164,295
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 1,275 $ 24,216
Due to related parties 12,315 139,308
--------- ---------
Total liabilities 13,590 163,524
Commitments and contingencies
(See Note 9)
Partners' capital
(79,716 Limited Partner Units
outstanding) 2,408,594 2,000,771
--------- ---------
Total liabilities and partners'
capital $2,422,184 $2,164,295
========= =========
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF INVESTMENTS IN LIQUIDATION
- ---------------------------------------
Principal
amount or December 31, 2003 December 31, 2002
Industry shares at ----------------- -----------------
(1) Investment December 31, Cost Fair Cost Fair
Company Position Date 2003 Basis Value Basis Value
- ------------- -------- ------ ------------ ----- ----- ----- -----
Equity Investments
- ------------------
Medical/Biotechnology
- ---------------------
16.9% and 1.0% at December 31, 2003 and 2002, respectively
- ---------------------------------------------------------
Acusphere, Inc. Common
(a) shares 2003 61,707 $ 706,251 $ 406,341 $ 706,251 $ 0
Prolinx, Inc. Preferred
(a) (b) shares 2001 30,417 0 0 27,355 2,733
Prolinx, Inc. Common 1995-
(a) (b) shares 1998 197,436 0 0 688,461 17,768
Prolinx, Inc. Preferred
(a) (b) share
warrants
at $.90;
expiring
2010 2001 7,416 0 0 293 0
--------- --------- --------- -------
706,251 406,341 1,422,360 20,501
--------- --------- --------- -------
STATEMENTS OF INVESTMENTS IN LIQUIDATION (continued)
- ----------------------------------------------------
Medical/Diagnostic Equipment
- ----------------------------
26.7% and 14.6% at December 31, 2003 and 2002, respectively
- -----------------------------------------------------------
LifeCell Common 1996-
Corporation shares 2001 103,877 247,500 644,033 247,500 312,670
--------- --------- --------- -------
247,500 644,033 247,500 312,670
--------- --------- --------- -------
Pharmaceuticals
- ---------------
0.0% and 0.0% at December 31, 2003 and 2002, respectively
- ---------------------------------------------------------
Periodontix, Preferred 1993-
Inc. (a) shares 1996 167,000 0 0 234,000 0
--------- --------- --------- -------
0 0 234,000 0
--------- --------- --------- -------
Environmental
- -------------
0.0% and 0.0% at December 31, 2003 and 2002, respectively
- ---------------------------------------------------------
Triangle
Biomedical
Sciences, Common
Inc. (a) shares 1999 366 10,248 0 10,248 0
STATEMENTS OF INVESTMENTS IN LIQUIDATION (continued)
- ----------------------------------------------------
Triangle Common
Biomedical share
Sciences, warrant
Inc. (a) at $28.00;
expiring
2009 1999 366 366 0 366 0
--------- --------- --------- -------
10,614 0 10,614 0
--------- --------- --------- -------
Venture Capital Limited Partnership Investment
- -----------------------------------------------
0.2% and 0.2% at December 31, 2003 and 2002, respectively
- ---------------------------------------------------------
Medical Science Limited
Partners II, L.P. Partnership
(a) Interests various $250,000 50,670 5,000 50,670 5,000
--------- --------- --------- -------
50,670 5,000 50,670 5,000
--------- --------- --------- -------
Total equity investments - 43.8% and 15.8%
at December 31, 2003 and 2002, respectively $1,015,035 $1,055,374 $1,965,144 $338,171
========= ========= ========= =======
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, 2003 and 2002.
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,
------------------------------------
2003 2002 2001
------ ------ ------
Investment income:
Interest income $ 13,589 $ 27,993 $ 3,538
Dividend income -- -- 198
--------- --------- ---------
Total investment income 13,589 27,993 3,736
Investment expenses:
Management fees 123,388 135,918 148,024
Individual General
Partners' compensation 28,940 30,000 38,096
Administrative and
investor services 95,953 273,845 208,476
Investment operations 18,379 29,193 34,583
Computer services 14,356 33,283 54,461
Professional fees 41,953 273,940 86,834
Interest expense -- -- 32,159
Liquidation expense -- 140,000 --
--------- --------- ---------
Total investment expenses 322,969 916,179 602,633
--------- --------- ---------
Net investment loss (309,380) (888,186) (598,897)
--------- --------- ---------
Realized gain from
venture capital limited
partnership investment -- 5,833 --
Net realized gain from
sale of equity investments -- 75,402 2,642,536
Realized loss from
investment write-offs (950,109) -- (162,925)
Realized gain from recovery
of investments previously
written off -- -- 87,223
--------- --------- ---------
Net realized (loss) income (950,109) 81,235 2,566,834
--------- --------- ---------
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (continued)
- -------------------------------------------------------------
Net decrease (increase) in
unrealized depreciation of
equity investments 1,667,312 (1,193,899) (794,482)
--------- --------- ---------
Net increase (decrease) in
partners' capital resulting
from operations $ 407,823 $(2,000,850) $1,173,455
========= ========= =========
Net increase (decrease) in
partners' capital resulting
from operations per Unit $ 4.96 $ (24.85) $ 14.26
========= ========= =========
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
For the years ended December 31, 2003, 2002 and 2001:
Limited General
Partners Partners Total
-------- -------- -----
Partners' capital,
January 1, 2001 $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
Net investment loss (299,881) (9,498) (309,379)
Net realized loss (920,942) (29,168) (950,110)
Net decrease in unrealized
appreciation 1,616,126 51,186 1,667,312
--------- ------ ---------
Partners' capital,
December 31, 2003 $2,404,601 $ 3,993 $2,408,594
========= ====== =========
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN CASH FLOWS
- -----------------------------------
For the Years Ended December 31,
-----------------------------------
2003 2002 2001
------ ------ ------
Net increase (decrease) in
partners' capital resulting
from operations $ 407,823 $(2,000,850) $1,173,455
Adjustments to reconcile net
increase (decrease) in
partners' capital resulting
from operations to net cash
used by operating activities:
Net (decrease) increase in
unrealized depreciation of
equity investments (1,667,312) 1,193,899 794,482
Net realized gain from
sales of equity investments -- (75,402) (2,642,536)
Realized gain from venture
capital limited partnerships -- (5,833) --
Realized losses from
investment write-offs 950,109 -- 162,925
Realized gain from recovery
of investments previously
written off -- -- (87,223)
Decrease in accounts payable
and accrued expenses (22,941) (16,585) (6,054)
(Decrease) increase in due to
related parties (126,993) 135,536 (635,720)
Other changes, net (2,311) 373 (2,429)
--------- --------- ---------
Net cash used by
operating activities (461,625) (768,862) (1,243,100)
--------- --------- ---------
Cash flows from investing
activities:
Proceeds from sales of
equity investments -- 209,670 3,497,732
Proceeds from recovery of
investments previously
written off -- -- 87,223
Distribution from venture
capital limited partnership
investment -- 5,833 --
--------- --------- ---------
Net cash (used) provided
by investing activities 0 215,503 3,584,955
--------- --------- ---------
STATEMENTS OF CHANGES IN CASH FLOWS (continued)
- ----------------------------------------------
For the Years Ended December 31,
-----------------------------------
2003 2002 2001
------ ------ ------
Net (decrease) increase in
cash and cash equivalents (461,625) (553,359) 2,341,855
Cash and cash equivalents
at beginning of year 1,825,441 2,378,800 36,945
--------- --------- ---------
Cash and cash equivalents
at end of year $1,363 816 $ 1,825,441 $2,378,800
========= ========= =========
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 in 2002. No buyers were located for the
remaining holdings. In October 2003, Acusphere, Inc., a private company in
the biotechnology industry, conducted an initial public offering. Prior to
the offering, the Partnership's shares were subject to a reverse split.
Those shares are subject to a 180-day lock-up period. The Individual
General Partners, acting as Trustee for the Partnership, directed the
Managing General Partners to sell the Partnership's publicly traded
holdings at the earliest possible time in light of existing market
conditions. It is possible there will be no liquidity events or willing
buyers for the remaining privately held assets. The Liquidating Trustee
will consider a number of options including abandonment of the assets,
donation to an appropriate beneficiary or distribution to the Limited
Partners.
It is anticipated that the General Partners will incur costs of
approximately $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, 2003, the gross amount of the Partnership's assets
exceeded 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, 2003 and 2002, the investment portfolio included private
company investments totaling $0 and $20,501, 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 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, 2003, 2002 and 2001,
into the total net increase (decrease) 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,
2003 and 2002, was $1,056,807 and $2,131,918, respectively. At December
31, 2003 and 2002, gross unrealized depreciation and appreciation on
investments based on cost for federal income tax purposes were as follows:
December 31, December 31,
2003 2002
------------ ------------
Unrealized appreciation $396,533 $ 65,170
Unrealized depreciation (425,052) (1,858,917)
------- ----------
Net unrealized depreciation $(28,519) $(1,793,747)
======= ==========
New Accounting Pronouncements
- -----------------------------
In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." 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 implemented early adoption of SFAS No. 146 to all applicable
costs associated with exit or disposal activities incurred during 2003 and
2002.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires
a guarantor to recognize a liability at the inception of the guarantee for
the fair value of obligations it has assumed under that guarantee and also
requires more detailed disclosure in its financial statements with respect
to such guarantees. FIN 45 is effective for guarantees issued or modified
after December 31, 2002, and requires additional disclosure for existing
guarantees. The adoption of FIN 45 did not have a material effect on the
Partnership's results of operation or financial position. The Partnership
has provided additional disclosure with respect to a guarantee by the
Partnership in Note 11 to the Financial Statements.
In December 2003, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 03-4 (SOP 03-4), "Reporting Financial
Highlights and Schedule of Investments by Nonregistered Investment
Partnerships: An Amendment to the Audit and Accounting Guide 'Audits of
Investment Companies' (the Guide) and AICPA Statement of Position 95-2 (SOP
95-2), 'Financial Reporting by Nonpublic Investment Partnerships.'" SOP
03-4 provides guidance on the application of certain provision in the
Accounting Guide and SOP 95-2 that are directed to the reporting by
nonregistered investment partnerships of financial highlights and the
schedule of investments. It amends certain provisions of the Guide and SOP
95-2 by adapting those provisions to nonregistered investment partnerships
based on their differences in organizational structures from registered
investment companies. SOP 03-4 is effective for annual financial statements
issued for fiscal years ending after December 15, 2003. The adoption of
SOP 03-4 did not have a material effect on the Partnership.
3. Related Party Transactions
--------------------------
Included in costs and expenses are related party costs as follows:
For the Years Ended December 31,
-------------------------------
2003 2002 2001
------ ------ ------
Management fees 123,388 135,918 $148,024
Individual General Partners'
compensation 28,940 30,000 38,096
Reimbursable operating expenses:
Administrative, investor services
and professional fees 82,700 210,940 150,075
Investment operations 14,108 20,633 28,581
Computer services 14,356 33,283 54,461
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
$5,049 and $10,758 and were included in due to related parties at December
31, 2003 and 2002, 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, 2003 and 2002, was $7,266 and $128,550, 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.
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.
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 2 -- Equity Investments.
Marketable Equity Securities
- ----------------------------
At December 31, 2003 and 2002, marketable equity securities had an
aggregate cost of $247,500 and an aggregate fair value of $644,057 and
$312,670 respectively. At December 31, 2003, gross gains were 396,533.
The gross gains at December 31, 2002, were $65,170.
Restricted Securities
- ---------------------
At December 31, 2003 and 2002, restricted securities had aggregate costs of
$767,530 and $1,717,644, respectively, and aggregate fair values of
$411,335 and $25,501, respectively, representing 17.0 percent and 1.2
percent, respectively, of the net assets of the Partnership.
Significant purchases, sales and write-offs of equity investments during
the year ended December 30, 2003, were as follows:
Acusphere, Inc.
- ---------------
In September 2003, Acusphere shares were subject to a reverse split, which
converted the Partnership's 340,635 Preferred shares into 61,707 common
shares with a cost value of $706,251. On October 8, 2003, Acusphere
conducted an initial public offering, which priced at $14 per share. The
Partnership's Acusphere shares are subject to a 180-day lock-up period.
Prolinx, Inc.
- -------------
In March 2003, the Partnership wrote off its entire investment of $716,109
in Prolinx, Inc., a private portfolio company in the biotechnology
industry. Prolinx, Inc. filed for Chapter 7 bankruptcy on March 27, 2003.
There is no anticipated recovery for the shareholders.
Periodontix, Inc.
- -----------------
In September 2003, the Partnership wrote off its entire investment of
$234,000 in Periodontix, Inc., a private portfolio company in the
pharmaceuticals industry. In 2001, Periodontix, Inc.'s assets were
acquired by Demegen, Inc., a publicly traded company in the pharmaceuticals
industry. In 2003, Demegen, Inc. was unsuccessful in efforts to raise
additional capital and, in April 2003, terminated its registration under
Section 42(g) of the Securities Exchange Act of 1934 by filing a Form 15
with the SEC. The Partnership expects no return on its initial investment.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
During 2003, the Partnership received no cash distributions.
In the year ended December 31, 2003, the Partnership recorded no decrease
in fair value.
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. Subsequent Event
----------------
Subsequent to the year ended December 31, 2003, RedCell, Inc. notified the
Partnership that it would repay $180,011 in notes receivable previously
written off. That amount includes accrued interest through February 2004.
In 1994, the Partnership purchased Series B Preferred shares in RedCell and
two years later funded convertible notes receivable. RedCell was
subsequently acquired by another company, and the new entity changed its
name to ConjuChem, Inc. However, the notes receivable remained in
RedCell's name. In 1998, the Partnership determined that any recovery on
its investment, including the notes, was unlikely and wrote off its entire
investment. In 2001, the remaining RedCell entity made a partial repayment
of the notes receivable and issued new notes for the remainder. In
February 2004, RedCell sold ConjuChem shares it had acquired in the
acquisition in order to repay its remaining notes in full. The repayment
to the Partnership will be reported in the first quarter 2004 financial
statements as income from investments previously written off. The
Partnership expects no further recovery on this investment.
7. Net Decrease (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 decrease (increase) in unrealized depreciation of equity
investments." The table below discloses details of the changes:
For the Years Ended December 31,
------------------------------------
2003 2002 2001
-------- -------- --------
Unrealized appreciation
(depreciation) from cost
of marketable equity
securities $ 396,537 $ 65,170 $ (17,533)
Unrealized depreciation
from cost of
non-marketable equity
securities (356,199) (1,692,143) (415,541)
--------- --------- --------
Unrealized appreciation
(depreciation) from cost
at end of year 40,339 (1,626,973) (433,074)
Unrealized appreciation
(depreciation) from cost
at beginning of year 1,626,973 (433,074) 361,408
--------- --------- --------
Net decrease (increase) in
unrealized depreciation of
equity investments $1,667,312 $(1,193,899) $(794,482)
========= ========= ========
8. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 2003 and 2002,
consisted of:
2002 2001
------ ------
Demand accounts $ 1,291 $ 71,400
Money market accounts 1,362,525 1,754,041
--------- ---------
Total $1,363,816 $1,825,441
========= =========
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, 2003, 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.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires
a guarantor to recognize a liability at the inception of the guarantee for
the fair value of obligations it has assumed under that guarantee and also
requires more detailed disclosure in its financial statements with respect
to such guarantees. FIN 45 is effective for guarantees issued or modified
after December 31, 2002, and requires additional disclosure for existing
guarantees. The adoption of FIN 45 did not have a material effect on the
Partnership's results of operation or financial position.
10. Financial Highlights
--------------------
For The Years Ended December 31,
-----------------------------------
2003 2002 2001
------ ------ ------
(all amounts on a per Unit basis)
Net asset value,
beginning of period $25.30 $49.84 $36.08
Income (loss) from investment
operations:
Net investment loss (3.76) (11.03) (7.27)
Net realized and unrealized
gain (loss) on investments 8.72 (13.82) 21.53
----- ----- -----
Total from investment
operations 4.96 (24.85) 14.26
----- ----- -----
Net asset value, end of period $30.26 $24.99 $50.34
===== ===== =====
Total return 19.60% (49.86)% 39.52%
Ratios to average net assets:
Net investment loss (14.02)% (29.48)% (16.83)%
Expenses 14.60% 30.72% 17.49%
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, 2003. As of December 31, 2003, the General Partners have a
capital balance of $7,786. 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 15, 2004 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 15, 2004
- ------------------------ 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.
Technology Funding Medical Partners I, L.P. 3:33 PM 03/16/04
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Technology Funding Medical Partners I, L.P.
Technology Funding Medical Partners I, L.P.