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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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 814-124
TECHNOLOGY FUNDING MEDICAL PARTNERS I, L.P.
-------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3166762
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(415) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units
cannot be determined.
Documents incorporated by reference: Portions of the Prospectus
dated May 3, 1993 forming a part of Registration Statement No. 33-
54002, as modified by Cumulative Supplement No. 4 dated January 4,
1995, filed pursuant to Rule 424(c) of the General Rules and
Regulations under the Securities Act of 1933 are incorporated by
reference in Parts I and III hereof.
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Medical Partners I, L.P. (the
"Partnership") is a limited partnership organized under
the laws of the State of Delaware in September 1992 and
was inactive until it commenced the sale of Units in May
1993. The purpose of the Partnership is to make venture
capital investments in emerging growth companies as
described in the "Introductory Statement" and "Business
of the Partnership" sections of the Prospectus dated May
3, 1993. The Partnership has elected to be a business
development company under the Investment Company Act of
1940, as amended (the "Act"), and operates as a
nondiversified investment company as that term is defined
in the Act. Additional characteristics of the
Partnership's business are discussed in the "Risk
Factors" and "Conflicts of Interest" sections of the
Prospectus, which sections are also incorporated herein
by reference. The Partnership Agreement provides that
the Partnership will terminate December 31, 2002, subject
to the right of the individual general partners to extend
the term for up to two additional two-year periods.
Item 2. PROPERTIES
- ------ ----------
The Registrant has no material physical properties.
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
There are no material pending legal proceedings to which
the Registrant is party or of which any of its property
is the subject, other than ordinary routine litigation
incidental to the business of the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
The initial meeting of Limited Partners of the
Partnership was held on September 8, 1995 pursuant to a
Notice of Meeting dated July 17, 1995. At the meeting
proxies submitted by Limited Partners documented that the
Limited Partners elected the three individual general
partners, elected the two Managing General Partners, and
ratified the selection of KPMG Peat Marwick LLP as
independent certified accountants for the fiscal year
ended December 31, 1995. The number of Units voted in
favor, against and abstained for each matter submitted
are as follows:
For Against Abstained
--- ------- ---------
Individual general partners 40,987 0 848
Managing General Partners 41,087 0 748
Ratification of KPMG Peat
Marwick LLP 39,666 0 2,169
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, 1995, there were 829 record holders
of Units.
(c) The Registrant, being a partnership, does not pay
dividends. Cash distributions, 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,
--------------------------------
1995 1994 1993
---- ---- ----
Interest income $ 245,800 132,394 16,706
Net realized loss (328,499) (188,769) (113,431)
Change in net unrealized
fair value of
equity investments (8,447) -- --
Net loss (336,976) (188,769) (113,431)
Net realized loss
per Unit (4) (4) (12)
Total assets 6,057,701 4,876,769 2,597,416
Distributions declared (77,789) (132,394) (16,706)
Refer to the financial statement notes entitled "Summary
of Significant Accounting Policies" and "Allocation of
Profits and Losses" for a description of the method of
calculation of net realized income (loss) per Unit.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
Liquidity and Capital Resources
- -------------------------------
The Partnership commenced the offering of limited
partnership units ("Units") in May 1993. In October
1993, the minimum number of Units required by the
Partnership Agreement to commence operations were sold.
From inception through May 3, 1995, the sale of Units
generated cash of $7,929,844 and the Managing General
Partners contributed cash of $7,934. In connection with
the capital raised, the Partnership expended $1,073,613
in syndication fees and capitalized $40,000 in
organizational costs. Such fees are applied to the
capital accounts of the partners while organizational
costs are amortized over a 60 month period.
During 1995, net cash used by operations totaled
$313,558. The Partnership paid management fees of
$201,581 to the Managing General Partners and paid
related parties for operating expenses of $233,347. In
addition, $31,575 was paid to the individual general
partners as compensation for their services. The
Partnership paid other operating expenses of $92,428 and
received $245,373 in interest income.
During 1995, the Partnership purchased $819,131 in equity
investments primarily in the biotechnology, diagnostic
equipment and health information systems industries.
During 1995, distributions of $123,713 for interest
earned during the offering period were paid.
At December 31, 1995, the Partnership was committed to
fund an additional $212,250 in equity investments and
venture capital limited partnership investments.
During 1995, Khepri Pharmaceuticals, Inc. was acquired by
Arris Pharmaceuticals, Inc. Although the Partnership's
holdings are subject to selling restrictions, the
acquisition indicates potential future liquidity for this
investment.
Cash and cash equivalents at December 31, 1995 were
$3,948,745. Interest income earned on short-term
investments and operating cash reserves are expected to
be adequate to fund Partnership operations through the
next twelve months.
Results of Operations
- ---------------------
1995 compared to 1994
- ---------------------
Net loss was $336,976 for 1995 compared to $188,769
during the same period in 1994. The increase in net loss
was primarily due to a $134,288 increase in total
operating expenses as well as a $116,273 increase in
management fees. These changes were partially offset by
a $113,406 increase in interest income.
Total operating expenses were $330,590 and $196,302 for
1995 and 1994, respectively. As explained in Note 2, the
Partnership may not reimburse the Managing General
Partners for annual operating expenses that aggregate
more than 3% of total Limited Partner capital
contributions. The limitation is calculated over an
operating year beginning May 3. For 1995, the Managing
General Partners absorbed $77,958 in such expenses. In
addition, the 1995 actual operating expenses included
additional administrative and investor services expense
of $52,403 not previously recognized by the Partnership.
In 1994, operating expenses of $89,086 were transferred
to the General Partners; this amount was not reflected as
operating expenses in 1994 as it represented a contingent
liability of the Partnership. Had the limitation not
been in effect and the additional expenses been recorded
in prior years, and had the transfer not occurred in
1994, total operating expenses for 1995 and 1994 would
have been $293,672 and $308,624, respectively. The
decrease was primarily due to lower overall portfolio
activity.
The Partnership recorded management fees of $204,134 and
$87,861 during 1995 and 1994, respectively. Management
fees are equal to two percent of the total Limited
Partner capital contributions for the first year of
Partnership operations through the sixth year. Pursuant
to the Partnership Agreement, a full first year fee is
paid to the Managing General Partners as each additional
Limited Partner is admitted to the Partnership,
regardless of the date the Limited Partner is admitted.
Management fees increased in 1995 due to the sale of new
Units.
The Partnership recorded interest income of $245,800 and
$132,394 for 1995 and 1994, respectively. The increase
was mainly due to a higher average cash and cash
equivalents balance in 1995 compared to 1994 from the
sale of new Units.
Given the inherent risk associated with the business of
the Partnership, the future performance of the portfolio
company investments may significantly impact future
operations.
1994 compared to 1993
- ---------------------
Net loss was $188,769 in 1994 compared to $113,431 in
1993. The increase in net loss was mostly due to a
$140,327 increase in operating expenses, and a $26,199
increase in management fees, partially offset by a
$115,688 increase in interest income.
The primary reason for the above income and expense
increases was due to a full year of Partnership
operations in 1994 compared to only a quarter year of
operations in 1993 as the Partnership's commencement date
was October 8, 1993. Discussion of additional increases
follows.
Operating expenses were $196,302 in 1994 compared to
$55,975 in 1993. Such expenses were expected to increase
as investment activities and the number of partners
increased.
Management fees totaled $87,861 in 1994 compared to
$61,662 in 1993. Management fees were expected to
increase as the Partnership continued to sell Units.
Interest income was $132,394 in 1994 compared to $16,706
in 1993. The increase was due to higher cash and cash
equivalents balances in 1994 as the Partnership sold more
Units.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The financial statements of the Registrant are set forth
in Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Registrant has reported no disagreements with its
accountants on matters of accounting principles or
practices or financial statement disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
As a partnership, the Registrant has no directors or
executive officers. The Management Committee is
responsible for the management and administration of the
Partnership. The members of the Management Committee
consist of three individual general partners and a
representative from each of Technology Funding Ltd., a
California limited partnership ("TFL"), and its wholly-
owned subsidiary, Technology Funding Inc., a California
corporation ("TFI"). TFL and TFI are the Managing
General Partners. Information concerning the ownership
of TFL and the business experience of the key officers of
TFI and the partners of TFL is incorporated by reference
from the sections entitled "Management of the Partnership
- - The Managing General Partners" and "Management of the
Partnership - Key Personnel of the Managing General
Partners" in the Prospectus as modified by Cumulative
Supplement No. 4 dated January 4, 1995, which are
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
As a partnership, the Registrant has no officers or
directors. In 1995, the Partnership incurred $204,134 in
management fees. The fees are designed to compensate the
Managing General Partners for General Partner Overhead
incurred in performing management duties for the
Partnership through December 31, 1995. General Partner
Overhead (as defined in the Partnership Agreement)
includes the General Partners' share of rent and
utilities, and certain salaries and benefits paid by the
Managing General Partners in performing their obligations
to the Partnership. As compensation for their services,
the individual general partners each receive $6,000
annually beginning on the Commencement Date, plus $1,000
for each attended meeting of the individual general
partners, and related expenses. For the year ended
December 31, 1995, $31,575 of such fees were paid.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
- ----------
Not applicable. No Limited Partner beneficially holds
more than 5% of the aggregate number of Units held by all
Limited Partners, and neither the General Partners nor
any of their officers, directors or partners own any
Units. The three individual general partners each own 20
Units. The General Partners control the affairs of the
Partnership pursuant to the Partnership Agreement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Registrant, or its investee companies, have engaged
in no transactions with the General Partners or their
officers and partners other than as described above, in
the notes to the financial statements, or in the
Partnership Agreement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- ------- -------------------------------------------------------
FORM 8-K
--------
(a) List of Documents filed as part of this Annual
Report on Form 10-K
(1) Financial Statements - the following financial
statements are filed as a part of this Report:
Independent Auditors' Report
Balance Sheets as of December 31, 1995
and 1994
Statements of Operations for the years
ended December 31, 1995, 1994 and 1993
Statements of Partners' Capital for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are
not applicable or the required information is
included in the financial statements or the
notes thereto.
(3) Exhibits
Registrant's Amended and Restated Limited
Partnership Agreement (incorporated by reference
to Exhibit A to Registrant's Prospectus dated
May 3, 1993 included in Registration Statement
No. 33-54002 filed pursuant to Rule 424(b) of
the General Rules and Regulations under the
Securities Act of 1933).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the year ended December 31, 1995.
(c) Financial Data Schedule for the year ended and as of
December 31, 1995 (Exhibit 27).
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Medical Partners I, L.P.:
We have audited the accompanying balance sheets of Technology
Funding Medical Partners I, L.P. (a Delaware limited partnership)
as of December 31, 1995 and 1994, and the related statements of
operations, partners' capital, and cash flows for each of the
years in the three-year period ended December 31, 1995. These
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our
procedures included confirmation of certain securities owned, by
correspondence with the individual investee companies, and a
physical examination of those securities held by a safeguarding
agent as of December 31, 1995 and 1994. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Technology Funding Medical Partners I, L.P. as of December 31,
1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended
December 31, 1995 in conformity with generally accepted accounting
principles.
San Francisco, California KPMG Peat Marwick LLP
March 22, 1996
BALANCE SHEETS
- --------------
December 31,
----------------------
1995 1994
---- ----
ASSETS
Equity investments (cost basis of
$2,094,559 and $1,275,001 in 1995
and 1994, respectively) $2,086,082 1,275,001
Cash and cash equivalents 3,948,745 3,571,768
Organizational costs (net of accumulated
amortization of $18,000 and $10,000
in 1995 and 1994, respectively) 22,000 30,000
Other Assets 874 --
--------- ---------
Total $6,057,701 4,876,769
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 20,115 19,216
Due to related parties 39,486 32,143
Distributions payable -- 45,924
-------- ---------
Total liabilities 59,601 97,283
Commitments (Notes 2 and 7)
Partners' capital:
Limited Partners
(Units outstanding of 79,716 and
60,640 in 1995 and 1994, respectively) 6,011,161 4,780,868
General Partners (4,584) (1,382)
Net unrealized fair value decrease
from cost of equity investments (8,477) --
--------- ---------
Total partners' capital 5,998,100 4,779,486
--------- ---------
Total $6,057,701 4,876,769
========= =========
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
- ------------------------
For the Years Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
Interest income $ 245,800 132,394 16,706
Costs and expenses:
Management fees 204,134 87,861 61,662
Individual general
partners' compensation 31,575 29,000 10,500
Amortization of
organizational costs 8,000 8,000 2,000
Operating expenses:
Administrative and
investor services 252,565 118,544 29,499
Investment operations 78,333 48,581 4,067
Computer services 29,172 10,357 4,409
Professional fees 48,478 18,820 18,000
Expenses absorbed by
General Partners (77,958) -- --
------- ------- ------
Total operating
expenses 330,590 196,302 55,975
------- ------- ------
Total costs and
expenses 574,299 321,163 130,137
------- ------- -------
Net realized loss (328,499) (188,769) (113,431)
Change in net unrealized fair
value of equity investments (8,477) -- --
------- ------- -------
Net loss $(336,976) (188,769) (113,431)
======= ======= =======
Net realized loss per Unit $ (4) (4) (12)
======= ======= =======
See accompanying notes to financial statements.
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
For the years ended December 31, 1995, 1994 and 1993:
Net Unrealized
Fair Value Decrease
Limited General from Cost of Equity
Partners Partners Investments Total
-------- -------- ------------------- -------
Partners' capital,
December 31, 1992 $ 100 2 -- 102
Sales of partnership
interests 3,083,000 3,081 -- 3,086,081
Syndication fees (405,754) (1,296) -- (407,050)
Distributions of Offering
Period income (16,539) (167) -- (16,706)
Net realized loss (112,297) (1,134) -- (113,431)
--------- ----- ----- ---------
Partners' capital,
December 31, 1993 2,548,510 486 -- 2,548,996
Sales of partnership interests 2,980,900 2,983 -- 2,983,883
Syndication fees (430,591) (1,639) -- (432,230)
Distributions of Offering
Period income (131,070) (1,324) -- (132,394)
Net realized loss (186,881) (1,888) -- (188,769)
--------- ----- ----- ---------
Partners' capital,
December 31, 1994 4,780,868 (1,382) -- 4,779,486
Sales of partnership
interests 1,865,844 1,868 -- 1,867,712
Syndication fees (233,326) (1,007) -- (234,333)
Distributions of Offering
Period income (77,011) (778) -- (77,789)
Change in net unrealized fair
value of equity investments -- -- (8,477) (8,477)
Net realized loss (325,214) (3,285) (328,499)
--------- ----- ----- --------
Partners' capital,
December 31, 1995 $6,011,161 (4,584) (8,477) 5,998,100
========= ===== ===== =========
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS
- ------------------------
For the Years Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Interest received $ 245,373 132,394 16,706
Cash paid to vendors (92,428) (74,558) (1,094)
Cash paid to related parties (466,503) (218,960) (95,329)
--------- --------- ---------
Net cash used by operating activities (313,558) (161,124) (79,717)
--------- --------- ---------
Cash flows from investing activities:
Purchase of equity investments (819,131) (1,175,001) (100,000)
--------- --------- ---------
Net cash used by investing activities (819,131) (1,175,001) (100,000)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from sales of limited
partnership interests 1,865,844 2,980,900 3,083,000
General Partners' capital contribution 1,868 2,983 3,081
Distribution of Offering Period income (123,713) (103,176) --
Payments for syndication fees and
organizational costs (234,333) (432,230) (447,050)
--------- --------- ---------
Net cash provided by financing
activities 1,509,666 2,448,477 2,639,031
--------- --------- ---------
Net increase in cash and
cash equivalents 376,977 1,112,352 2,459,314
Cash and cash equivalents
at beginning of year 3,571,768 2,459,416 102
--------- --------- ---------
Cash and cash equivalents
at end of year $ 3,948,745 3,571,768 2,459,416
========= ========= =========
Reconciliation of net loss to net cash
used by operating activities:
Net loss $ (336,976) (188,769) (113,431)
Adjustments to reconcile net loss
to net cash used by operating activities:
Amortization of organizational costs 8,000 8,000 2,000
Change in net unrealized fair value
of equity investments 8,477 -- --
Changes in:
Accounts payable and accrued expenses 899 1,210 18,006
Due to related parties 7,343 18,435 13,708
Other, net (1,301) -- --
--------- --------- ---------
Net cash used by operating activities $ (313,558) (161,124) (79,717)
========= ========= =========
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Organization
- ------------
Technology Funding Medical Partners I, L.P. (the "Partnership") is
a limited partnership organized under the laws of the State of
Delaware in September 1992. The purpose of the Partnership is to
make venture capital investments in emerging growth companies. The
Partnership elected to be a business development company under the
Investment Company Act of 1940, as amended (the "Act"), and
operates as a nondiversified investment company as that term is
defined in the Act. The Managing General Partners are Technology
Funding Ltd. ("TFL"), and Technology Funding Inc. ("TFI"), a
wholly-owned subsidiary of TFL. There are also three individual
general partners. A wholly-owned subsidiary of TFI, Technology
Funding Securities Corporation ("TFSC") was the dealer-manager for
the offering.
For the period from September 1992 through May 3, 1993, the
Partnership was inactive. The Partnership's registration statement
was declared effective by the Securities and Exchange Commission on
May 3, 1993, and the Partnership began selling units of limited
partnership interests ("Units") in May 1993.
On October 8, 1993, the Commencement Date, the minimum number of
Units required to begin Partnership operations (12,000) had been
sold. Then, on May 3, 1995, the offering terminated with 79,716
Units sold. The Partnership Agreement provides that the
Partnership will continue until December 31, 2002, unless further
extended for up to two additional two-year periods from such date
if the individual general partners so determine or unless sooner
dissolved.
Preparation of Financial Statements and Use of Estimates
- --------------------------------------------------------
These financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting
principles. This required 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
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The financial statements include non-marketable investments of
$2,086,082 and $1,275,001 (35% and 27% of partners' capital) as of
December 31, 1995 and 1994, respectively, whose values have been
estimated by the Managing General Partners in the absence of
readily ascertainable market values. Because of the inherent
uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready
market for investments existed, and the differences could be
material. In addition, for certain publicly traded investments
that may not be marketable due to selling restrictions, the
Managing General Partners have applied an illiquidity discount of
25% in determining fair value as mentioned below.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents are principally comprised of cash
invested in demand accounts, money market instruments and
commercial paper and are stated at cost plus accrued interest. The
Partnership considers all money market, commercial paper and short-
term investments with an original maturity of three months or less
to be cash equivalents.
Syndication Fees
- ----------------
Syndication fees, which consist of commissions and certain
organizational and offering costs, are deducted from the partners'
capital accounts. Pursuant to the Partnership Agreement, selling
commissions are allocated solely to the Limited Partners. All
other syndication fees are allocated 99% to the Limited Partners
and 1% to the Managing General Partners. Syndication fees are not
deductible for income tax purposes. Such fees may result in a
reduction of any gain (or an increase in any loss) realized for tax
purposes by the partners upon dissolution of the Partnership or a
transfer of their interests.
Organizational Costs
- --------------------
Organizational costs of $40,000 are amortized over 60 months, using
the straight-line method.
Provision for Income Taxes
- --------------------------
No provision for income taxes has been made by the Partnership, as
the Partnership is not directly subject to taxation. The partners
are to report their respective shares of Partnership income or loss
on their individual tax returns.
The accompanying financial statements are prepared using generally
accepted accounting principles which may not equate to tax
accounting. The difference in the total book and tax cost basis as
of December 31, 1995 is not material.
Net Realized Income (Loss) Per Unit
- -----------------------------------
Net realized income (loss) per Limited Partner Unit is calculated
by dividing the weighted average number of Limited Partner Units
outstanding for the years ended December 31, 1995, 1994 and 1993,
of 74,425, 44,272 and 9,589, respectively, into total net realized
loss allocated to the Limited Partners. The Managing General
Partners contributed 0.1% of total Limited Partner capital
contribution and did not receive any Partnership units.
Equity Investments
- ------------------
The Partnership's method of accounting for investments, in
accordance with generally accepted accounting principles, is the
fair value basis used for investment companies. The fair value of
Partnership equity investments is their initial cost basis with
changes as noted below:
The fair value for publicly-traded equity investments (marketable
equity securities) is based upon the five-day-average closing sales
price or bid/ask price that is available on a national securities
exchange or over-the-counter market. Certain publicly-traded
equity investments may not be marketable due to selling
restrictions. For publicly-traded equity investments with selling
restrictions, an illiquidity discount of 25% is applied when
determining the fair value. Sales of equity investments are
recorded on the trade date. The basis on which cost is determined
in computing realized gains or losses is generally specific
identification.
Other equity investments, which are not publicly traded, are
generally valued utilizing pricing obtained from the most recent
round of third-party financings. Valuation is estimated quarterly
by the Managing General Partners. Included in equity investments
are convertible and subordinated notes receivable as repayment of
these notes generally occur through conversion into equity
investments.
Venture capital limited partnership investments are initially
recorded at cost and reduced for distributions that are a return of
capital. Distributions from limited partnership cumulative
earnings are reflected as realized gains by the Partnership.
Equity and venture capital limited partnership investments with
temporary changes in fair value result in increases or decreases to
the unrealized fair value of equity investments. The cost basis
does not change. In the case of an other than temporary decline in
value below cost basis, an appropriate reduction in the cost basis
is recognized as a realized loss with the fair value being adjusted
to match the new cost basis. Adjustments to fair value basis are
reflected as "Change in net unrealized fair value of equity
investments." Cost basis adjustments are reflected as "Realized
losses from investment write-downs" or "Net realized loss from
venture capital limited partnership investments" on the Statements
of Operations.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations and Partners' Capital. For the years
ended December 31, 1995, 1994 and 1993, related party costs were as
follows:
1995 1994 1993
---- ---- ----
Management fees $204,134 87,861 61,662
Syndication fees 234,333 432,230 407,050
Individual general partners'
compensation 31,575 29,000 10,500
Amortization of organizational
costs 8,000 8,000 2,000
Reimbursable operating expenses:
Administrative and investor
services 216,113 66,165 28,399
Investment operations 70,810 44,012 4,067
Computer services 29,172 10,357 4,409
Expenses absorbed by
General Partners (77,958) -- --
Management fees are equal to two percent of the total Limited
Partner capital contributions for the first year of Partnership
operations through the sixth year. Beginning in the seventh year,
the management fee will decline by ten percent per year from the
initial two 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. Pursuant to the Partnership Agreement, a full first
year fee is paid to the Managing General Partners as each
additional Limited Partner is admitted to the Partnership,
regardless of the date the Limited Partner is admitted. Management
fees payable were $13,216 and $10,663 at December 31, 1995 and
1994, respectively.
The Partnership reimburses the Managing General Partners for
organizational and offering expenses (up to five percent of the
total Limited Partner capital contributions) incurred in connection
with organizing the Partnership and the offering of Units thereof.
Such reimbursements have been reflected in the Statements of
Partners' Capital as syndication fees except for $40,000 of
organizational costs which have been capitalized.
Also included in the syndication fees are commissions and fees paid
to TFSC, the dealer-manager. During the year ended December 31,
1995, the Partnership paid commissions and fees of $133,618 of
which $118,711 was reallowed to participating broker-dealers; in
1994, the Partnership paid $268,281 of which $227,035 was
reallowed. In addition, the Partnership also paid $7,424 and
$14,907 in 1995 and 1994, respectively, to TFSC for due diligence
expenses (up to one-half of one percent of total limited partners'
capital contributions) that TFSC paid to unaffiliated broker-
dealers.
The Partnership reimburses the Managing General Partners for
operating expenses incurred in connection with the business of the
Partnership. Reimbursable operating expenses include expenses
(other than Organizational and Offering expenses and General
Partner overhead), such as administrative and investor services,
investment operations, and computer services. During late 1995,
operating cost allocations to the Partnership were reevaluated.
The Managing General Partners determined that they had not fully
recovered allocable overhead as permitted by the Partnership
Agreement. As a result, the Partnership was charged additional
administrative and investor services costs of $52,403 that was not
previously recognized by the Partnership. This amount consisted of
$26,613, $23,236 and $2,554 for 1995, 1994, and 1993, respectively.
If this charge had been recorded in prior years, operating
expenses, before expenses absorbed by General Partners, would have
been $382,758, $219,538 and $58,529 for 1995, 1994, and 1993,
respectively. The increase of $163,220 in 1995 from 1994 was due
to the recognition of the $89,086 contingent liability at December
31, 1994 based on additional Units sold in 1995 as discussed below.
The $161,009 increase in 1994 from 1993 was due to a full year of
Partnership operations in 1994 compared to only one quarter year of
operations in 1993. Amounts due to related parties for such
expenses were $26,270 and $21,480 at December 31, 1995 and 1994,
respectively.
Pursuant to the Partnership Agreement, the Partnership may not pay
or reimburse the Managing General Partners for operational costs
that aggregate more than 3% of total Limited Partner capital
contributions of the Partnership in each year through the first
five years of operations after the termination of Unit sales, and
1.5% in any year thereafter. In 1995, the Partnership recognized
$55,975 of the $89,086 contingent liability at December 31, 1994
based on additional Limited Partner capital contributions received
by the end of the offering period, May 3, 1995. The remaining
balance of $33,111, including additional expenses of $44,847 were
absorbed by the Managing General Partners.
As compensation for their services, the individual general partners
each received $6,000 annually beginning on the Commencement Date,
plus $1,000 for each of the management committee meetings attended
and related expenses. The three individual general partners each
own 20 Units.
Under the terms of a computer service agreement, the Partnership
recognized charges from Technology Administrative Management, a
division of TFL, for its share of computer support costs. These
amounts are included in computer services expense.
3. Allocation of Profits and Losses
--------------------------------
Net realized profit and loss of the Partnership are allocated based
on the beginning of year partners' capital balances as follows:
(a). Profits:
(i) first, to those partners with deficit capital account
balances in proportion to such deficits until the
deficits have been eliminated; then
(ii) second, to the partners as necessary to offset net
losses and sales commissions previously allocated to
such partners; then
(iii)third, 75% to the Limited Partners as a group in
proportion to the number of Units, 5% to the Limited
Partners in proportion to the Unit months of each
Limited Partner, and 20% to the Managing General
Partners. Unit months are the number of half months a
Unit would be outstanding if held from the date the
original holder of such Unit was deemed admitted into
the Partnership until the termination of the offering
of Units.
(b). Losses:
(i) first, to the partners as necessary to offset net
profits previously allocated to the partners under
(a)(iii) above plus losses from unaffiliated venture
capital limited partnership investments; then
(ii) 99% to the Limited Partners as a group and 1% to the
Managing General Partners.
Losses allocable to Limited Partners in excess of their capital
account balances will be allocated to the Managing General
Partners. Net profits thereafter, otherwise allocable to those
Limited Partners, are allocated to the Managing General Partners to
the extent of such losses.
As indicated above, losses from unaffiliated venture capital
limited partnership investments are allocated pursuant to section
(b). Gains are allocated first to offset previously allocated
losses pursuant to (b)(i) above, and then 99% to Limited Partners
and 1% to the Managing General Partners.
Income earned from short-term investments during the Offering
Period were allocated monthly, 99% to the Limited Partners and 1%
to the Managing General Partners.
In no event shall the General Partners' interest in profits and
losses be less than 1%.
4. Equity Investments
------------------
At December 31, 1995 and December 31, 1994, equity investments consisted of:
December 31, 1995 December 31, 1994
Principal ----------------- -----------------
Investment Amount or Cost Fair Cost Fair
Industry/Company Position Date Shares Basis Value Basis Value
- ---------------- -------- ---- ------ ----- ----- ----- -----
Biotechnology
- -------------
Acusphere, Inc. Series B
Preferred
shares 05/95 125,000 $ 200,000 200,000 -- --
CV Therapeutics, Series D
Inc. Preferred
shares 03/94 187,500 375,000 375,000 375,000 375,000
CV Therapeutics, Series E
Inc. Preferred
shares 09/95 38,400 76,032 76,032 -- --
CV Therapeutics, Series E
Inc. Preferred
share warrant
at $2.00;
expiring
09/00 09/95 19,200 768 768 -- --
Prolinx, Inc. Series A
Preferred
shares 05/95 119,631 119,631 119,631 -- --
Prolinx, Inc. Series A
Preferred
shares 12/95 124,369 124,369 124,369 -- --
Redcell, Inc. Series B
Preferred
shares 12/94 132,979 125,000 125,000 125,000 125,000
Diagnostic Equipment
- --------------------
R2 Technology, Series A-1
Inc. Preferred
shares 05/94 100,000 100,000 100,000 100,000 100,000
R2 Technology, Convertible
Inc. note (1) 11/95 $33,332 33,759 33,759 -- --
R2 Technology, Series B
Inc. Preferred
share
warrant
expiring
11/00;
exercise
price to be
determined 11/95 1,667 0 0 -- --
Health Information Systems
- --------------------------
CareCentric Series A
Solutions, Inc. Preferred
shares 10/95 66,667 100,000 100,000 -- --
Pharmaceuticals
- ---------------
Arris Common
Pharmaceuticals, shares
Inc. 12/95 6,681 88,250 70,652 -- --
Arris Common
Pharmaceuticals, shares held
Inc. in escrow 12/95 2,783 36,750 29,430 -- --
Khepri Series C
Pharmaceuticals, Preferred
Inc. shares 11/94 83,333 -- -- 125,000 125,000
Megabios Corp. Series C
Preferred
shares 09/94 193,125 250,000 250,000 250,000 250,000
Megabios Corp. Series C
Preferred
shares 12/94 57,938 75,001 75,001 75,001 75,001
Megabios Corp. Series C
Preferred
shares 07/95 50,212 64,999 64,999 -- --
Periodontix, Series A
Inc. Preferred
shares 12/93 100,000 100,000 100,000 100,000 100,000
Environmental
- -------------
TMC, Inc. Series A
Preferred
shares 12/95 50,000 25,000 25,000 -- --
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Medical Science Limited
Partners II Partnership
Interest various $200,000 200,000 216,441 125,000 125,000
--------- --------- --------- ---------
Total Equity Investments $2,094,559 2,086,082 1,275,001 1,275,001
========= ========= ========= =========
-- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(1) Convertible note includes accrued interest. Interest rate on such note was 9%.
As of December 31, 1995, all equity investments except for Arris
Pharmaceuticals, Inc. were privately held.
Acusphere, Inc.
- ---------------
In May 1995, the Partnership invested in Acusphere, Inc. by
purchasing 125,000 Series B Preferred shares at a total cost of
$200,000.
Arris Pharmaceuticals, Inc./Khepri Pharmaceuticals, Inc.
- --------------------------------------------------------
In December 1995, Khepri Pharmaceuticals, Inc. ("Khepri") was
acquired by Arris Pharmaceuticals, Inc. ("Arris"). The
Partnership's Khepri Series C Preferred shares were exchanged for
9,464 shares of Arris common stock, of which 2,783 were held in
an escrow account to be released in December 1996. The
Partnership recorded a decrease in fair value of $24,918 to
reflect the publicly-traded market price of its investment at
December 31, 1995; the investment fair value was adjusted to
reflect a 25% discount for restricted securities.
CareCentric Solutions, Inc.
- ---------------------------
In October 1995, the Partnership made an investment in
CareCentric Solutions, Inc. by purchasing 66,667 Series A
Preferred shares at a total cost of $100,000.
CV Therapeutics, Inc.
- ---------------------
In September 1995, the Partnership made an additional investment
in CV Therapeutics, Inc. by purchasing 38,400 Series E Preferred
shares and receiving a warrant to purchase 19,200 Series E
Preferred shares for a total cost of $76,800.
Megabios Corp.
- --------------
In July 1995, the Partnership made an additional investment in
Megabios Corp. by purchasing 50,212 Series C Preferred shares at
a total cost of $64,999.
Prolinx, Inc.
- -------------
In 1995, the Partnership invested in Prolinx, Inc. by purchasing
244,000 Series A Preferred shares at a total cost of $244,000.
R2 Technology, Inc.
- -------------------
In November 1995, the Partnership issued a $33,332 convertible
note to the company and received a warrant to purchase 1,667
Series B Preferred shares. The warrant exercise price will be
determined upon completion of the next round of equity financing.
TMC, Inc.
- ---------
In December 1995, the Partnership made an investment in TMC, Inc.
by purchasing 50,000 Series A Preferred shares at a total cost of
$25,000.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
In 1995, the Partnership made additional capital contributions
totaling $75,000 to Medical Science Partners II.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1995 and 1994 consisted
of:
1995 1994
---- ----
Demand accounts $ 606 --
Money-market accounts 3,948,139 3,571,768
--------- ---------
Total $3,948,745 3,571,768
========= =========
6. Distributions Payable
---------------------
Distributions payable of $45,924 at December 31, 1994 was paid in
January 1995. Pursuant to the Partnership Agreement, income
earned during the Offering Period on short-term investments are
to be distributed quarterly.
The Offering Period, as defined by the Partnership Agreement, is
that period commencing with the effective date of the Prospectus
when the Partnership began offering Units and ended on May 3,
1995. Future distributions will be dependent upon operating
results.
7. Commitments
-----------
The Partnership is a party to financial instruments with off-
balance-sheet risk in the normal course of its business.
Generally, these instruments are commitments for future equity
fundings, venture capital limited partnership investments,
equipment financing commitments, or accounts receivable lines of
credit that are outstanding but not currently fully utilized. As
they do not represent current outstanding balances, these
unfunded commitments are properly not recognized in the financial
statements. At December 31, 1995, the Partnership had unfunded
commitments of $212,250 related to equity investments and venture
capital limited partnership investments.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TECHNOLOGY FUNDING MEDICAL PARTNERS I, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: March 22, 1996 By: /s/Debbie A. Wong
------------------------------
Debbie A. Wong
Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
Signature Capacity Date
--------- -------- ----
/s/Charles R. Kokesh President, Chief March 22, 1996
- ------------------------ Executive Officer
Charles R. Kokesh and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
/s/Gregory T. George Group Vice President March 22, 1996
- ------------------------ of Technology Funding
Gregory T. George Inc. and a General
Partner of Technology
Funding Ltd.
The above represents a majority of the Board of Directors of
Technology Funding Inc. and a majority of the General Partners of
Technology Funding Ltd.