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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, 1996
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 on September 3, 1992,
and was inactive until it commenced the sale of Units in
May of 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
non-diversified 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
- ------ ---------------------------------------------------
No matter was submitted to a vote of the holders of
units of limited partnership interests ("Units") during
1996.
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, 1996, there were 830 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,
------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Interest income $ 178,979 245,800 132,394 16,706
Net operating loss (410,597) (328,499) (188,769) (113,431)
Net realized loss from
sales of equity investments (1,876) -- -- --
Net realized loss (412,473) (328,499) (188,769) (113,431)
Change in net unrealized
fair value of
equity investments 377,961 (8,447) -- --
Net loss (34,512) (336,976) (188,769) (113,431)
Net realized loss
per Unit (5) (4) (4) (12)
Total assets 6,019,828 6,057,701 4,876,769 2,597,416
Distributions declared -- 77,789 132,394 16,706
Distributions declared
per Unit (1) -- 1 3 2
(1) Calculation is based distributions declared to Limited Partners divided by weighted
average number of Units outstanding during the year.
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
- -------------------------------
During 1996, net cash used by operating activities
totaled $430,685. The Partnership paid management fees
of $158,597 to the Managing General Partners and paid
related parties for operating expenses of $290,346. In
addition, $31,138 was paid to the Individual General
Partners as compensation for their services. The
Partnership paid other operating expenses of $111,299 and
received $160,695 in interest income.
During 1996, the Partnership purchased $1,533,007 in
equity investments mostly in the biotechnology and
medical/diagnostic equipment industries. At December 31,
1996, the Partnership was committed to fund additional
investments totaling $462,500.
During 1996, CV Therapeutics, Inc., completed its initial
public offering ("IPO"). Although the Partnership's
holdings are subject to selling restrictions, the IPO
indicates potential future liquidity for this investment.
Cash and cash equivalents at December 31, 1996, were
$1,985,053. 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
- ---------------------
1996 compared to 1995
- ---------------------
Net loss was $34,512 for 1996 compared to $336,976 in
1995. The decrease in net loss was primarily due to a
$386,438 increase in the change in net unrealized fair
value of equity investments and a $45,537 decrease in
management fees. These changes were partially offset by
a $66,821 decrease in interest income and a $61,251
increase in total operating expenses.
The Partnership recorded an increase in equity investment
fair value of $377,961 in 1996, compared to a decrease of
$8,477 in 1995. The 1996 increase was primarily
attributable to increases in portfolio companies in the
pharmaceuticals industry, partially offset by decreases
in the biotechnology industry.
The Partnership recorded management fees of $158,597 and
$204,134 for the years ended December 31, 1996 and 1995,
respectively. Management fees are equal to two percent
of 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 were higher in 1995 due to
Unit sales.
The Partnership recorded interest income of $178,979 and
$245,800 for the years ended December 31, 1996 and 1995,
respectively. The decrease was mainly due to lower cash
and cash equivalents balances in 1996 resulting from new
and follow-on investments.
Total operating expenses were $391,841 and $330,590 for
1996 and 1995, respectively. As disclosed in Note 3 to
the financial statements, a determination was made in
1996 that certain operational costs paid directly by the
Partnership, which had previously been absorbed by the
General Partners, were not subject to the 3% operational
expense reimbursement limitation. Accordingly, $128,120
was reimbursed by the Partnership. In 1995, operating
cost allocations to the Partnership were reevaluated,
resulting in $52,403 of additional expenses in 1995 of
which $25,790 related to prior years. If the $25,790 had
been recorded in prior years, operating expenses (before
expenses absorbed by General Partners and expenses
previously absorbed by General Partners of $128,120)
would have been $317,731 and $382,758 for 1996 and 1995,
respectively. The 1995 amount was higher due to the
recognition of the $89,086 contingent liability at
December 31, 1994, which was reflected in 1995 operating
expenses based on additional Units sold in 1995.
Given the inherent risk associated with the business of
the Partnership, the future performance of the portfolio
company investments may significantly impact future
operations.
1995 compared to 1994
- ---------------------
Net loss was $336,976 for 1995 compared to $188,769 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 disclosed above, the
1995 amount included $52,403 of which $25,790 related to
prior years as expense allocations were reevaluated. If
the $25,790 had been recorded in prior years, operating
expenses (before expenses absorbed by General Partners)
would have been $382,758 and $219,538 for 1995 and 1994,
respectively. The increase in 1995 was primarily due to
the recognition in 1995, of the $89,086 contingent
liability at December 31, 1994, based on additional Units
sold in 1995.
The Partnership recorded management fees of $204,134 and
$87,861 during 1995 and 1994, respectively. As disclosed
above, management fees increased in 1995 due to Unit
sales.
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 Unit
sales.
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 1996, the Partnership incurred $158,597 in
management fees. The fees are designed to compensate the
Managing General Partners for General Partner Overhead
incurred in performing management duties for the
Partnership through December 31, 1996. 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, 1996, $31,138 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, 1996
and 1995
Statements of Operations for the years
ended December 31, 1996, 1995 and 1994
Statements of Partners' Capital for the years
ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
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, 1996.
(c) Financial Data Schedule for the year ended and as of
December 31, 1996 (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, 1996 and 1995, and the related statements of
operations, partners' capital, and cash flows for each of the
years in the three-year period ended December 31, 1996. 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, 1996 and 1995. 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,
1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
San Francisco, California /S/KPMG Peat Marwick LLP
March 21, 1997
BALANCE SHEETS
- --------------
December 31,
----------------------
1996 1995
---- ----
ASSETS
Equity investments (cost basis of
$3,649,974 and $2,094,559 in 1996
and 1995, respectively) $4,019,458 2,086,082
Cash and cash equivalents 1,985,053 3,948,745
Organizational costs (net of accumulated
amortization of $26,000 and $18,000
in 1996 and 1995, respectively) 14,000 22,000
Other Assets 1,317 874
--------- ---------
Total $6,019,828 6,057,701
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 27,548 20,115
Due to related parties 28,692 39,486
-------- ---------
Total liabilities 56,240 59,601
Commitments (Notes 3 and 7)
Partners' capital:
Limited Partners
(Units outstanding of 79,716
for both 1996 and 1995) 5,602,813 6,011,161
General Partners (8,709) (4,584)
Net unrealized fair value increase
(decrease)from cost of equity
investments 369,484 (8,477)
--------- ---------
Total partners' capital 5,963,588 5,998,100
--------- ---------
Total $6,019,828 6,057,701
========= =========
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
- ------------------------
For the Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Interest income $ 178,979 245,800 132,394
Costs and expenses:
Management fees 158,597 204,134 87,861
Individual General
Partners' compensation 31,138 31,575 29,000
Amortization of
organizational costs 8,000 8,000 8,000
Operating expenses:
Administrative and
investor services 154,880 252,565 118,544
Investment operations 62,721 78,333 48,581
Computer services 38,897 29,172 10,357
Professional fees 61,233 48,478 18,820
Expenses absorbed by
General Partners (54,010) (77,958) --
Expenses previously
absorbed by General
Partners 128,120 -- --
------- ------- ------
Total operating
expenses 391,841 330,590 196,302
------- ------- -------
Total costs and
expenses 589,576 574,299 321,163
------- ------- -------
Net operating loss (410,597) (328,499) (188,769)
Net realized loss from sales
of equity investments (1,876) -- --
------- ------- -------
Net realized loss (412,473) (328,499) (188,769)
Change in net unrealized fair
value of equity investments 377,961 (8,477) --
------- ------- -------
Net loss $ (34,512) (336,976) (188,769)
======= ======= =======
Net realized loss per Unit $ (5) (4) (4)
======= ======= =======
See accompanying notes to financial statements.
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
For the years ended December 31, 1996, 1995 and 1994:
Net Unrealized
Fair Value (Decrease)
Limited General Increase from Cost of
Partners Partners Equity Investments Total
-------- -------- ------------------ -----
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
Change in net unrealized fair
value of equity investments -- -- 377,961 377,961
Net realized loss (408,348) (4,125) -- (412,473)
--------- ----- ------- --------
Partners' capital,
December 31, 1996 $5,602,813 (8,709) 369,484 5,963,588
========= ===== ======= =========
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS
- ------------------------
For the Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Interest received $ 160,695 245,373 132,394
Cash paid to vendors (111,299) (92,428) (74,558)
Cash paid to related parties (480,081) (466,503) (218,960)
--------- --------- ---------
Net cash used by operating activities (430,685) (313,558) (161,124)
--------- --------- ---------
Cash flows from investing activities:
Purchase of equity investments (1,533,007) (819,131) (1,175,001)
--------- --------- ---------
Net cash used by investing activities (1,533,007) (819,131) (1,175,001)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from sales of limited
partnership interests -- 1,865,844 2,980,900
General Partners' capital contribution -- 1,868 2,983
Distributions of Offering Period income -- (123,713) (103,176)
Payments for syndication fees and
organizational costs -- (234,333) (432,230)
--------- --------- ---------
Net cash provided by financing
activities -- 1,509,666 2,448,477
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents (1,963,692) 376,977 1,112,352
Cash and cash equivalents
at beginning of year 3,948,745 3,571,768 2,459,416
--------- --------- ---------
Cash and cash equivalents
at end of year $ 1,985,053 3,948,745 3,571,768
========= ========= =========
Reconciliation of net loss to net cash
used by operating activities:
Net loss $ (34,512) (336,976) (188,769)
Adjustments to reconcile net loss
to net cash used by operating activities:
Amortization of organizational costs 8,000 8,000 8,000
Change in net unrealized fair value
of equity investments (377,961) 8,477 --
Net realized loss from sales
of equity investments 1,876 -- --
Changes in:
Accounts payable and accrued expenses 1,433 899 1,210
Due to related parties (10,794) 7,343 18,435
Other, net (18,727) (1,301) --
--------- --------- ---------
Net cash used by operating activities $ (430,685) (313,558) (161,124)
========= ========= =========
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 on September 3, 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 non-diversified investment company as that term is
defined in the Act. The Managing General Partners are Technology
Funding Ltd. ("TFL"), and Technology Funding Inc. ("TFI"), a
wholly-owned subsidiary of TFL. There are also three Individual
General Partners. A former wholly-owned subsidiary of TFI,
Technology Funding Securities Corporation ("TFSC"), was the dealer-
manager for the offering.
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 interests ("Units") in May of 1993.
On October 8, 1993, the Commencement Date, the minimum number of
Units required to begin Partnership operations (12,000) had been
sold. The offering terminated with 79,716 Units sold on May 3,
1995. 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 marketable and non-marketable
investments of $4,019,458 and $2,086,082 (67% and 35% of partners'
capital) as of December 31, 1996 and 1995, respectively. For the
non-marketable investments, the Managing General Partners have
estimated the fair value of such investments 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
up to 33% in determining fair value as discussed 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, 1996, 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, 1996, 1995 and 1994,
of 79,716, 74,425 and 44,272, 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 up to 33% is applied when
determining the fair value; the actual discount percentage is based
on the type and length of the restrictions. 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.
Non-cash Exercise of Warrants
- -----------------------------
Periodically, the Partnership may acquire stock through the non-
cash exercise of warrants. Upon the non-cash exercise of warrants,
the Partnership recorded a net realized loss of $1,876 in 1996, as
a result of the underlying stock prices at the date of exercise.
This amount is included in net realized loss from sales of equity
investments. During 1995 and 1994, there were no such
transactions.
2. Change in Net Unrealized Fair Value of Equity Investments
---------------------------------------------------------
In accordance with the accounting policy as stated in Note 1, the
Statements of Operations include a line item entitled "Change in
net unrealized fair value of equity investments." The table below
discloses details of the changes:
For the Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
Decrease in fair value
from cost of marketable
equity securities $(337,773) -- --
Increase (decrease) in fair
value from cost of
non-marketable
equity securities 707,257 (8,477) --
-------- ----- ------
Net unrealized fair
value increase (decrease)
from cost at end of year 369,484 (8,477) --
Net unrealized fair
value decrease from
cost at beginning of
year (8,477) -- --
-------- ----- ------
Change in net unrealized
fair value of equity
investments $ 377,961 (8,477) --
======== ===== ======
3. 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, 1996, 1995 and 1994, related party costs were as
follows:
1996 1995 1994
---- ---- ----
Management fees $158,597 204,134 87,861
Syndication fees -- 234,333 432,230
Individual General Partners'
compensation 31,138 31,575 29,000
Amortization of organizational
costs 8,000 8,000 8,000
Reimbursable operating expenses:
Administrative and investor
services 114,191 216,113 66,165
Investment operations 52,354 70,810 44,012
Computer services 38,897 29,172 10,357
Expenses absorbed by
General Partners (54,010) (77,958) --
Expenses previously absorbed
by General Partners 128,120 -- --
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,
management fees 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 at both December 31, 1996 and 1995.
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 Technology Funding Securities Corporation (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 addition, the
Partnership also paid $7,424 in 1995, to TFSC for due diligence
expenses (up to one-half of one percent of total Limited Partner
capital contributions) that TFSC paid to unaffiliated broker-
dealers. No such commissions and fees were paid in 1996.
Pursuant to the Partnership Agreement, the Partnership shall
reimburse the Managing General Partners for operational costs
incurred by the Managing General Partners in conjunction with the
business of the Partnership. The Partnership may not 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. For purposes of this limitation, the
Partnership's operating year begins on May 3. In 1996 and 1995,
the Managing General Partners absorbed $54,010 and $77,958,
respectively, in operating expenses. In 1996, it was determined
that certain operational costs paid directly by the Partnership,
which had previously been absorbed by the General Partners, were
not subject to this limitation; consequently, $128,120 was
reimbursed to the General Partners. Amounts due to related parties
were $15,476 and $26,270 at December 31, 1996 and 1995,
respectively.
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 prior years, respectively.
If this charge had been recorded in prior years, operating expenses
(before expenses absorbed by General Partners and expenses not
subject to limitation) would have been $317,731, $382,758, and
$219,538 for 1996, 1995 and 1994, respectively.
As compensation for their services, the Individual General Partners
each receives $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.
4. 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 loss
and sales commissions previously allocated to such
partners; then
(iii)third, 75% to the Limited Partners as a group in
proportion to the number of Units, 5% to the Limited
Partners in proportion to the Unit months of each
Limited Partner, and 20% to the Managing General
Partners. Unit months are the number of half months a
Unit would be outstanding if held from the date the
original holder of such Unit was deemed admitted into
the Partnership until the termination of the offering
of Units.
(b) Losses:
(i) first, to the partners as necessary to offset net
profit previously allocated to the partners under
(a)(iii) above plus losses from unaffiliated venture
capital limited partnership investments; then
(ii) 99% to the Limited Partners as a group and 1% to the
Managing General Partners.
Losses allocable to Limited Partners in excess of their capital
account balances will be allocated to the Managing General
Partners. Net profit thereafter, otherwise allocable to those
Limited Partners, is 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%.
Given the inherent risk associated with the business of the
Partnership, the future performance of the portfolio company
investments may significantly impact future operations.
5. Equity Investments
------------------
At December 31, 1996 and 1995, equity investments consisted of:
December 31, 1996 December 31, 1995
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 $ 200,000 267,500 200,000 200,000
Acusphere, Inc. Series C
Preferred
shares 05/96 163,552 350,001 350,001 -- --
CV Therapeutics, Series D
Inc. Preferred
shares 03/94 187,500 -- -- 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
CV Therapeutics, Common
Inc. share
warrant at
$20.00;
expiring
09/00 11/96 1,920 768 0 -- --
CV Therapeutics, Common
Inc. shares 11/96 26,455 487,224 125,982 -- --
Peptide Common
Therapeutics shares
Group 02/96 2,151 7,313 7,823 -- --
Prolinx, Inc. Series A
Preferred
shares 05/95 119,631 119,631 119,631 119,631 119,631
Prolinx, Inc. Series A
Preferred
shares 12/95 124,369 124,369 124,369 124,369 124,369
Prolinx, Inc. Series A
Preferred
shares 09/96 156,000 156,000 156,000 -- --
RedCell, Inc. Series B
Preferred
shares 12/94 132,979 125,000 125,000 125,000 125,000
RedCell, Inc. Convertible
note (1) 02/96 $89,966 96,285 96,285 -- --
RedCell, Inc. Series C
Preferred
share warrant
exercise
price to be $13,495
determined; aggregate
expiring purchase
02/01 02/96 price 0 0 -- --
RedCell, Inc. Convertible
note (1) 07/96 $71,973 74,692 74,692 -- --
RedCell, Inc. Series C
Preferred
share warrant
exercise
price to be $10,796
determined; aggregate
expiring purchase
07/01 07/96 price 0 0 -- --
Medical/Diagnostic Equipment
- ----------------------------
Endocare, Inc. Common
shares 08/96 2,000 6,000 4,824 -- --
Endocare, Inc. Common
share
warrant at
$3.00;
expiring
08/01 08/96 30,000 0 12,060 -- --
Endocare, Inc. Convertible
note (1) 08/96 $150,000 158,533 158,533 -- --
LifeCell Series B
Corporation Preferred
shares 11/96 2,500 247,500 247,500 -- --
LifeCell Common
Corporation share
warrant at
$4.13;
expiring
11/01 11/96 56,451 2,500 2,500 -- --
R2 Technology, Series A-1
Inc. Preferred
shares 05/94 100,000 100,000 184,000 100,000 100,000
R2 Technology, Convertible
Inc. note (1) 11/95 $33,332 -- -- 33,759 33,759
R2 Technology, Series B
Inc. Preferred
share warrant
at $2.00;
expiring
11/00 11/95 2,417 0 0 0 0
R2 Technology, Series B-1
Inc. Preferred
shares 03/96 17,134 34,268 34,268 -- --
Health Information Systems
- --------------------------
CareCentric Series A
Solutions, Inc. Preferred
shares 10/95 66,667 100,000 113,333 100,000 100,000
CareCentric Series B
Solutions, Inc. Preferred
shares 09/96 76,764 130,499 130,499 -- --
Pharmaceuticals
- ---------------
Arris Common
Pharmaceuticals, shares
Inc. 12/95 9,464 125,000 130,017 125,000 100,082
Megabios Corp. Series C
Preferred
shares 09/94 193,125 250,000 482,813 250,000 250,000
Megabios Corp. Series C
Preferred
shares 12/94 57,938 75,001 144,845 75,001 75,001
Megabios Corp. Series C
Preferred
shares 07/95 50,212 64,999 125,530 64,999 64,999
Neurex Common
Corporation shares 09/96 149 3,129 2,350 -- --
Periodontix, Series A
Inc. Preferred
shares 12/93 100,000 100,000 200,000 100,000 100,000
Periodontix, Series B
Inc. Preferred
shares 02/96 67,000 134,000 134,000 -- --
Environmental
- -------------
Naiad Technologies,Series A
Inc. (formerly Preferred
TMC, Inc.) shares 12/95 50,000 25,000 100,000 25,000 25,000
Naiad Technologies,Series B
Inc. (formerly Preferred
TMC, Inc.) Shares 11/96 62,602 125,204 125,204 -- --
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Medical Science Limited
Partners II Partnership
Interests various $237,500 227,058 239,899 200,000 216,441
--------- --------- --------- ---------
Total Equity Investments $3,649,974 4,019,458 2,094,559 2,086,082
========= ========= ========= =========
-- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(1) Convertible notes include accrued interest. Interest rates on such notes ranged from 8%
to 16%.
Marketable Equity Securities
- ----------------------------
At December 31, 1996, marketable equity securities had an
aggregate cost of $587,242 and an aggregate fair value of
$249,469. The unrealized loss at December 31, 1996, included
gross gains of $5,527. At December 31, 1995, there were no
marketable equity securities.
Acusphere, Inc.
- ---------------
In May of 1996, the Partnership made an additional investment in
the company by purchasing 163,552 Series C Preferred shares for
$350,001. The pricing of this round, in which third parties
participated, indicated a fair value increase of $67,500 for the
Partnership's existing investment.
CareCentric Solutions, Inc.
- ---------------------------
In September of 1996, the Partnership made an additional
investment in the company by purchasing 76,764 Series B Preferred
shares for $130,499. The pricing of this round, in which third
parties participated, indicated an increase in the change in fair
value of $13,333 for the Partnership's existing investment.
CV Therapeutics, Inc.
- ---------------------
In March of 1996, the Partnership made an additional investment
in the company by purchasing 19,034 Series G Preferred shares and
a warrant for 28,551 common shares for a total cost of $38,068.
Then in November of 1996, the company completed its initial
public offering ("IPO"). Prior to the IPO, the company effected
a 1-for-10 reverse stock split resulting in the Partnership's
Preferred shares being converted into 24,493 common shares. In
addition, the Partnership exercised its common share warrant
mentioned above without cash and received 1,962 shares of common
stock and realized a loss of $1,876. The Partnership's Series E
Preferred share warrant was converted into a common share
warrant.
At December 31, 1996, the Partnership recorded a decrease in the
change in the fair value of $362,010 to reflect the publicly-
traded market price of its investments; a portion of the fair
value was adjusted to reflect a discount for restricted
securities.
Endocare, Inc.
- --------------
In August of 1996, the Partnership issued $150,000 in convertible
notes receivable to the company and received a warrant to
purchase 30,000 common shares. The Partnership also received
2,000 common shares of Endocare, Inc., in lieu of loan fees. At
December 31, 1996, the Partnership recorded an increase of
$10,884 in the change in fair value to reflect the publicly-
traded market price of its common stock and warrant investments;
the fair value was net of a discount applied for restricted
securities.
LifeCell Corporation
- --------------------
In November of 1996, the Partnership made an investment in
LifeCell Corporation by purchasing 2,500 Series B Preferred
shares and a warrant for 56,451 common shares for a total cost of
$250,000.
Megabios Corp.
- --------------
During the fourth quarter of 1996, the company completed a Series
E Preferred financing round in which the Partnership did not
participate. The pricing of this round, in which third parties
participated, indicated a fair value increase of $363,188 for the
Partnership's existing investment.
Naiad Technologies, Inc. (formerly TMC, Inc.)
- ---------------------------------------------
In July of 1996, the Partnership issued a $6,250 convertible note
to the company.
Then in November of 1996, the Partnership purchased 62,602 Series
B Preferred shares with $118,750 in cash and by converting the
note discussed above, including accrued interest of $204, for a
total cost of $125,204. The pricing of this round, in which
third parties participated, indicated an increase in fair value
of $75,000 for the Partnership's existing investment.
Periodontix, Inc.
- -----------------
In February of 1996, the Partnership made an additional
investment in the company by purchasing 67,000 Series B Preferred
shares for $134,000. The pricing of this round, in which third
parties participated, indicated an increase in fair value of
$100,000 for the Partnership's existing investment.
Prolinx, Inc.
- -------------
In September of 1996, the Partnership made an additional
investment in the company by purchasing 156,000 Series A
Preferred shares for $156,000.
R2 Technology, Inc.
- -------------------
In March of 1996, the Partnership purchased 17,134 Series B-1
Preferred shares by converting the November, 1995, $33,332 note
(including accrued interest of $936). The pricing of this
conversion financing round, in which third parties participated,
indicated an increase of $84,000 in the change in fair value for
the Partnership's existing investment.
RedCell, Inc.
- -------------
In February and July of 1996, the Partnership issued $89,966 and
$71,973, respectively, in convertible notes receivable to the
company. Each note bears an interest rate of 8% and matures in
October of 1997.
Venture Capital Limited Partnership Investment
- ----------------------------------------------
The Partnership recorded a cost basis increase of $27,058 in
venture capital limited partnership investments in 1996, as a
result of additional contributions of $37,500, partially offset
by distributions of stock with fair values of $10,442. The
Partnership recorded an increase in fair value of $23,458 mainly
due to the effect of the transactions described above, partially
offset by a decrease in fair value of the underlying investments.
In 1996, the Partnership received stock distributions of Peptide
Therapeutics Group and Neurex Corporation with fair values of
$7,313 and $3,129, respectively. These distributions of
marketable stock represented returns of capital.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations or the elimination of a discount relating to selling
restrictions for publicly-traded portfolio companies. Arris
Pharmaceuticals, Inc., is a publicly-traded company.
6. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1996 and 1995,
consisted of:
1996 1995
---- ----
Demand accounts $ 2,844 606
Money-market accounts 1,982,209 3,948,139
--------- ---------
Total $1,985,053 3,948,745
========= =========
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, 1996, the Partnership had unfunded
commitments as follows:
Type
- ----
Equity investments $ 300,000
Venture capital limited partnership investments 12,500
Term notes 150,000
---------
Total $ 462,500
=========
The Partnership uses the same credit policies in making these
commitments and conditional obligations as it does for on-
balance-sheet instruments. Commitments to extend financing are
agreements to lend to a company as long as there are no
violations of any conditions established in the contract. The
credit lines generally have fixed termination dates or other
termination clauses. Since many of the commitments are expected
to expire without being fully drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
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 21, 1997 By: /s/Debbie A. Wong
------------------------------
Debbie A. Wong
Vice President
and 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 21, 1997
- ------------------------ Executive Officer,
Charles R. Kokesh Chief Financial
Officer and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
/s/Gregory T. George Group Vice President March 21, 1997
- ------------------------ of Technology Funding
Gregory T. George Inc. and a General
Partner of Technology
Funding Ltd.
The above represents the Board of Directors of Technology Funding
Inc. and the General Partners of Technology Funding Ltd.