<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 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. 814-48
TECHNOLOGY FUNDING PARTNERS III, L.P.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 94-3033783
- ------------------------------ ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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)
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
--- ---
No active market for the units of limited partnership interest ("Units")
exists, and therefore the market value of such Units cannot be
determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Equity investments (cost basis
of $19,117,765 and $19,299,469 for
1995 and 1994, respectively) $31,173,861 29,411,649
Cash and cash equivalents 8,891,690 4,049,929
Other assets 69,485 743,924
---------- ----------
Total $40,135,036 34,205,502
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 23,020 25,839
Due to related parties 56,816 44,572
Distributions payable -- 1,673,084
Deferred income 46,875 93,750
Other liabilities 23,154 19,362
---------- ----------
Total liabilities 149,865 1,856,607
Commitments and contingencies
(Notes 2 and 6)
Partners' capital:
Limited Partners
(Units outstanding of 160,000
in both 1995 and 1994) 27,905,235 22,269,799
General Partners 23,840 (33,084)
Net unrealized fair value increase
from cost of equity investments 12,056,096 10,112,180
---------- ----------
Total partners' capital 39,985,171 32,348,895
---------- ----------
Total $40,135,036 34,205,502
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------------ -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Secured and convertible notes
receivable interest $ 5,397 54,405 63,327 244,017
Short-term investment interest 91,577 30,167 219,748 33,550
Other income 15,625 -- 46,875 --
--------- --------- --------- ---------
Total income 112,599 84,572 329,950 277,567
Costs and expenses:
Management fees 92,252 78,269 262,230 254,433
Individual general partners'
compensation 9,994 10,500 26,494 31,500
Operating expenses:
Administrative and investor services 69,420 76,473 221,553 322,445
Investment operation 44,350 62,957 150,699 269,091
Professional fees 5,900 19,733 47,245 77,546
Computer services 22,022 24,373 60,239 66,229
Interest expense -- -- -- 26,785
--------- --------- --------- ---------
Total operating expenses 141,692 183,536 479,736 762,096
--------- --------- --------- ---------
Total costs and expenses 243,938 272,305 768,460 1,048,029
--------- --------- --------- ---------
Net operating loss (131,339) (187,733) (438,510) (770,462)
Net realized gain from sales
of equity investments 3,590,402 -- 6,068,931 1,560,340
Net realized gain from venture capital
limited partnership investments 401,801 -- 401,801 --
Realized losses from investment
write-downs (34,335) (1,452) (399,427) (151,217)
Recoveries from investments previously
written off 16,983 -- 59,565 55,397
--------- --------- --------- ---------
Net realized income (loss) 3,834,512 (189,185) 5,692,360 694,058
Change in net unrealized
fair value:
Equity investments (618,244) 3,675,090 1,943,916 (1,846,922)
Secured notes receivable -- 97,000 -- 134,000
--------- --------- --------- ---------
Net income (loss) $3,225,268 3,582,905 7,636,276 (1,018,864)
========= ========= ========= =========
Net realized income (loss) per Unit $ 24 (1) 35 4
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
--------------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 277,069 286,816
Cash paid to vendors (189,245) (198,208)
Cash paid to related parties (631,978) (844,597)
--------- ---------
Net cash used by operating
activities (544,154) (755,989)
--------- ---------
Cash flows from investing activities:
Secured notes receivable issued -- (902,439)
Purchase of equity investments (1,653,603) (1,409,893)
Repayments of convertible and
secured notes receivable 125,000 2,923,536
Proceeds from sales of
equity investments 8,496,503 2,781,176
Recoveries of investments
previously written off 16,983 55,397
Distributions from venture capital
limited partnerships 74,116 83,575
--------- ---------
Net cash provided by
investing activities 7,058,999 3,531,352
--------- ---------
Cash flows from financing activities:
Distributions to Limited and General
Partners (1,673,084) --
Repayment of short-term
borrowings, net -- (125,000)
--------- ---------
Net cash used by financing
activities (1,673,084) (125,000)
--------- ---------
Net increase in cash and
cash equivalents 4,841,761 2,650,363
Cash and cash equivalents at beginning
of year 4,049,929 73,890
--------- ---------
Cash and cash equivalents at September 30 $ 8,891,690 2,724,253
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
--------------------------------------
1995 1994
---- ----
<S> <C> <C>
Reconciliation of net income (loss) to net
cash used by operating activities:
Net income (loss) $ 7,636,276 (1,018,864)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Net realized gain from sales of
equity investments (6,068,931) (1,560,340)
Net realized gain from venture capital
limited partnership investments (401,801) --
Recoveries from investments previously
written off (59,565) (55,397)
Realized losses from investment
write-downs 399,427 151,217
Change in net unrealized fair value:
Equity investments (1,943,916) 1,846,922
Secured notes receivable -- (134,000)
Other, net -- (20,531)
Changes in:
Other assets (65,980) 12,943
Due to/from related parties 12,244 (1,117)
Other, net (51,908) 23,178
--------- ---------
Net cash used by operating activities $ (544,154) (755,989)
========= =========
Non-cash investing activities:
Non-cash exercise of warrants $ -- 156,494
========= =========
Common stock recovered from equity
investment previously written off $ 42,582 --
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partners, the Balance Sheets as
of September 30, 1995 and December 31, 1994 and the related Statements
of Operations for the three and nine months ended September 30, 1995 and
1994, and Statements of Cash Flows for the nine months ended September
30, 1995 and 1994, reflect all adjustments which are necessary for a
fair presentation of the financial position, results of operations and
cash flows for such periods. These statements should be read in
conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1994. The following notes to financial statements for
activity through September 30, 1995 supplement those included in the
Annual Report on Form 10-K. Allocation of income and loss to Limited
and General Partners is based on cumulative income and loss.
Adjustments, if any, are reflected in the current quarter balances.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party expenses for the nine months
ended September 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Management fees $262,230 254,433
Reimbursable operating expenses 355,498 557,547
Individual general partners'
compensation 26,494 31,500
</TABLE>
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Managing General Partners and are adjusted to
actual costs periodically. There were $26,065 and $15,526 of such
expenses due to related parties at September 30, 1995 and December 31,
1994, respectively.
Amounts due to related parties for management fees were $30,751 and
$29,046 at September 30, 1995 and December 31, 1994, respectively.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of
portfolio companies. At September 30, 1995, the Partnership had an
indirect interest in non-transferable PolyMedica options at an exercise
price higher than the current market value.
3. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1994 is in the 1994 Annual Report. Activity from January 1 through
September 30, 1995 consisted of:
<TABLE>
<CAPTION>
January 1 -
September 30, 1995
Principal ------------------
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $19,299,469 29,411,649
---------- ----------
Significant changes:
Communications
- --------------
Coded Common
Communications shares
Corporation 04/93 72,727 (123,091) (10,982)
Coded Common
Communications share
Corporation warrant
at $3.16;
expired
04/95 04/93 72,727 (2,000) 0
Computer Systems and Software
- -----------------------------
Geoworks Common 01/92-
shares 06/94 300,110 (1,256,724) (567,419)
Velocity Convertible 08/95 &
Incorporated notes (1) 09/95 $112,500 114,030 114,030
Electronic Design Automation
- ----------------------------
IKOS Systems, Inc. Common
shares 03/92 8,294 (15,866) (19,026)
Environmental
- -------------
Conversion Series A
Technologies Preferred
International, shares
Inc. 05/95 200,000 500,000 500,000
Conversion Convertible
Technologies note (1)
International,
Inc. 09/95 $12,500 12,534 12,534
Industrial/Business Automation
- ------------------------------
Crystallume Common
shares 03/94 348,611 0 32,645
Crystallume Series A
Preferred
shares 05/95 50 50,000 50,000
Crystallume Common share
warrant at
$3.25;
expiring
05/98 05/95 5,000 0 3,375
Crystallume Common
shares 08/95 30,000 114,006 93,375
Crystallume Convertible
notes (1) 08/95 $300,000 303,833 303,833
Crystallume Common share
warrants at
$2.00
expiring
08/98 08/95 30,000 0 48,375
Nanodyne, Inc. Convertible 05/94&
notes (1) 10/94 $87,158 (91,542) (91,542)
Nanodyne, Inc. Series B
Preferred
shares 04/95 42,126 92,150 92,150
Oxford GlycoSystems Common
Group PLC shares 08/93 266,934 0 (286,416)
Medical/Biotechnology
- ---------------------
Acusphere, Inc. Series B
Preferred
shares 05/95 125,000 200,000 200,000
Biex, Inc. Series C
Preferred
shares 06/95 83,334 83,334 83,334
CV Therapeutics, Inc. Series E
Preferred
shares 09/95 57,600 114,048 114,048
CV Therapeutics, Inc. Series E
Preferred
share warrant
at $2.00;
expiring
09/00 09/95 28,800 1,152 1,152
Everest & Jennings Common
International Ltd. shares 01/94 592,721 0 238,274
ICU Medical, Inc. Common 04/92 &
shares 05/92 300,000 0 (598,500)
Integra LifeSciences Common
Corporation shares 08/95 1,811 15,665 15,937
Lifecell Common
Corporation shares 02/92 252,923 0 414,793
Matrix Common
Pharmaceuticals, share
Inc. warrant
at $.23;
exercised
01/95 04/90 1,905 0 (24,422)
Matrix
Pharmaceuticals, Common 01/92 &
Inc. shares 01/95 321,633 438 362,576
Pharmos Common
Corporation shares 04/95 56,776 42,582 147,618
PolyMedica Common
Industries, Inc. shares 03/92 438,365 0 2,202,784
SyStemix, Inc. Common 08/91 &
shares 01/92 66,986 0 (252,872)
Telios Pharma- Common
ceuticals, Inc. shares 03/92 90,559 (50,000) (17,025)
TheraTx, Inc. Common
shares 06/94 70,043 (16,500) (695,395)
UroMed Common
Corporation shares 03/94 59,942 (95,409) (277,232)
Retail/Consumer Products
- ------------------------
YES! Entertainment Series B
Corporation Preferred
shares 01/93 450,000 (300,000) (225,000)
YES! Entertainment Common
Corporation shares 06/95 33,333 99,999 141,249
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Various Ltd.
Partnership
interest various $3,953,130 24,942 (356,070)
---------- ----------
Total significant changes during the nine months
ended September 30, 1995 (182,419) 1,750,181
Other changes, net 715 12,031
---------- ----------
Total equity investments at September 30, 1995 $19,117,765 31,173,861
========== ==========
(1) Convertible notes include accrued interest. The interest rates on notes issued in 1995
ranged from 6% to 12%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At September 30, 1995 and December 31, 1994, marketable equity
securities had aggregate costs of $10,020,705 and $9,713,832,
respectively, and aggregate fair values of $20,607,376 and $17,350,086,
respectively. The net unrealized gains at September 30, 1995 and
December 31, 1994 included gross gains of $12,047,962 and $10,000,499,
respectively.
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.
Biex, Inc.
- ----------
In June 1995, the Partnership made an additional investment in Biex,
Inc. by purchasing 83,334 Series C Preferred shares at a total cost of
$83,334.
Coded Communications
- --------------------
During the second quarter of 1995, the Managing General Partners
determined that there has been a decline in value of the Partnership's
investment. As a result, the Partnership realized a loss of $125,091.
The Partnership also recorded a decrease in fair value of $10,982 to
reflect the publicly-traded market value at September 30, 1995.
Conversion Technologies International, Inc.
- -------------------------------------------
In May 1995, the Partnership invested in Conversion Technologies
International, Inc. by purchasing 200,000 Series A Preferred shares at a
total cost of $500,000. In September 1995, the Partnership also issued
a $12,500 convertible note to the company.
Crystallume
- -----------
In May 1995, the Partnership made an additional investment in
Crystallume by purchasing 50 Series A Preferred shares and received a
warrant to purchase 5,000 common shares at a total cost of $50,000.
Then in August 1995, the Partnership issued $300,000 in convertible
notes and also purchased 30,000 additional common shares at a total cost
of $114,006. The Partnership recorded an increase in the change in fair
value of $63,764 to reflect the publicly-traded market price of its
common stock and warrant investments at September 30, 1995; a portion of
the investment fair value was adjusted to reflect a 25% discount for
restricted securities.
CV Therapeutics, Inc.
- ---------------------
In September 1995, the Partnership made an additional investment in CV
Therapeutics, Inc. by purchasing 57,600 Series E Preferred shares and
receiving a warrant to purchase 28,800 Series E Preferred shares at a
total cost of $115,200.
GeoWorks
- --------
During the first nine months of 1995, the Partnership sold 575,000
common shares of GeoWorks for total proceeds of $6,913,918 and realized
a gain of $5,657,194. The Partnership recorded a decrease in fair value
of $567,419 at September 30, 1995 primarily due to the sale mentioned
above, partially offset by an increase in market value of the remaining
unrestricted shares at September 30, 1995. The fair value of the
remaining holdings was adjusted to reflect a 25% discount due to a six-
month underwriter lockup.
IKOS Systems Inc.
- -----------------
During the first quarter of 1995, the Partnership sold all of its
holdings in the company for total proceeds of $24,882 and a realized
gain of $9,016.
Integra LifeSciences Corporation/Telios Pharmaceuticals, Inc.
- -------------------------------------------------------------
In August 1995, Telios Pharmaceuticals, Inc. ("Telios") was acquired by
Integra LifeSciences Corporation ("Integra") as part of a plan of
reorganization approved by the U.S. Bankruptcy Court. The Partnership's
common shares were exchanged for 1,811 shares of marketable unrestricted
Integra common stock. Accordingly, the Partnership recorded a realized
loss of $34,335 to reflect the cost basis of the Integra shares based on
its fair value.
Matrix Pharmaceuticals, Inc.
- ----------------------------
In January 1995, the Partnership cash exercised its warrant to purchase
1,905 common shares, resulting in a recorded cost basis of $438. The
Partnership also recorded an increase in fair value of $338,154 to
reflect market value at September 30, 1995.
Nanodyne, Inc.
- --------------
In April 1995, the Partnership converted $87,158 in notes issued in 1994
and $4,992 in accrued interest into 42,126 Series B Preferred shares.
Oxford GlycoSystems Group PLC
- -----------------------------
In March 1995, the company had a new round of equity financing in which
the Partnership did not participate. The pricing of this round
indicated a decrease in the change in fair value of $286,416 for the
Partnership's existing investments.
Pharmos Corporation/Oculon Corporation
- --------------------------------------
In March 1995, Oculon Corporation ("Oculon") was acquired by Pharmos
Corporation ("Pharmos"). The Partnership's Series II Senior Preferred
shares were canceled while the Series III Senior Preferred shares were
exchanged for 56,776 shares of marketable, unrestricted Pharmos common
stock. The Partnership recorded the $42,582 cost basis of the Pharmos
stock as a recovery from Oculon investments previously written off. An
increase in fair value of $147,618 reflected the market value of the
Pharmos stock at September 30, 1995.
TheraTx, Inc.
- -------------
In January 1995, the Partnership sold 11,000 common shares of TheraTx,
Inc. for total proceeds of $214,665 and realized a gain of $198,165.
The Partnership also received proceeds of $127,750 from sales prior to
December 31, 1994, which have been settled. The Partnership recorded a
decrease in unrealized fair value of $695,395 at September 30, 1995; a
portion was realized related to the sale mentioned above, with the
remainder due to a decrease in the market value of the remaining
unrestricted shares at September 30, 1995.
UroMed Corporation
- ------------------
In January 1995, the Partnership sold its remaining holdings in the
company for total proceeds of $341,314 and realized a gain of $245,905.
The Partnership also received proceeds of $218,660 from sales prior to
December 31, 1994, which have been settled.
Velocity Incorporated
- ---------------------
During the third quarter of 1995, the Partnership issued $112,500 in
convertible notes to the company.
YES! Entertainment Corporation
- ------------------------------
In June 1995, the company completed its initial public offering ("IPO").
Prior to the IPO, the company effected a 1-for-15 reverse stock split.
The Partnership's Series B Preferred shares were converted into 33,333
common shares. The Managing General Partners determined that there has
been a decline in value of the Partnership's investment; as a result, a
realized loss of $200,001 was recorded. The loss reflects the fact that
the stock will be restricted for two years.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership recorded a cost basis increase of $24,942 in venture
capital limited partnership investments during the nine months ended
September 30, 1995. The increase was a result of additional
contributions of $40,625, partially offset by returns of capital in the
form of stock and cash distributions of $14,207 and $1,476,
respectively. The Partnership recorded a fair value decrease of
$356,070 as a result of cash and stock distributions from the profits of
certain venture capital limited partnership investments which were
recorded as realized gains, partially offset by a net increase in the
fair value of the underlying investments.
In August 1995, the Partnership received a distribution of UroMed
Corporation common stocks and recorded a cost basis of $288,446. These
stocks were subsequently sold resulting in proceeds of $247,239.
Other Equity Investments
- ------------------------
Other significant changes during the nine months ended September 30,
1995 reflected above relate to market value fluctuations and the
elimination of a discount relating to selling restrictions for publicly-
traded portfolio companies.
The Partnership also received proceeds of $394,009 in January 1995 from
sales of Powersoft Corporation prior to December 31, 1994, which have
been settled.
4. Notes Receivable Interest Income
--------------------------------
During the nine months ended September 30, 1995 notes receivable
interest income of $63,326 included approximately $50,000 in interest
income recovered from a portfolio company in the medical/biotechnology
industry which had been previously written off.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 1995 and December 31, 1994
consisted of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Demand accounts $ 6,159 3,059
Money-market accounts 8,858,531 4,046,870
Broker accounts 27,000 --
--------- ---------
Total $8,891,690 4,049,929
========= =========
</TABLE>
6. Commitments and Contingencies
-----------------------------
The Partnership is a party to financial instruments with off-balance-
sheet risk in the normal course of its business. Generally, these
instruments are commitments for future equity investment fundings,
venture capital limited partnership investments, equipment financing
commitments, or accounts receivable lines of credit that are outstanding
but not currently fully utilized by a borrowing company. As they do not
represent current outstanding balances, these unfunded commitments are
properly not recognized in the financial statements. At September 30,
1995, the Partnership had unfunded commitments as follows:
Type
- ----
[S] [C]
Bridge notes and A/R line $ 88,750
Equity 516,666
Venture capital limited partnership investments 46,870
-------
Total $652,286
=======
In July 1994, the Partnership agreed to guarantee for a two-year period
a $2 million loan between a financial institution and a portfolio
company in the medical/biotechnology industry. The Partnership has
received a guarantee fee of $125,000, which is recorded as deferred
income and is being amortized as other income over the two-year period.
During the nine months ended September 30, 1995, $46,875 was recorded as
other income. The Partnership also agreed to guarantee a $500,000 line
of credit between a financial institution and a portfolio company in the
computer systems and software industry. While the Partnership expects
the portfolio companies to repay the loan or line of credit, if the
portfolio companies fail to do so, the Partnership may be liable up to
the guarantee amounts.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the nine months ended September 30, 1995, net cash used by
operations totaled $554,154. The Partnership paid management fees of
$260,525 to the Managing General Partners and reimbursed related parties
for operating expenses of $344,959. In addition, $26,494 was paid to
the individual general partners as compensation for their services.
Other operating expenses of $189,245 were paid and $277,069 in interest
income was received. Distributions totaling $1,673,084 were paid to
Limited and General Partners.
During the nine months ended September 30, 1995, the Partnership funded
equity investments of $1,653,603 primarily to portfolio companies in the
environmental, industrial and business automation, and
medical/biotechnology industries. Repayments of convertible and secured
notes receivable provided cash of $125,000. Proceeds from sales of
equity investments totaled $8,496,503 of which $740,419 related to sales
prior to December 31, 1994, but were settled in January 1995. The
Partnership also received $74,116 in cash distributions from venture
capital limited partnership investments. As of September 30, 1995, the
Partnership was committed to fund $652,286 in additional investments and
has outstanding guarantees totaling $2.5 million as discussed in Note 6
to the financial statements.
The Partnership maintains a margin account with a brokerage firm. At
September 30, 1995, the maximum borrowing capacity, which fluctuates
based on collateral value, was approximately $2,025,000. The
Partnership's ICU Medical, Inc. shares are pledged as collateral. The
Partnership did not draw on this account during the nine months ended
September 30, 1995.
During the first half of 1995, YES! Entertainment Corporation completed
its initial public offering ("IPO"). Although the Partnership's
holdings in YES! Entertainment Corporation are subject to selling
restrictions, the IPO indicates potential future liquidity for this
investment.
Cash and cash equivalents at September 30, 1995 were $8,891,690. Cash
reserves, interest income on short-term investments, future proceeds
from sales of equity investments and borrowing capacity from the margin
account are expected to be adequate to fund Partnership operations and
future investments through the next twelve months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net income was $3,225,268 for the three months ended September 30, 1995
compared to $3,582,905 during the same period in 1994. The decrease in
net income was primarily due to decreases of $4,293,334 and $97,000 in
the change in net unrealized fair value of equity investments and
secured notes receivable, respectively. These changes were partially
offset by a $3,590,402 increase in net realized gain from sales of
equity investments, and a $401,801 increase in net realized gain from
venture capital limited partnership investments.
During the quarter ended September 30, 1995, the decrease in fair value
of equity investments of $618,244 was primarily attributable to
investment sales as gains were realized for a portfolio company in the
computer systems and software industry, partially offset by increases in
the medical/biotechnology industry. During the same period in 1994, the
increase of $3,675,090 was primarily attributable to portfolio companies
in the medical/biotechnology and computer systems and software
industries.
During the third quarter of 1995, the Partnership did not record a
change in the fair value of secured notes receivable as there were no
notes outstanding. During the same period in 1994, the Partnership
recorded an increase of $97,000 based upon the level of loan loss
reserves deemed adequate by the Managing General Partners.
For the quarter ended September 30, 1995, net realized gain from sales
of equity investments of $3,590,402 mostly related to a partial sale of
GeoWorks. No equity investments were sold during the same period in
1994.
During the quarter ended September 30, 1995, net realized gain from
venture capital limited partnership investments was $401,801. The gain
represents distributions from profits of two venture capital limited
partnerships. There were no such gains realized for the same period in
1994.
Total income was $112,599 and $84,572 for the three months ended
September 30, 1995 and 1994, respectively. The increase was mainly due
to higher cash and cash equivalent balances for short-term investments
resulting from investment sale proceeds. This increase was partially
offset by a decrease in notes receivable interest due to lower
outstanding convertible notes receivable balances.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current nine months compared to corresponding nine months in the
- ----------------------------------------------------------------
preceding year
- --------------
Net income was $7,636,276 for the nine months ended September 30, 1995
compared to a net loss of $1,018,864 for the same period in 1994. The
change was primarily due to a $4,508,591 increase in net realized gain
from sales of equity investments, a $3,790,838 increase in the change in
net unrealized fair value of equity investments, a $401,801 increase in
net realized gain from venture capital limited partnership investments,
and a $282,360 decrease in total operating expenses. These changes were
partially offset by a $248,210 increase in realized losses from
investment write-downs and a $134,000 decrease in the change in net
unrealized fair value of secured notes receivable.
Net realized gain from sales of equity investments was $6,068,931 for
the nine months ended September 30, 1995 compared to $1,560,340 for the
same period in 1994. The net gain in 1995 mostly related to sales of
GeoWorks and UroMed Corporation investments. The net gain in 1994
mostly related to sales of Telios Pharmaceuticals, Inc. and TheraTx,
Inc. investments.
During the nine months ended September 30, 1995, the increase in fair
value of equity investments of $1,943,916 was primarily attributable to
increases in portfolio companies in the medical/biotechnology and
computer systems and software industries, partially offset by decreases
in venture capital limited partnership investments as a result of
distributions received and a portfolio company in the
industrial/business automation industry. During the same period in
1994, the decrease of $1,846,922 was primarily attributable to decreases
in portfolio companies in the medical/biotechnology and
industrial/business automation industries, partially offset by an
increase in the computer systems and software industry.
Net realized gain from venture capital limited partnership investments
was $401,801 during the nine months ended September 30, 1995. The gain
represents distributions from profits of two venture capital limited
partnerships. There were no such gains realized for the same period in
1994.
Total operating expenses were $479,736 for the nine months ended
September 30, 1995 compared to $762,096 for the same period in 1994.
The decrease was primarily due to lower investment operations and
administrative and investor services from decreased portfolio
activities.
The Partnership recorded realized losses from investment write-downs of
$399,427 during the nine months ended September 30, 1995, mainly related
to portfolio companies in the retail/consumer products and
communications industries. During the same period in 1994, such losses
of $151,217 related mainly to Angenics, Inc.
During the nine months ended September 30, 1995, the Partnership did not
record a change in the fair value of secured notes receivable as there
were no outstanding notes. During the same period in 1994, the
Partnership recorded an increase in the fair value of secured notes
receivable of $134,000 based upon the level of loan loss reserves deemed
adequate by the Managing General Partners.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Partnership during the
quarter ended September 30, 1995.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 1995 (Exhibit 27).
<PAGE>
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 PARTNERS III, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: November 10, 1995 By: /s/Frank R. Pope
------------------------------------
Frank R. Pope
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 19,117,765
<INVESTMENTS-AT-VALUE> 31,173,861
<RECEIVABLES> 0
<ASSETS-OTHER> 69,485
<OTHER-ITEMS-ASSETS> 8,891,690
<TOTAL-ASSETS> 40,135,036
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 149,865
<TOTAL-LIABILITIES> 149,865
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,929,075
<SHARES-COMMON-STOCK> 160,000
<SHARES-COMMON-PRIOR> 160,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,056,096
<NET-ASSETS> 39,985,171
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 283,075
<OTHER-INCOME> 46,875
<EXPENSES-NET> (768,460)
<NET-INVESTMENT-INCOME> (438,510)
<REALIZED-GAINS-CURRENT> 6,130,870
<APPREC-INCREASE-CURRENT> 1,943,916
<NET-CHANGE-FROM-OPS> 7,636,276
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,636,276
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 262,230
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 772,210
<AVERAGE-NET-ASSETS> 36,167,033
<PER-SHARE-NAV-BEGIN> 139
<PER-SHARE-NII> 35
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 174
<EXPENSE-RATIO> 2.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>
A zero value is used since the change in net unrealized fair value is
not allocated to General Partners and Limited Partners as it is not
taxable. Only taxable gains or losses are allocated in accordance with
the Partnership Agreement.
</FN>
</TABLE>
