<PAGE>
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 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. 814-48
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)
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
February 26, 1988, forming a part of Registration Statement No. 33-
10896, 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. Portions of the Prospectus of
Technology Funding Medical Partners I, L.P., as modified by Cumulative
Supplement No. 4 dated January 4, 1995, forming a part of the May 3,
1993, Pre-Effective Amendment No. 3 to the Form N-2 Registration
Statement No. 33-54002 dated October 30, 1992, are incorporated by
reference in Part III hereof.
<PAGE>
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Partners III, L.P. (hereinafter referred
to as the "Partnership" or the "Registrant") was formed as a
Delaware limited partnership on December 4, 1986, and was
inactive until it commenced the sale of Units in April of
1987.
The Partnership was organized as 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
Partnership's principal investment objectives are long term
capital appreciation from venture capital investments in new
and developing companies ("portfolio companies") and
preservation of Limited Partner capital through risk
management and active involvement with such companies.
Investments in portfolio companies are also described in the
"Introductory Statement" and "Business of the Partnership"
sections of the Prospectus dated February 26, 1988, that
forms a part of Registrant's Form N-2 Registration Statement
No. 33-10896 (such Prospectus is hereinafter referred to as
the "Prospectus"), which sections are incorporated herein by
reference. 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's
term was extended for a two-year period to December 31, 1998,
pursuant to unanimous approval by the Management Committee on
September 13, 1996. The Partnership's Amended and Restated
Limited Partnership Agreement ("Partnership Agreement")
provides that the Partnership term may be further extended
with a proposed amendment by the General Partners and a
majority in interest approval by the Limited Partners.
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 5,617 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
- ------ -----------------------
<TABLE>
<CAPTION>
For the Years Ended and As of December 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total income $ 522,715 470,792 480,176 338,276 713,613
Net operating loss (856,975) (1,357,976) (838,981) (1,086,638) (958,185)
Net realized gain
(loss) from venture capital
limited partnership
investments 814,400 1,358,424 -- (74,227) 46,516
Net realized gain from
sales of equity investments 3,414,575 8,337,512 3,895,971 303,085 7,086,510
Realized losses from
investment write-downs (3,041,310) (399,427) (832,114) (740,529) (2,460,003)
Recovery from investments
previously written off 8,775 62,231 100,000 -- --
Net realized income (loss) 339,465 8,000,764 2,324,876 (1,598,309) 3,714,838
Change in net unrealized
fair value:
Equity investments (3,647,984) 398,770 (4,240,635) (68,227) 6,149,373
Secured notes receivable 309,000 (309,000) 136,000 6,000 (142,000)
Net (loss) income (2,999,519) 8,090,534 (1,779,759) (1,660,536) 9,722,211
Net realized income (loss)
per Unit 2 50 14 (10) 23
Total assets 33,890,281 41,388,167 34,205,502 36,007,556 39,636,068
Distributions declared 159,809 3,565,256 1,673,084 -- 1,998,966
Distributions declared
per Unit (1) -- 22 10 -- 12
(1) Calculation is based on distributions declared to Limited Partners divided by the weighted
average number of Units outstanding during the year.
Refer to the financial statements 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.
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity and Capital Resources
- -------------------------------
In 1996, net cash used by operating activities totaled
$1,689,563. The Partnership paid management fees of $414,049
to the Managing General Partners and reimbursed related
parties for operating expenses of $1,511,325 in 1996. In
addition, $30,806 was paid to the Individual General Partners
as compensation for their services. Other operating expenses
of $189,412 were paid, and interest and other income of
$456,029 was received. Distributions declared in 1995,
totaling $3,565,256 were paid to Limited and General
Partners.
In 1996, the Partnership issued $678,030 in secured notes
receivable to a portfolio company in the computer systems and
software industry and funded equity investments of $7,528,174
primarily to portfolio companies in the
medical/biotechnology, computer systems and software and
communications industries. Repayments of convertible and
secured notes receivable in 1996 provided cash of $62,500.
Proceeds from sales of equity investments totaled $5,600,091
and the Partnership received $507,908 in cash distributions
from venture capital limited partnership investments. At
year end, the Partnership was committed to fund $3,363,692 in
additional investments and has outstanding guarantees
totaling $1 million as disclosed in Note 9 to the financial
statements.
During 1996, Conversion Technologies International, Inc.,
Thermatrix, Inc., and CV Therapeutics, Inc., completed their
initial public offerings ("IPOs"). Although the
Partnership's holdings in these companies are subject to
selling restrictions, these IPOs indicate potential future
liquidity for the Partnership's investments.
Cash and cash equivalents at December 31, 1996, were
$5,317,251. Cash reserves, interest income on short-term
investments and future proceeds from equity investments sales
are expected to be adequate to fund Partnership operations
and future investments through the next twelve months.
Results of Operations
- ---------------------
1996 compared to 1995
- ---------------------
Net loss was $2,999,519 in 1996 compared to net income of
$8,090,534 in 1995. The change was primarily due to a
$4,922,937 decrease in net realized gain from sales of equity
investments, a $4,046,754 decrease in the change in net
unrealized fair value of equity investments, a $2,641,883
increase in realized losses from investment write-downs, and
a $544,024 decrease in net realized gain from venture capital
limited partnership investments. These changes were
partially offset by a $618,000 increase in the change in net
unrealized fair value of secured notes receivable, and a
$496,391 decrease in total operating expenses.
During 1996, net realized gain from sales of equity
investments of $3,414,575 was substantially attributable to
sales of Geoworks stock. During 1995, net realized gain of
$8,337,512 was mostly due to Geoworks and ICU Medical, Inc.,
investment sales.
During 1996, the decrease in fair value of equity investments
of $3,647,984 was substantially attributable to portfolio
companies in the medical/biotechnology and computer systems
and software industries. These decreases were partially
offset by increases in the Partnership's investments in
venture capital limited partnerships. In 1995, the increase
in fair value of $398,770 was primarily attributable to
increases in portfolio companies in the computer systems and
software industry, substantially offset by decreases in
portfolio companies in the medical/biotechnology industry and
realized gains and venture capital limited partnership
distributions.
During 1996, the Partnership recorded realized losses from
investment write-downs of $3,041,310 mostly due to a
portfolio company in the computer systems and software
industry. During 1995, realized losses of $399,427 were
mainly attributable to portfolio companies in the
retail/consumer products and communications industries.
During 1996 and 1995, the Partnership recorded net realized
gains from venture capital limited partnership investments of
$814,400 and $1,358,424, respectively. These gains
represented distributions from profits of certain venture
capital limited partnerships.
During 1996, the Partnership recorded an increase of $309,000
in net unrealized fair value of secured notes receivable as
notes were reclassified to equity investments resulting in
the transfer of a corresponding loan loss reserve to change
in unrealized fair value of equity investments. During 1995,
the Partnership recorded a decrease in fair value of secured
notes receivable of $309,000 mainly due to secured notes
receivable being placed on non-accrual status.
Total operating expenses were $936,262 and $1,432,653 in 1996
and 1995, respectively. As disclosed in Note 3 to the
financial statements, the 1995 total operating expenses
included additional administrative and investor services
expenses of $798,859. If this amount had been recorded in
prior years, total operating expenses would have been
$703,245 in 1995 compared to $936,263 in 1996. The increase
was primarily due to higher investment operations,
administrative and investor services and computer services
expenses from increased overall portfolio activities.
Total income was $522,715 and $470,792 during 1996 and 1995,
respectively. The slight increase was primarily due to an
increase in short-term investment interest from investment
sale proceeds. Included in the 1995 notes receivable
interest balance of $64,456 was approximately $50,000 in
interest income received related to a previously written off
secured note receivable from a portfolio company in the
medical/biotechnology industry.
Given the inherent risk associated with the business of the
Partnership, the future performance of portfolio company
investments may significantly impact future operations.
1995 compared to 1994
- ---------------------
Net income was $8,090,534 in 1995 compared to a net loss of
$1,779,759 in 1994. The change was primarily due to a
$4,639,405 increase in the change in net unrealized fair
value of equity investments, a $4,441,541 increase in net
realized gain from sales of equity investments, and a
$1,358,424 increase in net realized gain from venture capital
limited partnership investments. These changes were
partially offset by a $497,069 increase in total operating
expenses and a $445,000 decrease in the change in net
unrealized fair value of secured notes receivable.
During 1995, equity investments fair value increased
$398,770. The increase was primarily from portfolio
companies in the computer systems and software industry,
substantially offset by decreases related to portfolio
companies in the medical industry and realized gains and
venture capital limited partnership distributions. In
addition, total 1995 realized gains of $8,337,512 were mostly
related to Geoworks and ICU Medical, Inc., investment sales.
In 1994, the decrease in fair value of $4,240,635 was
primarily attributable to realized gains from investment
sales totaling $3,895,971 mainly related to TheraTx, Inc.,
Telios Pharmaceuticals, Inc., and UroMed Corporation,
partially offset by a fair value increase in portfolio
companies in the computer systems and software industry and
venture capital limited partnership investments.
Net realized gain from venture capital limited partnership
investments was $1,358,424 in 1995. The gain represents
distributions from profits of two venture capital limited
partnerships. There was no such gain realized in 1994.
Total operating expenses were $1,432,653 in 1995 compared to
$935,584 in 1994. As discussed above, the 1995 actual
operating expenses included additional administrative and
investors services expenses of $798,859. Had the additional
expenses been recorded in prior years, total operating
expenses would have been $703,245 and $1,010,949 for 1995 and
1994, respectively. The decrease of $307,704 was primarily
due to lower investment operations and administrative and
investor services expenses from lower overall portfolio
activities.
The Partnership recorded a decrease in the change in fair
value of secured notes receivable of $309,000 in 1995
compared to an increase of $136,000 in 1994, based upon the
level of loan loss reserves deemed adequate by the Managing
General Partners at the respective year ends. The decrease
in 1995 was due to notes receivable being placed on
nonaccrual status. The increase in 1994 was mainly
attributable to the elimination of loan loss reserves as
there were no notes receivable at year end.
In 1995 and 1994, the Partnership realized losses from
investment write-downs of $399,427 and $832,114,
respectively. Realized losses in 1995 mainly related to
equity investments for portfolio companies in the
retail/consumer products and communications industries.
Realized losses in 1994 primarily related to equity
investments in the medical/biotechnology and microelectronics
industries.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The financial statements of the Registrant are set forth
following 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" and "Management of the Partnership - Key
Personnel of the Managing General Partners" in the
Prospectus, which are incorporated herein by reference.
Changes in this information that have occurred since the date
of the Prospectus are included in the Technology Funding
Medical Partners I, L.P. Prospectus, as modified by
Cumulative Supplement No. 4 dated January 4, 1995, forming a
part of the May 3, 1993, Pre-Effective Amendment No. 3 to the
Form N-2 Registration Statement No. 33-54002 dated
October 30, 1992, 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 management fees
of $412,622. 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 Managing General Partners in performing
their obligations to the Partnership. As compensation for
their services, each of the Individual General Partners
receive $10,000 annually plus $1,000 and related expenses for
each attended meeting of the Management Committee. In 1996,
$30,806 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 Managing General Partners nor any
of their officers, directors or partners own any Units. The
Individual General Partners each own eight Units; at December
31, 1995, one of the three Individual General Partners had
withdrawn from his position and his Units were transferred to
his successor, who was appointed on January 1, 1997. The
Managing 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 Managing General Partners or their
officers and partners other than as described above, in the
notes to the financial statements, or in the Prospectus.
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 February
26, 1988, included in Registration Statement No.
33-10896 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).
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Partners III, L.P.:
We have audited the accompanying balance sheets of Technology Funding
Partners III, 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 and loans owned, by correspondence with the individual
investee and borrowing 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 Partners III, 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
<PAGE>
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis of
$21,648,281 and $18,043,420 for 1996
and 1995, respectively) $28,511,247 28,554,370
Secured notes receivable, net
(cost basis of $533,334
for 1995) -- 224,334
---------- ----------
Total investments 28,511,247 28,778,704
Cash and cash equivalents 5,317,251 12,607,605
Other assets 61,783 1,858
---------- ----------
Total $33,890,281 41,388,167
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 58,301 26,378
Due to related parties 89,517 850,679
Distributions payable -- 3,565,256
Deferred income -- 31,250
Other liabilities 27,618 40,431
---------- ----------
Total liabilities 175,436 4,513,994
Commitments, contingencies and
subsequent events (Notes 3, 5 and 9)
Partners' capital:
Limited Partners
(Units outstanding of 160,000
for both 1996 and 1995) 26,997,022 26,660,952
General Partners (145,143) 11,271
Net unrealized fair value increase
(decrease) from cost:
Equity investments 6,862,966 10,510,950
Secured notes receivable -- (309,000)
---------- ----------
Total partners' capital 33,714,845 36,874,173
---------- ----------
Total $33,890,281 41,388,167
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Notes receivable
interest $ 38,839 64,456 265,500
Short-term investment
interest 436,976 343,836 54,218
Other notes receivable
income 46,900 62,500 160,458
------- ------- -------
Total income 522,715 470,792 480,176
Costs and expenses:
Management fees 412,622 362,568 341,573
Individual General
Partners' compensation 30,806 33,547 42,000
Operating expenses:
Administrative and
investor services 412,656 1,081,782 402,318
Investment operations 309,143 209,642 335,167
Computer services 134,514 84,074 97,244
Professional fees 79,949 57,155 74,061
Interest expense -- -- 26,794
--------- --------- ---------
Total operating
expenses 936,262 1,432,653 935,584
--------- --------- ---------
Total costs and expenses 1,379,690 1,828,768 1,319,157
--------- --------- ---------
Net operating loss (856,975) (1,357,976) (838,981)
Net realized gain
from venture
capital limited
partnership investments 814,400 1,358,424 --
Net realized gain from
sales of equity
investments 3,414,575 8,337,512 3,895,971
Realized losses from
investment write-downs (3,041,310) (399,427) (832,114)
Recovery from investments
previously written off 8,775 62,231 100,000
--------- --------- ---------
Net realized income 339,465 8,000,764 2,324,876
Change in net unrealized
fair value:
Equity investments (3,647,984) 398,770 (4,240,635)
Secured notes receivable 309,000 (309,000) 136,000
--------- --------- ---------
Net (loss) income $(2,999,519) 8,090,534 (1,779,759)
========= ========= =========
Net realized income
per Unit $ 2 50 14
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
<TABLE>
<CAPTION>
For the years ended December 31, 1996, 1995 and 1994:
Net Unrealized Fair Value
Increase (Decrease) From Cost
-----------------------------
Limited General Equity Secured Notes
Partners Partners Investments Receivable Total
-------- -------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C>
Partners' capital,
December 31, 1993 $21,633,959 (49,036) 14,352,815 (136,000) 35,801,738
Distributions (1,640,000) (33,084) -- -- (1,673,084)
Net realized income 2,275,840 49,036 -- -- 2,324,876
Change in net unrealized
fair value:
Equity investments -- -- (4,240,635) -- (4,240,635)
Secured notes receivable -- -- -- 136,000 136,000
---------- --------- ---------- ------- ----------
Partners' capital,
December 31, 1994 22,269,799 (33,084) 10,112,180 -- 32,348,895
Distributions (3,529,603) (35,653) -- -- (3,565,256)
Net realized income 7,920,756 80,008 -- -- 8,000,764
Change in net unrealized
fair value:
Equity investments -- -- 398,770 -- 398,770
Secured notes receivable -- -- -- (309,000) (309,000)
---------- --------- ---------- ------- ----------
Partners' capital,
December 31, 1995 26,660,952 11,271 10,510,950 (309,000) 36,874,173
Distributions -- (159,809) -- -- (159,809)
Net realized income 336,070 3,395 -- -- 339,465
Change in net unrealized
fair value:
Equity investments -- -- (3,647,984) -- (3,647,984)
Secured notes receivable -- -- -- 309,000 309,000
---------- --------- ---------- ------- ----------
Partners' capital,
December 31, 1996 $26,997,022 (145,143) 6,862,966 -- 33,714,845
========== ========= ========== ======= ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
For The Years Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Interest and other
income received $ 456,029 401,156 576,905
Cash paid to vendors (189,412) (127,482) (203,394)
Cash paid to related
parties (1,956,180) (871,924) (1,065,169)
Interest paid on short-
term borrowings -- -- (26,794)
---------- ---------- ---------
Net cash used by
operating activities (1,689,563) (598,250) (718,452)
---------- ---------- ---------
Cash flows from investing
activities:
Secured notes receivable
issued (678,030) (533,334) (902,438)
Purchase of equity
investments (7,528,174) (2,333,499) (2,613,341)
Repayments of convertible
and secured notes
receivable 62,500 125,000 2,923,536
Proceeds from sales of
equity investments 5,600,091 12,840,558 5,226,691
Recovery of investments
previously written off 170 16,983 100,000
Distributions from
venture capital
limited partnerships 507,908 713,302 85,043
---------- ---------- ---------
Net cash (used)
provided by investing
activities (2,035,535) 10,829,010 4,819,491
---------- ---------- ---------
Cash flows from financing
activities:
Distributions to Limited
and General Partners (3,565,256) (1,673,084) --
Repayments of
short-term
borrowings, net -- -- (125,000)
---------- ---------- ---------
Net cash used by
financing activities (3,565,256) (1,673,084) (125,000)
---------- ---------- ---------
Net (decrease) increase in
cash and cash equivalents (7,290,354) 8,557,676 3,976,039
Cash and cash equivalents
at beginning of year 12,607,605 4,049,929 73,890
---------- ---------- ---------
Cash and cash equivalents
at end of year $ 5,317,251 12,607,605 4,049,929
========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net (loss)
income to net cash
used by operating
activities:
Net (loss) income $(2,999,519) 8,090,534 (1,779,759)
Adjustments to reconcile
net (loss) income to
net cash used by
operating activities:
Net realized gain
from venture capital
limited partnership
investments (814,400) (1,358,424) --
Net realized gain from
sales of equity
investments (3,414,575) (8,337,512) (3,895,971)
Realized losses from
investment write-downs 3,041,310 399,427 832,114
Recovery from investments
previously written off (8,775) (62,231) (100,000)
Change in net unrealized
fair value:
Equity investments 3,647,984 (398,770) 4,240,635
Secured notes
receivable (309,000) 309,000 (136,000)
Other, net -- -- (20,872)
Changes in:
Accrued interest on
convertible and secured
notes receivable (35,436) (7,136) 23,851
Accounts payable and
accrued expenses 9,423 539 261
Due to/from related
parties (761,162) 806,107 12,849
Deferred income (31,250) (62,500) 93,750
Other, net (14,163) 22,716 10,690
--------- --------- ---------
Net cash used by operating
activities $(1,689,563) (598,250) (718,452)
========= ========= =========
Non-cash investing activities:
Non-cash exercise of warrants $ 328,985 -- 156,494
========= ========= =========
Reclassification of secured
notes to equity investments
(subordinated notes
receivable) $ 705,000 -- --
========= ========= =========
Common stock recovered from
equity investment previously
written off $ -- 45,248 --
========= ========= =========
Stock distributions to
General Partners (See
Note 3) $ 159,809 -- --
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Organization
- ------------
Technology Funding Partners III, L.P., (the "Partnership") is a limited
partnership organized under the laws of the State of Delaware on
December 4, 1986, to make venture capital investments in new and
developing 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 generally
three Individual General Partners; one Individual General Partner had
withdrawn from his position and a successor was designated on January
1, 1997.
For the period from December 5, 1986, through March 25, 1987, the
Partnership was inactive. The Partnership filed a registration
statement with the Securities and Exchange Commission on March 25,
1987, and commenced selling units of limited partnership interest
("Units") in April, 1987. On June 2, 1987, the minimum number of Units
required to commence Partnership operations (6,000) had been sold. The
offering terminated with 160,000 Units sold on February 3, 1989. The
Partnership was scheduled to be dissolved on December 31, 1996, but the
term was extended for a two-year period to December 31, 1998, pursuant
to unanimous approval by the Management Committee on September 13,
1996. The Partnership's term may be further extended with a proposed
amendment by the General Partners and a majority in interest approval
by the Limited Partners.
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 principals.
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 included marketable and non-marketable
investments of $28,511,247 and $28,778,704 (85% and 78% 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
money market instruments and commercial paper and are stated at cost
plus accrued interest. The Partnership considers all money market and
short-term investments with an original maturity of three months or
less to be cash equivalents.
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.
Since the accompanying financial statements are prepared using
generally accepted accounting principles which may not equate to tax
accounting, the Partnership's total tax basis in investments was lower
than the reported total cost basis of $21,648,281 by $264,680 as of
December 31, 1996.
Net Realized Income (Loss) Per Unit
- -----------------------------------
Net realized income (loss) per Unit is calculated by dividing the
number of Units outstanding (160,000) at December 31, 1996, 1995, and
1994 into total net realized income (loss) allocated to Limited
Partners. The Managing General Partners contributed an amount equal to
0.1% of total Limited Partner capital contributions and did not receive
any Partnership Units.
Investments:
- -----------
In accordance with generally accepted accounting principles, the
Partnership's method of accounting for investments is the fair value
basis used for investment companies. The fair value of Partnership
investments is their initial cost basis with changes as noted below:
Equity Investments
------------------
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 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 determined 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 gain (loss) from venture capital limited
partnership investments" on the Statements of Operations.
Secured Notes Receivable, Net
-----------------------------
The secured notes receivable portfolio includes accrued interest less
the discount related to warrants and the allowance for loan losses.
The portfolio approximates fair value through inclusion of an allowance
for loan losses. Allowance for loan losses is reviewed quarterly by
the Managing General Partners and is adjusted to a level deemed
adequate to cover possible losses inherent in notes and unfunded
commitments. Notes receivable are placed on nonaccrual status when, in
the opinion of the Managing General Partners, the future collectibility
of interest or principal is in doubt.
In conjunction with the secured notes issued to portfolio companies,
the Partnership has received warrants to purchase certain shares of
capital stock of the borrowing companies. The cost basis of the
warrants and the resulting discount has been estimated by the Managing
General Partners to be 1% of the principal balance of the original
notes made to the borrowing companies. The discount is amortized to
interest income on a straight-line basis over the term of the loan.
Warrants received in conjunction with convertible notes are not
assigned any additional costs. These warrants are included in the
equity investment portfolio.
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 realized gains of $328,985 and $156,494 for 1996
and 1994, respectively, as a result of the underlying stock prices at
the date of exercise. These amounts are included in net realized gain
from sales of equity investments. During 1995, 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 includes a line item entitled "Change in net
unrealized fair value of equity investments." The table below
discloses details of the changes:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Increase in fair value
from cost of marketable
equity securities $ 4,890,039 9,664,198 7,636,254
Increase in fair value from
cost of non-marketable
equity securities 1,972,927 846,752 2,475,926
---------- ---------- ----------
Net unrealized fair
value increase from
cost at end of year 6,862,966 10,510,950 10,112,180
Net unrealized fair
value increase from
cost at beginning of
year 10,510,950 10,112,180 14,352,815
---------- ---------- ----------
Change in net unrealized
fair value of equity
investments $(3,647,984) 398,770 (4,240,635)
========== ========== ==========
</TABLE>
3. Related Party Transactions
--------------------------
Included in costs and expenses are related party costs as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Management fees $ 412,622 362,568 341,573
Individual General
Partners' compensation 30,806 33,547 42,000
Reimbursable operating
expenses:
Administrative and
investor services 325,581 1,001,191 271,815
Investment operations 291,495 196,651 325,386
Computer services 134,514 84,074 97,244
</TABLE>
Management fees are equal to one quarter of one percent of the fair
value of Partnership assets for each quarter. 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. The management fees are payable monthly in
arrears. Amounts due to related parties for management fees were
$32,019 and $33,446 at December 31, 1996 and 1995, respectively.
As compensation for their services, each of the Individual General
Partners receives $10,000 annually plus $1,000 and related expenses for
each management committee meeting attended. The Individual General
Partners each own 8 Units; at December 31, 1995, one of the three
Individual General Partners had withdrawn from his position and his
Units were transferred to his successor, who was appointed on January
1, 1997.
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 and General Partner Overhead) such as
investment operations, administrative and investor services 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 $798,859,
which was not previously recognized by the Partnership. This charge
consisted of $69,451, $75,365 and $654,043 relating to 1995, 1994 and
prior years, respectively. If this charge had been recorded in prior
years, total operating expenses would have been $703,245 and $1,010,949
for 1995 and 1994, respectively, compared to $936,263 in 1996. The
increase of $233,018 between 1996 and 1995 was mostly due to higher
investment operations and administrative and investor services expenses
from higher overall portfolio activities. There were $57,498 and
$817,233 of such expenses payable at December 31, 1996 and 1995,
respectively.
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.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of
portfolio companies. It is the Managing General Partners' policy that
all such compensation be transferred to the investing partnerships. If
the options are non-transferable, they are not recorded as an asset of
the Partnership. Any profit from the exercise of such options will be
transferred if and when the options are exercised and the underlying
stock is sold by the officers. At December 31, 1996, the Partnership
had an indirect interest in non-transferable options, worth
approximately $315, in PolyMedica Industries, Inc., Conversion
Technologies International, Inc., and Electronic Designs, Inc.
In September of 1996, the Partnership made a tax distribution of 29,269
Theramatrix, Inc., common shares to the General Partners; the shares
had a fair value of $159,809 resulting in a realized gain of $6,147.
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 until such deficits have been eliminated; then
(ii) Second, to the partners as necessary to offset net loss
previously allocated under (b)(ii) below and sales
commissions; then
(iii)Third, 75% to the Limited Partners as a group in proportion
to the number of Units held, 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 the net
profit previously allocated to the partners under (a)(iii)
above; then
(ii) 99% to the Limited Partners 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.
Losses from unaffiliated venture capital limited partnership
investments are allocated pursuant to section (b) above. 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.
In no event are the Managing General Partners allocated less than 1% of
the net realized profit or loss of the Partnership.
Given the inherent risk associated with the business of the
Partnership, the future performance of portfolio company investments
may significantly impact future operations.
5. Equity Investments
- ------------------
At December 31, 1996 and 1995, equity investments consisted of:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Principal ------------------ -----------------
Investment Amount or Cost Fair Cost Fair
Industry/Company Position Date Shares Basis Value Basis Value
- ---------------- -------- ---- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Communications
- --------------
Coded Common
Communications shares
Corporation 04/93 72,727 $ -- -- 74,909 72,000
NetChannel, Series B
Inc. Preferred
shares 10/96 295,454 321,749 321,749 -- --
NetChannel, Series B
Inc. Preferred
share
warrant at
$1.10;
expiring
10/99 10/96 295,454 3,250 3,250 -- --
P-Com, Inc. Common
shares 11/95 8,672 -- -- 155,012 172,139
Wire Networks, Series A
Inc. Preferred
shares 02/96 159,300 215,055 215,055 -- --
Wire Networks, Series B
Inc. Preferred
shares 02/96 194,642 437,945 437,945 -- --
Wire Networks, Convertible
Inc. note (1) 11/96 $ 206,795 208,691 208,691 -- --
Computers and Computer Equipment
- --------------------------------
Electronic Common
Designs, Inc. shares
(formerly
Crystallume) 03/94 348,611 2,189,411 980,386 2,189,411 1,098,631
Electronic Series A
Designs, Inc. Preferred
(formerly shares
Crystallume) 05/95 50 -- -- 40,000 40,000
Electronic Common
Designs, Inc. shares
(formerly
Crystallume) 05/95 5,000 10,000 17,190 10,000 14,063
Electronic Common
Designs, Inc. share
(formerly warrant
Crystallume) at $3.25;
expiring
05/98 05/95 5,000 0 705 0 1,875
Electronic Common
Designs, Inc. shares
(formerly
Crystallume) 08/95 30,000 114,006 103,140 114,006 84,375
Electronic Common
Designs, Inc. share
(formerly warrants
Crystallume) at $2.00;
expiring
08/98 08/95 30,000 0 32,355 0 39,375
Electronic Common
Designs, Inc. shares
(formerly
Crystallume) 10/95 241,866 604,667 831,535 604,667 680,248
Electronic Common
Designs, Inc. Shares
(formerly
Crystallume) 11/96 20,000 40,000 68,760 -- --
Computer Systems and Software
- -----------------------------
Geoworks Common
shares 08/92 36,883 -- -- 196,708 691,556
Geoworks Common
shares 03/94 38,415 179,267 970,939 179,267 720,281
Geoworks Common
shares 06/94 111,695 420,853 2,823,091 917,777 4,215,225
Geoworks Common
shares 07/96 10,000 200,000 252,750 -- --
Geoworks Common
shares 09/96 15,000 298,125 379,125 -- --
Informix Software, Common
Inc. shares 03/96 1,095 36,956 23,077 -- --
Photon Dynamics Common
shares 07/96 50,000 300,000 413,750 -- --
Velocity Series A
Incorporated Preferred
shares 10/94 6,286,325 -- -- 1,034,337 1,034,337
Velocity Common
Incorporated share
warrant
at $1.00;
expiring
03/00 03/95 12,500 0 0 0 0
Velocity Subordinated 08/95-
Incorporated notes (1) 10/95 $125,000 0 0 125,000 125,000
Velocity Subordinated 11/95-
Incorporated notes (1) 09/96 $1,371,400 0 0 -- --
Electronic Design Automation
- ----------------------------
Cadence Design Common
Systems, Inc. shares 07/96 12,000 313,439 465,301 -- --
Synopsys, Inc. Common
shares 07/96 7,000 238,569 313,600 -- --
Environmental
- -------------
Conversion Series A
Technologies Preferred
International, shares
Inc. 05/95 200,000 -- -- 500,000 500,000
Conversion Series A
Technologies Preferred
International, share
Inc. warrant at
$3.00;
expiring
05/00 05/95 27,656 -- -- 0 0
Conversion Common share
Technologies warrant at
International, $4.00;
Inc. expiring
12/98 12/95 31,250 -- -- 0 0
Conversion Convertible
Technologies note (1)
International, 09/95-
Inc. 11/95 $62,500 -- -- 63,338 63,338
Conversion Common
Technologies shares
International,
Inc. 05/96 69,180 500,000 119,024 -- --
Conversion Class A
Technologies warrant
International, at $5.85;
Inc. expiring
05/01 05/96 31,250 0 0 -- --
Conversion Common share
Technologies warrant
International, at $5.28;
Inc. expiring
05/00
17,293
in total
fully vested
in 01/98 05/96 12,727 0 0 -- --
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 11/96 110,102 220,204 220,204 -- --
Thermatrix, Inc. Common
shares 06/96 65,970 346,338 394,484 -- --
Industrial/Business Automation
- ------------------------------
Nanodyne, Inc. Series B
Preferred
shares 07/93 228,571 500,000 500,000 500,000 500,000
Nanodyne, Inc. Series B
Preferred
shares 01/94 37,264 81,515 81,515 81,515 81,515
Nanodyne, Inc. Series B
Preferred
shares 04/95 42,126 92,150 92,150 92,150 92,150
Medical/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 05/96 163,551 350,000 350,000 -- --
Affymetrix, Inc. Common
shares 07/96 20,000 225,000 401,760 -- --
Biex, Inc. Series A
Preferred
shares 07/93 128,205 83,333 192,308 83,333 128,205
Biex, Inc. Series B
Preferred
shares 10/94 63,907 63,907 95,861 63,907 63,907
Biex, Inc. Series B
Preferred
share warrant
at $1.00;
expiring
10/99 10/94 23,540 8 11,770 8 0
Biex, Inc. Series C
Preferred
shares 06/95 83,334 83,334 125,001 83,334 83,334
Biex, Inc. Series C
Preferred
shares 12/95 83,333 83,333 125,000 83,333 83,333
Biex, Inc. Series C
Preferred
shares 04/96 83,333 83,333 125,000 -- --
Biex, Inc. Series D
Preferred
shares 08/96 111,115 166,673 166,673 -- --
CardioTech Common
International, shares
Inc. 06/96 201,713 410,197 423,597 -- --
CareCentric Series A
Solutions, Inc. Preferred
shares 10/95 100,000 150,000 170,000 150,000 150,000
CareCentric Series B
Solutions, Inc. Preferred
shares 09/96 166,323 282,749 282,749 -- --
CV Therapeutics Series D
Inc. Preferred
shares 03/94 125,000 -- -- 250,000 250,000
CV Therapeutics, Series E
Inc. Preferred
shares 09/95 57,600 -- -- 114,048 114,048
CV Therapeutics, Series E
Inc. Preferred
share warrant
at $2.00;
expiring
09/00 09/95 28,800 -- -- 1,152 1,152
CV Therapeutics, Common
Inc. share
warrant
at $20.00;
expiring
09/00 11/96 2,880 1,152 0 -- --
CV Therapeutics, Common
Inc. shares 11/96 33,724 508,819 155,160 -- --
Endocare, Inc. Common
shares 08/96 7,500 22,500 18,090 -- --
Endocare, Inc. Common
share
warrant
at $3.00;
expiring
08/01 08/96 112,500 0 45,225 -- --
Endocare, Inc. Convertible
note (1) 08/96 $ 562,500 594,500 594,500 -- --
EndoVascular Common
Technologies,Inc. shares 12/96 462 4,216 4,331 -- --
Graham-Field Common
Health Products, shares
Inc. (formerly
Everest &
Jennings
International,
Ltd.) 01/94 592,721 -- -- 637,520 325,997
Gilead Sciences, Common
Inc. shares 07/96 20,000 347,500 508,500 -- --
Integra Common
LifeSciences shares
Corporation 08/95 1,811 -- -- 15,665 11,772
Lifecell Common
Corporation shares 02/92 242,623 974,824 749,221 981,891 591,839
Lifecell Redeemable
Corporation Series A
Preferred
shares 11/94 12,500 220,785 220,785 236,146 236,146
Lifecell Common
Corporation share
warrant
at $3.54;
exercised
08/96 11/94 12,500 -- -- 0 0
Lifecell Common
Corporation shares 11/95 4,906 13,854 15,150 13,854 11,480
Lifecell Common
Corporation shares 08/96 12,500 38,750 38,600 -- --
Lifecell Common
Corporation shares 12/96 5,818 15,361 17,966 -- --
Matrix Common
Pharmaceuticals, shares (2)
Inc. 01/92 319,728 800,001 1,878,402 800,001 5,876,601
Matrix Common
Pharmaceuticals, shares (2)
Inc. 01/95 1,905 438 11,192 438 35,014
Matrix
Pharmaceuticals, Common
Inc. shares 09/96 133,000 998,476 781,375 -- --
Metra Biosystems, Common
Inc. shares 12/95 9,697 -- -- 162,425 173,382
Molecular Series B
Geriatrics Preferred
Corporation shares 09/93 250,000 -- -- 125,000 125,000
Molecular Common
Geriatrics shares
Corporation 01/96 23,585 125,000 47,170 -- --
Neurex Common
Corporation shares 09/96 3,379 70,959 53,304 -- --
Oxford Glyco- Common
Systems Group PLC shares 08/93 266,934 499,963 232,233 499,963 213,547
Pharmadigm Series A
Biosciences, Inc. Preferred
(formerly shares
Paradigm
Biosciences, Inc.) 04/93 161,290 198,000 322,580 198,000 198,000
Pharmadigm Series A
Biosciences, Inc. Preferred
(formerly shares
Paradigm
Biosciences, Inc.) 12/94 107,526 135,332 215,052 135,332 135,332
Pharmadigm Convertible
Biosciences, Inc. note (1)
(formerly
Paradigm
Biosciences, Inc.) 10/95 $51,250 -- -- 52,272 52,272
Pharmadigm Series B
Biosciences, Inc. Preferred
(formerly share
Paradigm warrant
Biosciences, at $2.50;
Inc.) expiring
10/00 10/95 5,125 0 0 0 0
Pharmadigm Series B
Biosciences, Inc. Preferred
(formerly share
Paradigm warrant
Biosciences, at $2.00;
Inc.) expiring
02/01 02/96 5,416 0 0 -- --
Pharmadigm Series B
Biosciences, Inc. Preferred
(formerly shares 05/96 68,889 137,779 137,779 -- --
Paradigm
Biosciences, Inc.)
Pharmos Common 04/95 &
Corporation shares 11/95 60,331 45,248 85,790 45,248 88,083
PHERIN Corporation Series B
Preferred
shares 08/91 200,000 200,000 400,000 200,000 200,000
PolyMedica Common
Industries, Inc. shares 03/92 411,800 1,168,705 1,539,308 1,673,904 2,590,737
Sensor Common
Medics share
Corporation warrant
at $3.60;
exercised
06/96 05/90 134,722 -- -- 15,000 15,000
Spectrascan Class A
Health Preferred
Services, Inc. shares 12/94 75,000 225,000 225,000 225,000 225,000
Spectrascan Class B
Health Preferred
Services, Inc. shares 12/94 31,404 94,211 94,211 94,211 94,211
Spectrascan Class C
Health Preferred
Services, Inc. shares 12/94 42,035 906,991 1,063,906 906,991 1,063,906
Spectrascan Class A
Health Common
Services, Inc. shares 12/94 12,611 0 37,833 0 37,833
SyStemix, Common
Inc. shares 08/91 57,585 386,511 880,878 415,957 957,467
SyStemix, Common
Inc. shares 01/92 3,514 -- -- 91,396 77,466
SyStemix, Common
Inc. shares 09/96 340 5,333 5,201 -- --
Systemix Common
Inc. shares 10/96 3,335 53,431 51,015 -- --
TheraTx, Inc. Common
shares (2) 06/94 60,000 90,000 654,180 105,064 867,132
Thermo Electron Common
Corporation shares 06/96 26,318 351,482 961,552 -- --
Retail/Consumer Products
- ------------------------
Bridgestone Series A
Management Preferred
Group, Inc. shares 05/94 16,259 0 0 0 0
PETsMART, Inc. Common
shares 12/95 324 -- -- 10,368 9,817
YES! Common
Entertainment shares
Corporation 06/95 33,333 99,999 167,823 99,999 162,748
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Alta IV, L.P. Ltd.
Partnership
interests various $1,000,000 146,698 351,656 146,698 320,846
Batterson, Ltd.
Johnson, and Partnership
Wang L.P. interests various $500,000 281,873 385,726 283,389 289,257
Columbine Ltd.
Venture Fund II, Partnership
L.P. interests various $750,000 653,769 835,375 653,769 543,787
Delphi Ltd.
Ventures, L.P. Partnership
interests various $1,000,000 652,842 744,938 652,842 909,699
Medical Science Ltd.
Partners, L.P. Partnership
interests various $500,000 366,266 702,126 437,225 601,028
OW & W Pacrim Ltd.
Investments Partnership
Limited interests various $125,000 125,000 125,000 125,000 123,803
Trinity Ventures Ltd.
IV, L.P. Partnership
interests various $101,569 7,656 46,124 70,640 65,081
---------- ---------- ---------- ----------
Total equity investments $21,648,281 28,511,247 18,043,420 28,554,370
========== ========== ========== ==========
- -- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(1) Convertible and subordinated notes include accrued interest.
Interest rates on convertible and subordinated notes ranged from 8% to 16%.
(2) Common stockholders have a right to purchase one Preferred share for each share of common
stock held, subject to certain conditions.
</TABLE>
Marketable Equity Securities
- ----------------------------
At December 31, 1996 and 1995, marketable equity securities had
aggregate costs of $11,534,692 and $8,296,440, respectively, and
aggregate fair values of $16,424,731 and $17,960,638, respectively.
The net unrealized gains at December 31, 1996 and 1995, included gross
gains of $7,523,038 and $11,735,816, respectively.
Acusphere, Inc.
- ---------------
In May of 1996, the Partnership made an additional investment in the
company by purchasing 163,551 Series C Preferred shares for $350,000.
The pricing of this round, in which third parties participated,
indicated an increase in the change in fair value of $67,500 for the
Partnership's existing investment.
Affymetrix, Inc.
- ----------------
In July of 1996, the Partnership purchased 20,000 Affymetrix, Inc.,
common shares for $225,000 and recorded an increase in fair value of
$176,760 at December 31, 1996, to reflect the change in market value
of the unrestricted shares.
Subsequent to year end, the Partnership sold its entire investment in
the company for total proceeds of $577,500 and a realized gain of
$352,500.
Biex, Inc.
- ----------
In April of 1996, the Partnership purchased an additional 83,333
Series C Preferred shares for $83,333. Then in August of 1996, the
Partnership purchased 111,115 Series D Preferred shares for $166,673.
The pricing of the Series D financing round, in which third parties
participated, indicated an increase in the change in fair value of
$232,828 for the Partnership's existing investments.
Cadence Design Systems, Inc.
- ----------------------------
In July of 1996, the Partnership purchased 12,000 common shares of
Cadence Design Systems, Inc., for $313,439 and recorded an increase in
the change in fair value of $151,862 at December 31, 1996, to reflect
the change in market value of the unrestricted shares.
CardioTech International, Inc.
- ------------------------------
In June of 1996, PolyMedica Industries, Inc., ("PolyMedica") declared
a stock distribution and the Partnership received 201,713 common
shares of CardioTech International, Inc. The Partnership allocated
$410,197 of PolyMedica cost basis to these shares and recorded a fair
value of $423,597 at December 31, 1996, to reflect the change in
market value of the unrestricted shares.
CareCentric Solutions, Inc.
- ---------------------------
In September of 1996, the Partnership made an additional investment in
the company by purchasing 166,323 Series B Preferred shares for
$282,749. The pricing of this round, in which third parties
participated, indicated an increase in fair value of $20,000 for the
Partnership's existing investment.
Coded Communications Corporation
- --------------------------------
During the first quarter of 1996, the Managing General Partners
determined that there had been an other than temporary decline in
value of the Partnership's investment. As a result, the Partnership
wrote down its investment by $38,546. In December of 1996, the
Partnership sold its holdings for $28,290 and realized a loss on sale
of $8,073.
Conversion Technologies International, Inc.
- -------------------------------------------
In May of 1996, the company completed its initial public offering
("IPO"). Prior to the IPO, the company effected a reverse stock split
resulting in the Partnership's Series A Preferred shares, Series A
Preferred warrant and common share warrant being converted into 69,180
common shares, a warrant to purchase 17,293 common shares, and a
warrant to purchase 31,250 Class A preferred shares, respectively.
The convertible note with a principal balance of $62,500 including
accrued interest was repaid in full. At December 31, 1996, the
Partnership recorded a decrease in the change in fair value of
$380,976 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.
CV Therapeutics, Inc.
- ---------------------
In March of 1996, the Partnership made an additional investment in the
company by purchasing 76,134 Series G Preferred shares and a warrant
for 114,201 common shares for a total cost of $152,268.
Then in November of 1996, the company completed its IPO. Prior to the
IPO, the company effected a reverse stock split resulting in the
Partnership's Preferred shares being converted into 25,873 common
shares. In addition, the Partnership exercised its common share
warrant mentioned above without cash and received 7,851 shares of
common stock and realized a loss of $7,497. The Partnership's Series
E Preferred share warrant was also converted into a common share
warrant.
At December 31, 1996, the Partnership recorded a decrease in the
change in the fair value of $354,811 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.
Electronic Designs, Inc. (formerly Crystallume)
- -----------------------------------------------
In November of 1996, the Partnership converted its Series A Preferred
shares to 20,000 common shares. At December 31, 1996, the Partnership
recorded an increase in the change in fair value of $75,504 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 convertible notes of
$562,500 to the company and received a warrant to purchase 112,500
common shares. The Partnership also received 7,500 common shares as
payment for loan processing fees. At December 31, 1996, the
Partnership recorded an increase in the change in fair value of
$40,815 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.
Geoworks
- --------
During the first quarter of 1996, the Partnership sold 150,000 common
shares of Geoworks for total proceeds of $3,813,125 and realized a
gain of $3,119,493.
During the third quarter of 1996, the Partnership purchased an
additional 25,000 Geoworks common shares for $498,125.
The Partnership recorded a decrease in the change in fair value of
$1,005,650. The decrease included a decrease of $2,118,868 due to the
sale mentioned above, partially offset by an increase in market price
at December 31, 1996, for its remaining, unrestricted shares.
Subsequent to year end, the Partnership sold 110,000 shares for total
proceeds of $2,737,410 and a realized gain of $2,028,966 and then
purchased 50,000 common shares for $956,250.
Gilead Sciences, Inc.
- --------------------
In July of 1996, the Partnership purchased 20,000 Gilead Sciences,
Inc., common shares for $347,500 and recorded an increase in the
change in fair value of $161,000 at December 31, 1996, to reflect the
change in market value of the unrestricted shares.
Subsequent to year end, the Partnership sold its entire investment in
the company for total proceeds of $622,500 and a realized gain of
$275,000.
Graham-Field Health Products, Inc. (formerly Everest & Jennings
- ---------------------------------------------------------------
International, Ltd.)
- --------------------
In November of 1996, Everest & Jennings International, Ltd. (E&J) was
acquired by Graham-Field Health Products, Inc. (GFI). The
Partnership's 592,721 E&J common shares were converted into 20,745
common shares of GFI. These shares were then sold in December of 1996
for total proceeds of $179,225 and resulted in a realized loss of
$458,295. $58,575 of the sales price was an unsettled trade at
December 31, 1996, and was included in "Other Assets" on the Balance
Sheet.
Lifecell Corporation
- --------------------
In August of 1996, the Partnership sold 10,300 common shares for
$38,947 and realized a gain of $31,880. In addition, the Partnership
cash exercised its warrant for $38,750 and received 12,500 common
shares. Then in December of 1996, the Partnership received a stock
dividend of 5,818 common shares relating to the Series A Preferred
share investment from which a cost of $15,361 was allocated.
At December 31, 1996, the Partnership recorded an increase in the
change in fair value of $170,574 to reflect the change in market value
of the unrestricted shares.
Matrix Pharmaceuticals, Inc.
- ----------------------------
In September of 1996, the Partnership purchased an additional 133,000
common shares for $998,476. The Partnership also recorded a decrease
in the change in fair value of $4,239,122 at December 31, 1996, to
reflect the change in market value of the unrestricted shares.
Metra Biosystems, Inc.
- ----------------------
In July of 1996, the Partnership sold its entire investment in the
company for total proceeds of $49,175 and realized a loss of $113,250.
Molecular Geriatrics Corporation
- --------------------------------
In January of 1996, the company converted its Series B Preferred
shares into common shares and then effected a reverse stock split.
Consequently, the Partnership's Series B investment became 23,585
common shares.
In June of 1996, the company completed a Series C Preferred round of
financing in which the Partnership did not participate. The lower
pricing of this round indicated that the fair value of the
Partnership's investment had declined by $77,830.
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 110,102 Series B
Preferred shares with $213,750 in cash and by converting the note
discussed above, including accrued interest of $204, for a total cost
of $220,204. The pricing of this round, in which third parties
participated, indicated an increase in the change in fair value of
$75,000 for the Partnership's existing investment.
NetChannel, Inc.
- ----------------
In October of 1996, the Partnership invested in the company by
purchasing 295,454 Series B Preferred shares and a warrant to purchase
295,454 Series B Preferred shares for $324,999.
Oxford GlycoSystems Group PLC
- -----------------------------
During the first quarter of 1996, the company had a private placement
of common shares in which the Partnership did not participate. The
pricing of this round indicated a fair value increase of $18,686 for
the Partnership's investment.
P-Com, Inc.
- -----------
During the first quarter of 1996, the Partnership sold all of its
investment in the company for total proceeds of $165,852 resulting in
a realized gain of $10,840.
PETsMART, Inc.
- --------------
In May of 1996, the Partnership sold its entire investment in the
company for total proceeds of $13,527 and realized a gain of $3,159.
Pharmadigm Biosciences, Inc. (formerly Paradigm Biosciences, Inc.)
- ------------------------------------------------------------------
In February of 1996, the Partnership issued $43,334 in convertible
notes to the company and received a warrant to purchase 5,416 Series B
Preferred shares at $2.00 per share.
In May of 1996, the Partnership purchased 68,889 Series B Preferred
shares with $40,000 in cash and by converting two notes totaling
$94,584 including accrued interest of $3,195 for a total cost of
$137,779. The pricing of this financing round, in which third parties
participated, indicated an increase in the change in fair value of
$204,300 for the Partnership's existing investment.
PHERIN Corporation
- ------------------
The Partnership recorded an increase in fair value of $200,000, based
on the valuation set at a prior round of financing in which third
parties participated.
Photon Dynamics
- ---------------
In July of 1996, the Partnership purchased 50,000 common shares of
Photon Dynamics for $300,000; an increase of $113,750 in the change in
fair value was recorded at December 31, 1996, to reflect the change in
market value of the unrestricted shares.
PolyMedica Industries, Inc.
- ---------------------------
During the first half of 1996, the Partnership sold 26,565 common
shares of PolyMedica for total proceeds of $215,062 and realized a
gain of $120,060.
In June of 1996, the company declared a distribution of CardioTech
International, Inc., ("CardioTech") common stock. The Partnership
received 201,713 CardioTech common shares and allocated $410,197 of
PolyMedica cost basis to these shares.
At December 31, 1996, the Partnership recorded a decrease in fair
value of $1,051,429 to reflect the change in market value of the
remaining PolyMedica unrestricted shares. The net fair value decline,
when considered with the Cardiotech increase of $423,597, was
$627,832.
Subsequent to year end, the Partnership sold 42,700 common shares of
the company for total proceeds of $254,004 and a realized gain of
$132,822.
Synopsys, Inc.
- --------------
In July of 1996, the Partnership purchased 7,000 common shares of
Synopsys, Inc., for $238,569 and recorded an increase in the change in
fair value of $75,031 at December 31, 1996, to reflect the change in
market value of the unrestricted shares.
Subsequent to year end, the Partnership purchased 21,000 common shares
for $840,008 and sold 14,000 shares for total proceeds of $629,975 and
a realized gain of $111,402.
SyStemix, Inc.
- --------------
During 1996, the Partnership sold 9,401 common shares of SyStemix,
Inc., for total proceeds of $166,484 and a realized gain of $45,642.
The Partnership also purchased an additional 3,675 common shares for
$58,764. The Partnership recorded a decrease in fair value of $97,839
at December 31, 1996, mainly due to the sale mentioned above.
Subsequent to year end, the Partnership sold its entire investment in
the company for total proceeds of $1,178,532 and a realized gain of
$733,257.
TheraTx, Inc.
- -------------
In August of 1996, the Partnership sold 30,273 common shares of
TheraTx, Inc., for total proceeds of $529,777 and realized a gain of
$225,086. This gain included the sale of 20,230 TheraTx common
shares, which was a distribution in February of 1996 from a venture
capital limited partnership investment, for total proceeds of $354,025
and a gain of $64,398. At December 31, 1996, the Partnership recorded
a decrease in fair value of $212,952 mainly due to the sale mentioned
above.
Subsequent to year end the Partnership sold its entire investment in
the company for total proceeds of $997,499 and a realized gain of
$907,499.
Thermatrix, Inc.
- ----------------
In February of 1996, the Partnership made an investment in the company
by purchasing 200,000 Series D Preferred shares for $500,000.
In June of 1996, the company completed its IPO. The Partnership's
Series D Preferred shares were converted into 95,239 common shares
reflecting a reverse stock split.
Then in September of 1996, as disclosed in Note 3 to the financial
statements, the Partnership distributed 29,269 common shares to the
General Partners. At December 31, 1996, the Partnership recorded an
increase in the change in fair value of $48,146 to reflect the
publicly-traded market price of its remaining investments; the fair
value of which was adjusted to reflect a discount for restricted
securities.
Thermo Electron Corporation/Sensor Medics Corporation
- -----------------------------------------------------
In June of 1996, Thermo Electron Corporation ("Thermo") acquired
Sensor Medics Corporation ("Sensor"). Immediately prior to the
acquisition, the Partnership exercised its Sensor warrant without cash
and received 94,704 shares of Sensor common stock with a cost basis of
$351,482, which reflects a realized gain of $336,482 and a warrant
cost basis of $15,000. The Sensor common shares were in turn
exchanged for 26,318 shares of Thermo common stock. An increase in
the change in fair value of $610,070 reflected the publicly-traded
market value of Thermo stock at December 31, 1996; a portion of the
fair value was adjusted to reflect a discount for restricted
securities.
Velocity Incorporated
- ---------------------
In 1996, the Managing General Partners determined that there had been
an other than temporary decline in the value of the Partnership's
investments. A realized loss of $1,000,000 was recorded for the
Partnership's Preferred shares and $1,496,400 was recorded for
subordinated notes receivable of which $705,000 was reclassified from
secured notes receivable during 1996. In December of 1996, the
Partnership sold its Preferred stock investment for a nominal amount
and realized a loss on sale of $34,331.
Wire Networks, Inc.
- -------------------
In February of 1996, the Partnership invested in the company by
purchasing 159,300 Series A Preferred shares and 194,642 Series B
Preferred shares for $215,055 and $437,945, respectively.
Then in November of 1996, the Partnership also issued $206,795 in
convertible notes to the company.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership recorded a cost basis decrease of $135,459 in venture
capital limited partnership investments during the year ended December
31, 1996. The decrease was a result of returns of capital in the form
of stock and cash distributions of $145,075 and $6,010, respectively,
partially offset by additional contributions of $15,626. The
Partnership recorded a fair value increase of $337,444 as a result of
a net increase in the fair value of the underlying investments,
partially offset by cash and stock distributions from certain venture
capital limited partnership investments.
In 1996, the Partnership received common stock distributions of
Informix Software, Inc., Neurex Corporation, Forte Software, Inc., and
Endovascular Technologies, Inc., with fair values of $36,956, $70,959,
$32,944 and $4,216, respectively. These distributions represented
returns of capital.
During 1996, the Partnership also received cash distributions totaling
$501,898 and common stock distributions of TheraTx, Inc., and Oravax,
Inc., shares with fair values of $289,627 and $22,875, respectively;
these distributions were from profits and were recorded as realized
gains from venture capital limited partnership investments.
In 1996, the Partnership sold its positions in Oravax, Inc., and Forte
Software, Inc., for total proceeds of $60,766, and realized a net gain
of $4,947.
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. YES!
Entertainment Corporation and Pharmos Corporation are publicly traded
companies.
In July of 1996, the Partnership purchased 35,000 common shares of
Neurocrine Biosciences, Inc., for $241,875 which were subsequently
sold in October of 1996, for total proceeds of $383,750 and a realized
gain of $141,876.
6. Secured Notes Receivable, Net
-----------------------------
At December 31, 1996, there were no secured notes receivable.
At December 31, 1995, the secured notes receivable fair value was net
of an allowance for loan losses of $309,000, which was reversed in
1996, as notes were reclassified to equity investments in 1996. See
Note 5 for additional disclosure.
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1996 and 1995, consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand accounts $ 13,494 20,911
Money-market accounts 5,303,757 12,586,694
---------- ----------
Total $ 5,317,251 12,607,605
========== ==========
</TABLE>
8. Distributions Payable
---------------------
The Managing General Partners declared distributions ($22 per unit)
for Unit holders as of December 31, 1995, based upon Partnership
performance during 1995. The December 31, 1995, distributions payable
of $3,565,256 was paid to Limited and General Partners in late March,
1996. Unnegotiated distribution checks, if any, after a reasonable
amount of time are recorded as other liabilities on the Balance
Sheets.
9. 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 December 31, 1996, the Partnership had unfunded commitments as
follows:
<TABLE>
<CAPTION>
<S> <C>
Term notes $1,016,100
Equity investments 2,324,161
Venture capital limited partnership investments 23,431
---------
Total $3,363,692
=========
</TABLE>
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. All convertible and secured note commitments funded
require collateral specified in the agreements.
In 1995, the Partnership jointly guaranteed with two affiliated
partnerships, a $2,000,000 line of credit between a financial
institution and a portfolio company in the computer systems and
software industry, of which the Partnership's share was $500,000. In
October of 1996, the $2,000,000 guarantee was reduced to $1,000,000 as
the Partnership, together with an affiliated entity, assumed
$1,000,000 of the financial institution's line of credit; the
Partnership wrote off its share in 1996, realizing a loss of $506,364.
The Partnership remains a joint guarantor of the remaining $1,000,000.
<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: 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 March 21, 1997
- -------------------------- President of Technology
Gregory T. George Funding 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.
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FORM 10-K AS OF DECEMBER 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 21,648,281
<INVESTMENTS-AT-VALUE> 28,511,247
<RECEIVABLES> 0
<ASSETS-OTHER> 61,783
<OTHER-ITEMS-ASSETS> 5,317,251
<TOTAL-ASSETS> 33,890,281
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 175,436
<TOTAL-LIABILITIES> 175,436
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,851,879
<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> 6,862,966
<NET-ASSETS> 33,714,845
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 475,815
<OTHER-INCOME> 46,900
<EXPENSES-NET> (1,379,690)
<NET-INVESTMENT-INCOME> (856,975)
<REALIZED-GAINS-CURRENT> 1,196,440
<APPREC-INCREASE-CURRENT> (3,338,984)
<NET-CHANGE-FROM-OPS> (2,999,519)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (159,809)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,159,328)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 412,622
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,388,014
<AVERAGE-NET-ASSETS> 35,294,509
<PER-SHARE-NAV-BEGIN> 167
<PER-SHARE-NII> 2
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 169
<EXPENSE-RATIO> 3.9
<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>
