<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 quarterly period ended June 30, 1997
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)
June 30, December 31,
1997 1996
---------- -----------
<S> <C> <C>
ASSETS
Equity investments (cost basis
of $23,150,299 and $21,648,281 for
1997 and 1996, respectively) $25,865,282 28,511,247
Cash and cash equivalents 5,286,708 5,317,251
Other assets 4,456 61,783
---------- ----------
Total $31,156,446 33,890,281
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 42,443 58,301
Due to related parties 44,669 89,517
Other liabilities 52,619 27,618
---------- ----------
Total liabilities 139,731 175,436
Commitments and contingencies
(Notes 2 and 5)
Partners' capital:
Limited Partners
(Units outstanding of 160,000
in both 1997 and 1996) 28,123,202 26,997,022
General Partners 178,530 (145,143)
Net unrealized fair value increase
from cost of equity investments 2,714,983 6,862,966
---------- ----------
Total partners' capital 31,016,715 33,714,845
---------- ----------
Total $31,156,446 33,890,281
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------------ -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Notes receivable interest $ 8,721 1,310 42,792 4,739
Short-term investment interest 97,145 121,632 167,160 281,982
Other income 3,125 15,625 3,125 31,250
--------- --------- --------- ---------
Total income 108,991 138,567 213,077 317,971
Costs and expenses:
Management fees 85,509 105,721 170,235 209,191
Individual General Partners'
compensation 13,128 9,661 21,450 14,661
Operating expenses:
Administrative and investor services 101,846 153,463 210,107 230,179
Investment operations 105,482 119,533 171,824 183,172
Professional fees 43,174 28,488 60,261 39,003
Computer services 26,076 43,663 55,188 59,658
--------- --------- --------- ---------
Total operating expenses 276,578 345,147 497,380 512,012
--------- --------- --------- ---------
Total costs and expenses 375,215 460,529 689,065 735,864
--------- --------- --------- ---------
Net operating loss (266,224) (321,962) (475,988) (417,893)
Net realized gain from sales
of equity investments 1,150,059 398,866 5,692,759 3,588,353
Realized gains from venture capital
limited partnership investments 367,066 353,403 512,349 399,599
Realized losses from investment
write-downs -- (1,000,000) -- (1,038,546)
Recoveries from investments previously
written off -- 8,605 -- 8,605
--------- --------- --------- ---------
Net realized income (loss) 1,250,901 (561,088) 5,729,120 2,540,118
Change in net unrealized
fair value:
Equity investments (79,043) 1,221,345 (4,147,983) 3,517,009
Secured notes receivable -- 409,000 -- 309,000
--------- --------- --------- ---------
Net income $1,171,858 1,069,257 1,581,137 6,366,127
========= ========= ========= =========
Net realized income (loss) per Unit $ 7 (3) 32 16
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF PARTNERS' CAPITAL
- ------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1997:
Net Unrealized
Fair Value
Increase
From Cost of
Limited General Equity
Partners Partners Investments Total
-------- -------- ----------- -----
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1996 $26,997,022 (145,143) 6,862,966 33,714,845
Distributions (3,960,000) (319,267) -- (4,279,267)
Net realized income 5,086,180 642,940 -- 5,729,120
Change in net unrealized
fair value of
equity investments -- -- (4,147,983) (4,147,983)
---------- --------- ---------- ----------
Partners' capital,
June 30, 1997 $28,123,202 178,530 2,714,983 31,016,715
========== ========= ========== ==========
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 170,282 285,386
Cash paid to vendors (153,568) (173,675)
Cash paid to related parties (572,450) (1,376,746)
---------- ---------
Net cash used by operating
activities (555,736) (1,265,035)
---------- ---------
Cash flows from investing activities:
Secured notes receivable issued -- (171,666)
Purchase of equity investments (4,837,992) (2,469,748)
Repayments of convertible and
secured notes receivable -- 62,500
Proceeds from sales of
equity investments 9,273,156 4,256,103
Distributions from venture capital
limited partnerships 369,296 88,613
---------- ---------
Net cash provided by
investing activities 4,804,460 1,765,802
---------- ---------
Cash flows from financing activities:
Distributions to Limited and General
Partners (4,279,267) (3,565,256)
---------- ---------
Net cash used by financing
activities (4,279,267) (3,565,256)
---------- ---------
Net decrease in cash
and cash equivalents (30,543) (3,064,489)
Cash and cash equivalents at beginning
of year 5,317,251 12,607,605
---------- ----------
Cash and cash equivalents at June 30 $ 5,286,708 9,543,116
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Reconciliation of net income to net
cash used by operating activities:
Net income $ 1,581,137 6,366,127
Adjustments to reconcile net income
to net cash used by operating activities:
Net realized gain from sales of
equity investments (5,692,759) (3,588,353)
Realized gains from venture capital
limited partnership investments (512,349) (399,599)
Recoveries from investments previously
written off -- (8,605)
Realized losses from investment
write-downs -- 1,038,546
Change in net unrealized fair value:
Equity investments 4,147,983 (3,517,009)
Secured notes receivable -- (309,000)
Changes in:
Due to/from related parties (44,848) (742,118)
Other changes, net (34,900) (105,024)
--------- ---------
Net cash used by operating activities $ (555,736) (1,265,035)
========= =========
Non-cash investing activities:
Reclassification of secured notes to
equity investments (subordinated
notes receivable) $ -- 705,000
========= =========
Non-cash exercise of warrants $ -- 336,482
========= =========
</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 June 30, 1997, and December 31, 1996, and the related Statements of
Operations for the three and six months ended June 30, 1997 and 1996,
Statement of Partners' Capital for the six months ended June 30, 1997,
and Statements of Cash Flows for the six months ended June 30, 1997 and
1996, 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,
1996. The following notes to financial statements for activity through
June 30, 1997, 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 six months
ended June 30, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Management fees $170,235 209,191
Reimbursable operating expenses 335,917 410,776
Individual General Partners'
compensation 21,450 14,661
</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 $15,905 and $57,498 of such
expenses due to related parties at June 30, 1997, and December 31, 1996,
respectively.
Amounts due to related parties for management fees were $28,764 and
$32,019 at June 30, 1997, and December 31, 1996, respectively.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of
portfolio companies. At June 30, 1997, the Partnership had an indirect
interest in such non-transferable options, worth approximately $563, in
Electronic Designs, Inc.
3. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1996, is in the 1996 Annual Report. Activity from January 1 through
June 30, 1997, consisted of:
<TABLE>
<CAPTION>
January 1 -
June 30, 1997
Principal --------------
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $21,648,281 28,511,247
---------- ----------
Significant changes:
Communications
- --------------
NetChannel, Series B
Inc. Preferred
share
warrant at
$1.10;
exercised
01/97 10/96 295,454 (3,250) (3,250)
NetChannel, Series B
Inc. Preferred
shares 01/97 615,431 149,204 325,000
NetChannel, Series B
Inc. Preferred
shares 03/97 738,517 179,045 389,999
NetChannel, Convertible
Inc. note (1) 05/97 $146,622 148,353 148,353
NetChannel, Series B
Inc. Preferred
shares 05/97 415,604 182,866 219,474
Computers and Computer Equipment
- --------------------------------
Electronic Common
Designs, Inc. shares various 645,477 0 274,296
Computer Systems and Software
- -----------------------------
Geoworks Common
shares 03/94 38,415 (179,267) (970,939)
Geoworks Common
shares 06/94 65,110 (31,052) (2,447,081)
Geoworks Common
shares 07/96 10,000 (200,000) (252,750)
Geoworks Common
shares 09/96 15,000 (298,125) (379,125)
Geoworks Common
shares 02/97 50,000 956,250 259,875
Photon Dynamics Common
shares 07/96 50,000 0 (93,100)
Electronic Design Automation
- ----------------------------
Cadence Design Common
Systems, Inc. shares 07/96 12,000 0 (80,245)
Synopsys, Inc. Common
shares 07/96 7,000 (238,569) (313,600)
Synopsys, Inc. Common
shares 02/97 14,000 560,005 496,650
Environmental
- -------------
Thermatrix, Inc. Common
shares 06/96 65,970 0 (232,062)
Information Technology
- ----------------------
WorldRes, Inc. Series B
Preferred
shares 01/97 221,894 750,002 750,002
Medical/Biotechnology
- ---------------------
ADESSO Specialty Series C
Services Preferred
Organization, Inc. shares 01/97 177,420 1,100,004 1,100,004
Affymetrix, Inc. Common
shares 07/96 20,000 (225,000) (401,760)
Biex, Inc. Series D
Preferred
shares 03/97 44,446 66,669 66,669
Cardiac Pathways Common
Corporation shares 05/97 7,134 72,267 65,098
CardioTech Common
International, shares
Inc. 06/96 201,713 0 (113,362)
CV Therapeutics, Inc. Common
shares 11/96 33,724 0 93,555
Endocare, Inc. Convertible
note (1) 08/96 $562,500 (594,500) (594,500)
Endocare, Inc. Common
shares 01/97 52,500 183,750 191,625
Endocare, Inc. Common
shares 01/97 249,000 622,500 864,976
Gilead Sciences, Common
Inc. shares 07/96 20,000 (347,500) (508,500)
Lifecell Common
Corporation shares various 265,847 0 807,376
Lifecell Redeemable
Corporation Series A
Preferred
shares 11/94 12,500 (220,785) (220,785)
Lifecell Common
Corporation shares 03/97 1,601 4,148 9,806
Lifecell Common
Corporation shares 03/97 83,612 216,637 512,124
Matrix Common
Pharmaceuticals, shares (2)
Inc. various 454,633 0 267,324
Pharmadigm, Series A
Inc. Preferred
shares 04/93 161,290 0 120,968
Pharmadigm, Series A
Inc. Preferred
shares 12/94 107,526 0 80,645
Pharmadigm, Series B
Inc. Preferred
shares 05/96 68,889 0 51,666
Pharmadigm, Series C
Inc. Preferred
shares 06/97 100,800 274,428 274,428
Pharmadigm, Series C
Inc. Preferred
share warrant
at $2.75;
expiring
06/00 06/97 7,056 2,772 2,722
PolyMedica Common
Industries, Inc. shares 03/92 411,800 (1,168,705) (1,539,308)
SyStemix, Inc. Common
shares various 61,260 (445,275) (937,094)
TheraTx, Inc. Common
shares (2) 06/94 60,000 (90,000) (654,180)
Thermo Electron Common
Corporation shares 06/96 26,318 0 (143,194)
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Various Limited
Partnership
Interests Various $3,976,569 (8,538) (235,890)
---------- ----------
Total significant changes during the six months
ended June 30, 1997 1,418,334 (2,748,040)
Other changes, net 83,684 102,075
---------- ----------
Total equity investments at June 30, 1997 $23,150,299 25,865,282
========== ==========
(1) Convertible notes include accrued interest. The interest rate on notes issued
in 1997 was 8%.
(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 June 30, 1997, and December 31, 1996, marketable equity securities
had aggregate costs of $10,463,478 and $11,534,692, respectively, and
aggregate fair values of $10,645,364 and $16,424,731, respectively. The
net unrealized gains at June 30, 1997, and December 31, 1996, included
gross gains of $2,884,840 and $7,523,038, respectively.
ADESSO Specialty Services Organization, Inc.
- --------------------------------------------
In January of 1997, the Partnership invested in the company by
purchasing 177,420 Series C Preferred shares for $1,100,004.
Affymetrix, Inc.
- ----------------
In January of 1997, the Partnership sold its entire investment in the
company for total proceeds of $577,481 and realized a gain of $352,481.
Biex, Inc.
- ----------
In March of 1997, the Partnership made an additional investment in the
company by purchasing 44,446 Series D Preferred shares for $66,669.
Endocare, Inc.
- --------------
In January of 1997, the Partnership made an additional investment in the
company by purchasing 52,500 common shares for $183,750. In addition,
the Partnership converted its $562,500 note receivable, including
accrued interest of $60,000, into 249,000 common shares at a total cost
of $622,500. At June 30, 1997, the Partnership recorded an increase in
the change in fair value of $269,255 to reflect the publicly-traded
market price for the above Endocare investments; a portion of the fair
value was adjusted to reflect a discount for restricted securities.
Geoworks
- --------
In January of 1997, the Partnership sold 110,000 common shares of the
company for total proceeds of $2,737,410 and realized a gain of
$2,028,966. Then in February of 1997, the Partnership purchased 50,000
common shares of the company for $956,250 on the open market. At June
30, 1997, the Partnership recorded a decrease in the change in fair
value of $4,037,826 to reflect the publicly-traded market price of its
investments; $2,071,806 of the decrease was due to the sale mentioned
above.
Gilead Sciences, Inc.
- ---------------------
In January of 1997, the Partnership sold its entire investment in the
company for total proceeds of $622,480 and realized a gain of $274,980.
Lifecell Corporation
- --------------------
In March of 1997, the Partnership received a stock dividend of 1,601
common shares. A cost basis of $4,148 was allocated to these shares
from the Partnership's existing Series A Preferred share investment. In
addition, the company redeemed its Series A Preferred shares by
converting the Partnership's 12,500 Series A Preferred shares into
83,612 common shares. At June 30, 1997, the Partnership recorded an
increase in the change in fair value of $1,108,521 to reflect the
publicly-traded market price of its investments.
NetChannel, Inc.
- ----------------
In January of 1997, the Partnership cash exercised its Series B
Preferred share warrant for $324,999 and received 295,454 Series B
Preferred shares. In March of 1997, the Partnership issued a $325,000
convertible note receivable to the company. The Partnership also
received an additional 354,545 Series B Preferred shares as a result of
an adjustment to the warrant exercise price.
In May of 1997, the company effected a 1-to-2.083 stock split. As a
result, the Partnership received an additional 1,023,926 Series B
Preferred shares. The Partnership also purchased 415,604 Series B
Preferred shares by converting $178,378 of the notes receivable
discussed above including accrued interest of $4,488 for a total cost of
$182,866. The remaining note principal of $146,622 was reissued as a
new note. At June 30, 1997, the Partnership recorded an increase in the
change in fair value of $426,609 for the above transactions.
Pharmadigm, Inc.
- ----------------
In June of 1997, the Partnership made an additional investment in the
company by purchasing 100,800 Series C Preferred shares and received a
warrant to purchase 7,056 Series C Preferred shares for $277,200. The
pricing of this round, in which third parties participated, indicated a
fair value increase of $258,622 for the Partnership's existing
investment.
PolyMedica Industries, Inc.
- ---------------------------
During the first quarter of 1997, the Partnership sold 42,700 common
shares of the company for total proceeds of $254,004 and realized a gain
of $132,820. In addition, the Partnership received 2,625 common shares
for the option exercise price of $14,109 as a result of an officer
exercising his option for the benefit of the Partnership (See Note 2 for
additional information).
Then in the second quarter of 1997, the Partnership sold its remaining
investments, including the shares received from the option exercise, for
total proceeds of $2,211,689 and realized a gain of $1,150,059.
Synopsys, Inc.
- --------------
During the first quarter of 1997, the Partnership purchased 21,000
common shares of the company on the open market for $840,009 as well as
sold 14,000 common shares for total proceeds of $629,975 and realized a
gain of $111,402. At June 30, 1997, the Partnership recorded a decrease
in the change in fair value of $138,386 to reflect the publicly-traded
market price of its investments.
SyStemix, Inc.
- --------------
In January of 1997, the Partnership sold its entire investment in the
company for total proceeds of $1,178,532 and realized a gain of
$733,257.
TheraTx, Inc.
- -------------
During the first quarter of 1997, the Partnership sold its entire
investment in the company for total proceeds of $997,467 and realized a
gain of $907,467.
WorldRes, Inc.
- --------------
In January of 1997, the Partnership invested in the company by
purchasing 221,894 Series B Preferred shares for $750,002.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership recorded a cost basis decrease of $8,538 in venture
capital limited partnership investments during the six months ended June
30, 1997. The decrease was a result of a return of capital in the form
of cash and stock distribution of $882 and $7,656, respectively. The
Partnership recorded a fair value decrease of $235,890 as a result of
cash and stock distributions from certain venture capital limited
partnership investments, partially offset by a net increase in the fair
value of the underlying investments.
During the first half of 1997, the Partnership received cash
distributions totaling $368,414, tradable common and preferred stock
distributions of US West Media Group with fair values of $47,663 and
$10,447, respectively, and common stock distributions of Cardiac Pathways
Corporation, Informix Software, Inc., and Versant Object Technology with
fair values of $72,268, $7,963 (of which $7,656 represented a
distribution from returns of capital), and $13,250, respectively. These
distributions were from profits and were recorded as realized gains from
venture capital limited partnership investments.
In January of 1997, the Partnership sold its distribution of
Endovascular Technologies, Inc., for $5,544 and realized a gain of
$1,328.
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.
4. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at June 30, 1997, and December 31, 1996,
consisted of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Demand accounts $ 57,960 13,494
Money-market accounts 5,228,748 5,303,757
--------- ---------
Total $5,286,708 5,317,251
========= =========
</TABLE>
5. 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 June 30, 1997,
the Partnership had unfunded commitments as follows:
<TABLE>
<S> <C>
Type
- ----
Equity investments $589,250
Term notes 378,600
Venture capital limited partnership investments 23,431
-------
Total $991,281
=======
</TABLE>
In 1996, the Partnership jointly guaranteed with two affiliated
partnerships, a $1,000,000 line of credit between a financial
institution and a portfolio company in the computer systems and software
industry. If the affiliated partnerships are unable to finance their
portion of the guarantee, the Partnership may be liable for the entire
$1,000,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the six months ended June 30, 1997, net cash used by operating
activities totaled $555,736. The Partnership paid management fees of
$173,490 to the Managing General Partners and reimbursed related parties
for operating expenses of $377,510. In addition, $21,450 was paid to
the Individual General Partners as compensation for their services.
Other operating expenses of $153,568 were paid and $170,282 in interest
income was received. Distributions totaling $4,279,267 were paid to the
Limited and General Partners.
During the six months ended June 30, 1997, the Partnership funded
$4,837,992 in equity investments mainly to portfolio companies in the
medical/biotechnology, computer systems and software, electronic design
automation and information technology industries. Proceeds from equity
investment sales were $9,273,156 and cash distributions of $369,296 from
venture capital limited partnership investments were received. As of
June 30, 1997, the Partnership was committed to fund additional
investments of $991,281 and had outstanding guarantees up to $1,000,000
as discussed in Note 5 to the financial statements.
Cash and cash equivalents at June 30, 1997, were $5,286,708. Cash
reserves, interest income on short-term investments, and future proceeds
from equity investment sales 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 $1,171,858 and $1,069,257 for the three months ended June
30, 1997 and 1996, respectively. The increase in net income was
primarily due to a $1,000,000 decrease in realized losses from
investment write-downs, and a $751,193 increase in net realized gain
from sales of equity investments. These changes were partially offset
by decreases of $1,300,388 and $409,000 in the change in net unrealized
fair value of equity investments and secured notes receivable,
respectively.
During the quarter ended June 30, 1997, no realized losses from
investment write-downs were recorded. During the same period in 1996,
the Partnership recorded realized losses of $1,000,000 related to a
portfolio company in the computer systems and software industry.
Net realized gains from sales of equity investments were $1,150,059 and
$398,866 for the quarters ended June 30, 1997 and 1996, respectively.
The 1997 gain related to sales of PolyMedica Industries, Inc. The 1996
gain mainly resulted from the non-cash exercise of a Sensor Medics
Corporation warrant in exchange for Thermo Electron Corporation common
shares.
The Partnership recorded a decrease in fair value of equity investments
of $79,043 during the quarter ended June 30, 1997. During the same
period in 1996, the increase in fair value of $1,221,345 was primarily
due to venture capital limited partnership investments as well as
portfolio companies in the industrial/business automation and
environmental industries.
The Partnership recorded an increase in the change in fair value of
secured notes receivable of $409,000 at June 30, 1996, due to the
elimination of loan loss reserves. No such reserve was required at June
30, 1997.
Operating expenses were $276,578 for the quarter ended June 30, 1997,
compared to $345,147 for the same period in 1996. The decrease in
operating expenses in the current quarter over the comparative period in
1996 was primarily due to a higher level of activity required for
portfolio management in 1996.
Total income was $108,991 and $138,567 during the quarters ended June
30, 1997 and 1996, respectively. The decrease in short-term investment
interest was mainly due to lower cash and cash equivalents balances as a
result of cash distribution in June of 1997.
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 six months compared to corresponding six months in the preceding
- ------------------------------------------------------------------------
year
- ----
Net income was $1,581,137 and $6,366,127 for the six months ended June
30, 1997 and 1996, respectively. The decrease in net income was
primarily due to decreases of $7,664,992 and $309,000 in the change in
net unrealized fair value of equity investments and secured notes
receivable, respectively. These changes were partially offset by a
$2,104,406 increase in net realized gain from sales of equity
investments, and a $1,038,546 decrease in realized losses from
investment write-downs.
During the six months ended June 30, 1997, the decrease in fair value of
equity investments of $4,147,983 was substantially attributable to the
sale of Geoworks common stock, as the gain was realized. During the
same period ended June 30, 1996, the increase in fair value of
$3,517,009 was primarily attributable to increases in portfolio
companies in the medical/biotechnology and industrial/business
automation industries, partially offset by decreases in portfolio
companies in the computer systems and software industry.
The Partnership recorded an increase in the change in fair value of
secured notes receivable of $309,000 at June 30, 1996, due to the
elimination of loan loss reserves. No such reserve was required at June
30, 1997.
Net realized gain from sales of equity investments was $5,692,759 for
the six months ended June 30, 1997, compared to $3,588,353 for the same
period in 1996. The 1997 net gain mainly related to sales of Geoworks,
PolyMedica Industries, Inc., TheraTx, Inc., and SyStemix, Inc. The 1996
net gain mainly related to sales of Geoworks.
During the six months ended June 30, 1997, the Partnership did not
record any realized losses from investment write-downs. During the same
period in 1996, the Partnership recorded realized losses of $1,038,546
mostly related to equity investments for a portfolio company in the
computer systems and software industry.
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 June 30, 1997.
(b) Financial Data Schedule for the six months ended and as of June 30,
1997 (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: August 12, 1997 By: /s/Michael R. Brenner
------------------------------------
Michael R. Brenner
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 23,150,299
<INVESTMENTS-AT-VALUE> 25,865,282
<RECEIVABLES> 0
<ASSETS-OTHER> 4,456
<OTHER-ITEMS-ASSETS> 5,286,708
<TOTAL-ASSETS> 31,156,446
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 139,731
<TOTAL-LIABILITIES> 139,731
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,301,732
<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> 2,714,983
<NET-ASSETS> 31,016,715
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 209,952
<OTHER-INCOME> 3,125
<EXPENSES-NET> (689,065)
<NET-INVESTMENT-INCOME> (475,988)
<REALIZED-GAINS-CURRENT> 6,205,108
<APPREC-INCREASE-CURRENT> (4,147,983)
<NET-CHANGE-FROM-OPS> 1,581,137
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (4,279,267)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,698,130)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 170,235
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 692,915
<AVERAGE-NET-ASSETS> 32,365,780
<PER-SHARE-NAV-BEGIN> 169
<PER-SHARE-NII> 32
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 25
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 176
<EXPENSE-RATIO> 2.1
<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>
