<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, 1999
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)
(650) 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,
1999 1998
---------- -----------
<S> <C> <C>
ASSETS
Equity investments (cost basis
of $21,784,305 and $20,686,838 for
1999 and 1998, respectively) $29,064,867 21,029,455
Notes receivable (cost basis of
$76,594 and $202,777 for 1999
and 1998, respectively) 76,594 202,777
---------- ----------
Total investments 29,141,461 21,232,232
Cash and cash equivalents 1,550,358 3,160,675
Due from related parties -- 23,135
Other assets 8,927 4,109
---------- ----------
Total assets $30,700,746 24,420,151
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 84,202 66,479
Due to related parties 27,981 --
Other liabilities 8,596 15,142
---------- ----------
Total liabilities 120,779 81,621
Commitments and contingencies
(Notes 2 and 6)
Partners' capital:
Limited Partners
(160,000 Units outstanding) 23,638,927 24,328,469
General Partners (339,522) (332,556)
Net unrealized fair value increase
from cost of equity investments 7,280,562 342,617
---------- ----------
Total partners' capital 30,579,967 24,338,530
---------- ----------
Total liabilities
and partners' capital $30,700,746 24,420,151
========== ==========
</TABLE>
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------------ -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Notes receivable interest $ 3,364 40 10,656 10,697
Short-term investment interest 24,023 35,763 59,590 79,423
Other income 123 229 246 352
--------- ------- --------- ---------
Total income 27,510 36,032 70,492 90,472
Costs and expenses:
Management fees 64,243 71,291 125,293 145,930
Individual General Partners'
compensation 7,190 15,139 18,604 22,553
Operating expenses:
Administrative and investor services 171,040 143,875 299,889 303,942
Investment operations 63,697 38,727 143,517 195,582
Professional fees 43,916 22,832 54,329 34,892
Computer services 29,077 30,401 57,811 98,081
--------- ------- --------- ---------
Total operating expenses 307,730 235,835 555,546 632,497
--------- ------- --------- ---------
Total costs and expenses 379,163 322,265 699,443 800,980
--------- ------- --------- ---------
Net operating loss (351,653) (286,233) (628,951) (710,508)
Net realized gain (loss) from sales
of equity investments -- 141,600 199,951 (210,423)
Realized gains from venture capital
limited partnership investments -- 49,541 93,583 71,724
Realized losses from investment
write-downs (361,091) -- (361,091) --
--------- ------- --------- ---------
Net realized loss (712,744) (95,092) (696,508) (849,207)
Change in net unrealized
fair value of equity investments 5,679,116 (611,982) 6,937,945 (1,105,550)
--------- ------- --------- ---------
Net income (loss) $4,966,372 (707,074) 6,241,437 (1,954,757)
========= ======= ========= =========
Net realized loss per Unit $ (4.41) (0.42) (4.31) (4.16)
========= ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Interest and other income received $ 68,466 78,710
Cash paid to vendors (207,052) (115,060)
Cash paid to related parties (434,916) (748,811)
--------- ----------
Net cash used by operating
activities (573,502) (785,161)
--------- ----------
Cash flows from investing activities:
Proceeds from sales of
equity investments 873,237 531,416
Purchase of equity investments (2,126,366) (953,565)
Notes receivable issued (75,868) (35,962)
Repayments of notes receivable 198,844 450,712
Distributions from venture capital
limited partnerships 93,338 21,187
--------- ----------
Net cash (used) provided by
investing activities (1,036,815) 13,788
--------- ----------
Net decrease in cash and cash
equivalents (1,610,317) (771,373)
Cash and cash equivalents at
beginning of year 3,160,675 4,304,928
--------- ----------
Cash and cash equivalents
at June 30 $1,550,358 3,533,555
========= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Reconciliation of net income (loss) to net
cash used by operating activities:
Net income (loss) $6,241,437 (1,954,757)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Net realized (gain) loss from sales of
equity investments (199,951) 210,423
Realized gains from venture capital
limited partnership investments (93,583) (71,724)
Realized losses from investment
write-downs 361,091 --
Change in net unrealized fair value of
equity investments (6,937,945) 1,105,550
Changes in:
Due to/from related parties 51,116 (32,540)
Other changes, net 4,333 (42,113)
--------- ---------
Net cash used by operating activities $ (573,502) (785,161)
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partners, the accompanying interim
financial statements reflect all adjustments necessary for a fair
presentation of the financial position, results of operations, and cash
flows for the interim periods presented. These statements should be read
in conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1998. 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, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Management fees $125,293 145,930
Individual General Partners'
compensation 18,604 22,553
Reimbursable operating expenses 342,135 547,788
</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 $4,440 of such expenses due to
related parties at June 30, 1999, and $46,889 due from related parties at
December 31, 1998.
Amounts due to related parties for management fees were $23,541 and
$23,754 at June 30, 1999, and December 31, 1998, 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, 1999, the Partnership had an indirect
interest in Conversion Technologies International, Inc., White Electronic
Designs Corporation, Endocare, Inc., PolyMedica Corporation and
Thermatrix Inc. non-transferable options with a total current market
value of $43,417.
3. Equity Investments
------------------
<TABLE>
A complete listing of the Partnerships equity investments at December 31, 1998, is in the 1998
Annual Report on Form 10-K. Activity from January 1 through June 30, 1999, consisted of:
<CAPTION>
January 1 through June 30, 1999
-------------------------------
Principal
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $20,686,838 21,029,455
---------- ----------
Significant changes:
Communications
- --------------
Illinois Superconductor Common
Corporation shares 02/99 5,810 116,542 6,211
Women.com Networks Series A
Preferred
shares 02/96 159,300 0 1,068,903
Women.com Networks Series B
Preferred
shares 02/96 194,642 0 1,306,048
Women.com Networks Series C
Preferred
shares 07/97 71,576 0 480,275
Women.com Networks Series D
Preferred
shares 06/98 121,581 0 815,809
Women.com Networks Series E
Preferred
shares 05/99 33,857 338,570 338,570
Computers and Computer Equipment
- --------------------------------
White Electronic Common
Designs Corporation shares various 822,983 0 435,970
Computer Systems and Software
- -----------------------------
Photon Dynamics, Common
Inc. shares 07/96 50,000 0 297,175
Electronic Design Automation
- ----------------------------
Cadence Design Common
Systems, Inc. shares 07/96 24,000 0 (354,000)
Synopsys, Inc. Common
shares 02/97 14,000 (560,005) (735,000)
Environmental
- -------------
Naiad Technologies, Series A, B,
Inc. and C
Preferred 12/95-
shares 11/97 209,332 0 (275,128)
Thermatrix Inc. Common
shares 06/96 65,970 0 20,836
Thermatrix Inc. Series E
Preferred
shares 06/99 To Be Determined 990,000 842,018
Information Technology
- ----------------------
WorldRes, Series B and C
Inc. Preferred 01/97-
shares 12/97 361,252 -- 848,943
WorldRes, Series D
Inc. Preferred
shares 03/99 73,140 442,497 442,497
Medical/Biotechnology
- ---------------------
Biex, Inc. Series A, B,
C, D, and E
Preferred 07/93-
shares 08/97 629,792 -- 109,942
Biex, Inc. Series F
Preferred
shares 03/99 132,743 345,132 345,132
Cardiac Pathways Common
Corporation shares 06/91 7,134 (72,267) (29,164)
CardioTech Common
International, shares
Inc. 06/96 195,600 0 (63,570)
CareCentric Solutions, Series A, B
Inc. and C
Preferred 10/95-
shares 12/97 366,126 (326,159) (243,358)
CareCentric Solutions, Common share
Inc. warrant at $.15;
expiring 12/02 12/97 38,813 (34,932) (34,932)
Endocare, Inc. Common 08/96-
shares 04/98 380,429 0 1,084,033
Endocare, Inc. Common share
warrant
at $3.00;
expiring
08/01 08/96 112,500 0 206,719
LifeCell Common
Corporation shares various 351,060 0 (74,774)
Matrix Common
Pharmaceutical, Inc. shares various 321,633 0 438,064
Oxford GlycoSciences Common
Plc shares 08/93 106,772 0 70,683
Pherin Pharmaceuticals, Series B
Inc. Preferred
shares 08/91 200,000 0 660,000
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Various Limited
Partnership
interests various $3,954,845 (116,594) (27,383)
---------- ----------
Total significant changes during the six months
ended June 30, 1999 1,122,784 7,980,519
Other changes, net (25,317) 54,893
---------- ----------
Total equity investments at June 30, 1999 $21,784,305 29,064,867
========== ==========
</TABLE>
Marketable Equity Securities
- ----------------------------
At June 30, 1999, and December 31, 1998, marketable equity securities had
aggregate costs of $7,975,527 and $9,045,454, respectively, and aggregate
fair values of $8,010,380 and $6,797,268, respectively. The net unrealized
gain and loss at June 30, 1999, and December 31, 1998, included gross gains
of $2,271,480 and $911,588, respectively.
Biex, Inc.
- ----------
In March 1999, the Partnership purchased 132,743 Series F Preferred shares
for $345,132. The pricing of this round, in which third parties
participated, indicated a $69,417 increase in the fair value of the
Partnership's investment in the company's preferred shares and warrants.
In May 1999, the Partnership received a stock dividend of 18,786 Preferred
shares with a fair value of $48,844.
Cardiac Pathways Corporation
- ----------------------------
In March 1999, the Partnership sold its entire investment in the company
for proceeds of $19,618 and realized a loss of $52,649.
CareCentric Solutions, Inc.
- ---------------------------
In July 1999, the company agreed to be acquired by Simione Central
Holdings, Inc. Based on the sales terms, the Partnership recorded a
$361,091 write-down of its investment in Preferred shares and common stock
warrants as of June 30, 1999.
Naiad Technologies, Inc.
- ------------------------
In June 1999, the Partnership recorded a $275,128 decrease in the fair
value of its investment based upon the Managing General Partners'
assessment of the operating status of the company.
Pherin Pharmaceuticals, Inc.
- ----------------------------
In May 1999, the company completed a new round of financing in which the
Partnership did not participate. The pricing of this round, in which third
parties participated, indicated a $660,000 increase in the fair value of
the Partnership's investment.
Synopsys, Inc.
- --------------
In January 1999, the Partnership sold its entire investment in the company
for proceeds of $812,000 and realized a gain of $251,995.
Thermatrix Inc.
- ---------------
In June 1999, the Partnership purchased Series E Preferred shares and a
warrant for 35,000 common shares for $1,000,000 in a private placement.
The Preferred shares are convertible to common shares, with the number of
common shares to be received determined by dividing the aggregate purchase
price of the shares and warrant by the lesser of $5.00 per share or 85% of
the common share market price on the conversion date. At June 30, 1999,
the Preferred shares would have been convertible into 268,908 common
shares; the preferred shares were valued by applying the publicly traded
market price of the common shares to the number of common shares into which
the preferred shares were convertible at June 30, 1999 and applying a
discount for selling restrictions. The common share warrant has an
exercise price of $5.3125 per share and expires on June 30, 2002.
Women.com Networks
- ------------------
In May 1999, the Partnership purchased 33,857 Series E Preferred shares for
$338,570. The pricing of this round, in which third parties participated,
indicated a $3,671,035 increase in the fair value of the Partnership's
existing investment.
WorldRes, Inc.
- --------------
In March 1999, the Partnership purchased 73,140 Series D Preferred shares
for $442,497. The pricing of this round, in which third parties
participated, indicated a $890,358 increase in the fair value of the
Partnership's investment in the company's preferred shares and warrants.
Venture Capital Limited Partnerships
- ------------------------------------
The Partnership received cash distributions totaling $93,338 from Delphi
Ventures, L.P. The Partnership received stock and warrant distributions of
Illinois Superconductor Corporation and Informix Software, Inc. with fair
values totaling $116,839. Distributions totaling $93,583 were recorded as
realized gains and distributions totaling $116,594 were recorded as returns
of capital.
The Partnership recorded a $27,383 net decrease in fair value as a result
of distributions from the partnerships which were partially offset by an
increase in the fair value of the underlying investments of the
partnerships.
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. Portions of the
Partnership's Conversion Technologies International, Inc., White Electronic
Designs Corporation, and Thermatrix Inc. investments are restricted.
4. Notes Receivable
----------------
Activity from January 1 through June 30, 1999 consisted of:
Balance at January 1, 1999 $202,777
Notes issued 75,868
Repayments (198,844)
Change in accrued interest (3,207)
-------
Balance at June 30, 1999 $ 76,594
=======
The interest rate on notes issued in 1999 is 5%.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at June 30, 1999, and December 31, 1998,
consisted of:
<TABLE>
1999 1998
--------- ---------
<S> <C> <C>
Demand accounts $ 44,048 55,472
Money-market accounts 1,506,310 3,105,203
--------- ---------
Total $1,550,358 3,160,675
========= =========
</TABLE>
6. Commitments and Contingencies
-----------------------------
The Partnership is a party to financial instruments with off-balance-sheet
risk in the normal course of its business. Generally, these instruments
are commitments for future equity investment fundings, venture capital
limited partnership investments, equipment financing commitments, or
accounts receivable lines of credit that are outstanding but not currently
fully utilized by a borrowing company. As they do not represent current
outstanding balances, these unfunded commitments are properly not
recognized in the financial statements. At June 30, 1999, the Partnership
had the following unfunded commitments:
<TABLE>
<CAPTION>
TYPE
- ----
<S> <C>
Notes receivable $28,246
Line of credit guarantees 15,550
Venture capital limited partnership investments 7,805
------
$51,601
======
</TABLE>
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, 1999, net cash used by operating
activities totaled $573,502. The Partnership paid management fees of
$125,506 to the Managing General Partners and reimbursed related parties
for operating expenses of $290,806. In addition, $18,604 was paid to the
Individual General Partners as compensation for their services. Other
operating expenses of $207,052 were paid and $68,466 in interest and other
income was received.
During the six months ended June 30, 1999, the Partnership funded equity
investments of $2,126,366 primarily to portfolio companies in the
communications, environmental, information technology and
medical/biotechnology industries. Proceeds from equity investment sales
were $873,237, repayments of notes receivable were $198,844, and cash
distributions from venture capital limited partnership investments were
$93,338. The Partnership issued $75,868 in notes receivable to a portfolio
company in the medical/biotechnology industry. As of June 30, 1999, the
Partnership was committed to fund additional investments of $51,601 as
discussed in Note 6 to the financial statements.
Cash and cash equivalents at June 30, 1999, were $1,550,358. 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 $4,966,372 for the three months ended June 30, 1999, as
compared to a net loss of $707,074 for the three months ended June 30,
1998. The improvement was primarily due to a $6,291,098 increase in the
net unrealized fair value of equity investments, partially offset by a
$361,091 increase in equity investment write-downs, a $141,600 decrease in
net realized gains from equity investment sales, and a $71,895 increase in
operating expenses.
The Partnership recorded an increase in fair value of equity investments of
$5,679,116 during the quarter ended June 30, 1999 primarily due to
increases in the communications, computers and computer equipment and
medical/biotechnology industries, partially offset by decreases in the
environmental and electronic design automation industries. During the same
period in 1998, the decrease in fair value of equity investments of
$611,982 was substantially attributable to decreases in portfolio companies
in the computer systems and software and computer and computer equipment
industries, partially offset by increases in the medical industry.
Realized losses from investment write-downs totaled $361,091 in the quarter
ended June 30, 1999 and related to a portfolio company in the
medical/biotechnology industry. There were no write-downs in the
corresponding quarter of 1998.
Net realized gain from sales of equity investments was $141,600 for the
quarter ended June 30, 1998. There were no sales of equity investments in
the quarter ended June 30, 1999.
Operating expenses were $307,730 for the quarter ended June 30, 1999,
compared to $235,835 for the same period in 1998. The increase is
attributable to increased investment monitoring and administrative activity
and increased professional fees.
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 $6,241,437 for the six months ended June 30, 1999, as
compared to net loss of $1,954,757 for the six months ended June 30, 1998.
The increase was primarily due to a $8,043,495 increase in the net
unrealized fair value of investments, a $410,374 increase in net realized
gain from sales of equity investments and a $76,951 decrease in operating
expenses, partially offset by a $361,091 increase in realized losses from
investment write-downs.
During the six months ended June 30, 1999, the increase in fair value of
equity investments of $6,937,945 was primarily attributable to increases in
the communications, medical/biotechnology and information technology
industries, partially offset by decreases in the electronic design
automation and environmental industries. During the comparable period of
1998, the decrease of $1,105,550 was due to decreases in portfolio
companies in the computer and computer equipment and computer systems and
software industries, partially offset by increases in the medical industry.
Net realized gain from sales of equity investments was $199,951 for the six
months ended June 30, 1999 as compared to a net realized loss of $210,423
for the six months ended June 30, 1998. The 1999 gain primarily related to
the sale of Synopsys, Inc. common shares and the 1998 loss primarily
related to the sale of our investment in NetChannel, Inc.
Operating expenses for the six months ended June 30, 1999 and 1998 were
$555,546 and $632,497, respectively. The decrease is attributable to
decreased investment monitoring activities and decreased computer expenses.
Realized losses from investment write-downs totaled $361,091 for the six
months ended June 30, 1999 and related to a portfolio company in the
medical/biotechnology industry. There were no write-downs in the
corresponding period of 1998.
YEAR 2000
- ---------
Widespread use of computer programs that use two digits rather than four to
store, calculate, and display year values in dates may cause computer
systems to malfunction in the year 2000, resulting in significant business
delays and disruptions.
The Partnership's State of Readiness
------------------------------------
Computer services are provided to the Partnership by its Managing General
Partner, Technology Funding Inc. ("TFI".) For several years, TFI has
sought to use Year 2000 compliant storage formats and algorithms in its
internally-developed and maintained systems. TFI has also completed
initial evaluations of computer systems, software, and embedded
technologies. Those evaluations confirmed that certain components of its
network server hardware and operating systems, voice mail system, e-mail
system, and accounting software may have Year 2000 compliance issues.
These resources and several less-critical components of the systems
environment were all scheduled as part of normal maintenance and
replacement cycles to be replaced or upgraded as Year 2000 compatible
components became available from vendors during 1998 and 1999. That
program remains on schedule to provide Year 2000 capable systems timely
without significant expenditures or disruption of Partnership operations.
However, the risk remains that TFI may not be able to verify whether Year
2000 compatibility claims by vendors are accurate, or whether changes
undertaken to achieve Year 2000 compatibility will create other undetected
problems in associated systems. Therefore, TFI anticipates that Year 2000
compliance testing and maintenance of these systems will continue as needed
into the first quarter of 2000.
As part of Year 2000 evaluation, TFI has also assembled a database listing
its significant suppliers to assess the extent to which it needs to prepare
for any of those parties' potential failure to remediate their Year 2000
compliance issues. TFI reviewed public Year 2000 statements of those
suppliers and sent questionnaires to mission-critical vendors whose public
statements were not adequate for assessment. All mission-critical vendors
have responded that they expect to be Year 2000 compliant barring any
unforeseen circumstances. TFI will continue to monitor its significant
suppliers as part of its Year 2000 evaluation. However, there can be no
guarantee that the systems of other companies on which TFI relies will be
timely converted, or that failure to convert will not have a material
adverse effect on the Partnership and its operations. TFI is also working
with the Partnership's portfolio companies to determine the extent to which
their operations are vulnerable to Year 2000 issues. There can be no
guarantee that the systems of portfolio companies in which the Partnership
has invested will be timely converted, or that their failure to convert
will not have a material adverse effect on the Partnership.
The Cost to Address Year 2000 Issues
------------------------------------
Expenditures in 1999 to date related to Year 2000 issues were not material
to the Partnership's financial statements. TFI expects that additional
expenditures for Year 2000 compliance will not be material to the
Partnership.
The Risks Associated with Year 2000 Issues
------------------------------------------
Any failure by the portfolio companies in which the Partnership has
invested, or by those portfolio companies' key suppliers or customers, to
anticipate and avoid Year 2000 related problems at reasonable cost could
have a material adverse effect on the value of and/or the timing of
realization of value from the Partnership's investments. If Year 2000
compliance issues are not resolved by December 31, 1999, internal system
failures or miscalculations could cause a temporary inability to process
transactions, loss of ability to send or receive e-mail and voice mail
messages, or disruptions in other normal business activities.
Additionally, failure of third parties on whom TFI relies to remediate
their Year 2000 issues timely could result in disruptions in the
Partnership's relationship with its financial institutions, temporary
disruptions in processing transactions, unanticipated costs, and problems
related to the Partnership's daily operations. While TFI continues to
address its internal Year 2000 issues, until TFI receives and evaluates
responses from a significant number of its suppliers, the overall risks
associated with the Year 2000 issue remain difficult to describe and
quantify. There can be no guarantee that the Year 2000 issue will not have
a material adverse effect on the Partnership and its operations.
TFI's Contingency Plan
----------------------
As part of its normal efforts to assure business continuation in the event
of natural disasters, systems failures, or other disruptions, TFI has
prepared contingency plans including an extensive Year 2000 contingency
plan. Taken together with TFI's Year 2000 remediation plan, it identifies
potential points of failure, approaches to correcting known Year 2000
problems, dates by which the preferred corrections are anticipated to be
made and tested, and alternative approaches if the corrections are not
completed timely or are later found to be inadequate. Although backup
systems and contingency approaches have been identified for most mission-
critical systems and vendor dependencies, there remain some systems for
which no good alternative exists, and there may be some problems that prove
more intractable than currently anticipated.
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, 1999.
(b) Financial Data Schedule for the six months ended and as of June 30,
1999 (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 13, 1999 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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 21,860,899
<INVESTMENTS-AT-VALUE> 29,141,461
<RECEIVABLES> 0
<ASSETS-OTHER> 8,927
<OTHER-ITEMS-ASSETS> 1,550,358
<TOTAL-ASSETS> 30,700,746
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 120,779
<TOTAL-LIABILITIES> 120,779
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,299,405
<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> 7,280,562
<NET-ASSETS> 30,579,967
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 70,246
<OTHER-INCOME> 246
<EXPENSES-NET> 699,443
<NET-INVESTMENT-INCOME> (628,951)
<REALIZED-GAINS-CURRENT> (67,557)
<APPREC-INCREASE-CURRENT> 6,937,945
<NET-CHANGE-FROM-OPS> 6,241,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,241,437
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 125,293
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 707,389
<AVERAGE-NET-ASSETS> 27,459,248
<PER-SHARE-NAV-BEGIN> 152
<PER-SHARE-NII> (4)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 148
<EXPENSE-RATIO> 2.55
<FN>
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.
</FN>
</TABLE>
