<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 0-19221
TECHNOLOGY FUNDING SECURED INVESTORS III,
AN INCOME AND GROWTH PARTNERSHIP, L.P.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3081010
- ------------------------------ ---------------------------------
(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 resale market for the units of limited partnership interests
("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,
1995 1994
-------- -----------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $9,891,795 and
$12,385,060 in 1995 and 1994,
respectively) $ 5,052,795 8,569,060
Equity investments (cost basis
of $4,101,161 and $4,070,004 in
1995 and 1994, respectively) 4,365,383 1,492,524
---------- ----------
Total investments 9,418,178 10,061,584
Cash and cash equivalents 1,245,099 1,921,850
Other assets 189,194 75,113
---------- ----------
Total $10,852,471 12,058,547
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 36,394 100,005
Due to affiliated partnerships 9,184 1,054
Due to related parties 23,413 7,376
Other liabilities 32,057 32,527
---------- ---------
Total liabilities 101,048 140,962
Commitments and subsequent
event (Notes 2, 3 and 6)
Partners' capital:
Limited Partners
(Units outstanding of 399,997
for both 1995 and 1994) 15,464,706 18,419,721
General Partners (138,505) (108,656)
Net unrealized fair value (decrease)
increase from cost:
Secured notes receivable (4,839,000) (3,816,000)
Equity investments 264,222 (2,577,480)
---------- ----------
Total partners' capital 10,751,423 11,917,585
---------- ----------
Total $10,852,471 12,058,547
========== ==========
</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,
------------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Secured notes receivable interest $ 122,879 391,594 455,144 606,624
Short-term investments interest 14,800 26,226 43,770 53,212
Other income 4,450 2,469 4,450 3,792
--------- --------- --------- ---------
Total income 142,129 420,289 503,364 663,628
Costs and expenses:
Management fees 50,599 76,927 103,749 153,539
Amortization of organizational costs -- 750 -- 3,000
Other investment expenses 120,655 110,824 120,655 129,585
Operating expenses:
Lending operations and investment
management 53,912 (44,425) 89,128 128,396
Administrative and investor
services 76,414 78,942 124,473 165,168
Computer services 15,696 16,098 32,071 43,440
Professional fees 14,608 11,362 23,811 33,407
Expenses (absorbed by) reimbursed to
General Partners (39,739) 78,694 (129,787) (119,048)
--------- --------- --------- ---------
Total operating expenses 120,891 140,671 139,696 251,363
--------- --------- --------- ---------
Total costs and expenses 292,145 329,172 364,100 537,487
--------- --------- --------- ---------
Net operating (loss) income (150,016) 91,117 139,264 126,141
Net realized gain from sales of
equity investments 288,655 -- 299,399 426,553
Realized losses from investment
write-downs (3,423,527) (3,894,632) (3,423,527) (3,894,632)
--------- --------- --------- ---------
Net realized loss (3,284,888) (3,803,515) (2,984,864) (3,341,938)
Change in net unrealized
fair value:
Secured notes receivable 229,000 174,000 (1,023,000) 1,066,000
Equity investments 2,829,736 500,234 2,841,702 (345,684)
--------- --------- --------- ---------
Net loss $ (226,152) (3,129,281) (1,166,162) (2,621,622)
========= ========= ========= =========
Net realized loss per Unit $ (8) (9) (7) (8)
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 377,965 371,582
Cash paid to vendors (284,976) (333,602)
Cash paid to related parties (141,249) (290,966)
Cash received from affiliated
partnerships 8,130 41,832
Reimbursement of collection expenses
received from a portfolio company -- 187,441
--------- ---------
Net cash used by operating activities (40,130) (23,713)
--------- ---------
Cash flows from investing activities:
Secured notes receivable issued (999,134) (2,661,198)
Repayments of secured notes receivable 96,723 2,885,843
Proceeds from sales of equity
investments 266,261 430,053
Purchase of equity investments (471) (34,323)
--------- ---------
Net cash (used) provided by
investing activities (636,621) 620,375
--------- ---------
Cash flows from financing activities:
Distributions to General and Limited
Partners -- (574,167)
--------- ---------
Net cash used by financing activities -- (574,167)
--------- ---------
Net (decrease) increase in cash
and cash equivalents (676,751) 22,495
Cash and cash equivalents at beginning
of year 1,921,850 3,069,767
--------- ---------
Cash and cash equivalents at June 30 $ 1,245,099 3,092,262
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1995 1994
---- ----
<S> <C> <C>
Reconciliation of net loss
to net cash used by operating
activities:
Net loss $(1,166,162) (2,621,622)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Net realized gain from sales of
equity investments (299,399) (426,553)
Realized losses from investment
write-downs 3,423,527 3,894,632
Change in net unrealized fair value:
Secured notes receivable 1,023,000 (1,066,000)
Equity investments (2,841,702) 345,684
Other, net (4,002) (4,514)
Changes in:
Accrued interest on secured and
convertible notes receivable (31,397) (287,532)
Due to/from related parties
and affiliated partnerships 24,167 152,722
Accounts payable and accrued expenses (63,611) 102,226
Other assets (114,081) (120,394)
Other, net 9,530 7,638
--------- ---------
Net cash used by operating
activities $ (40,130) (23,713)
========= =========
Non-cash investing activities:
Conversion of secured notes
receivable to equity
investments $ 2,908,450 2,082,107
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partner, the Balance Sheets as of
June 30, 1995 and December 31, 1994, and the related Statements of
Operations for the three and six months ended June 30, 1995 and 1994,
and Statements of Cash Flows for the six months ended June 30, 1995 and
1994, reflect all adjustments which are necessary for a fair
presentation of the financial position, results of operations and cash
flows for such periods. These statements should be read in conjunction
with the Annual Report on Form 10-K for the year ended December 31,
1994. The following notes to financial statements for activity through
June 30, 1995 supplement those included in the Annual Report on Form 10-
K. Certain 1994 balances have been reclassified to conform with the
1995 financial statement presentation. 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 costs for the six months ended
June 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Management fees $ 103,749 153,539
Amortization of organizational costs -- 3,000
Reimbursable operating expenses 183,324 367,365
Expenses absorbed by General Partners (129,787) (119,048)
</TABLE>
Currently, management fees are accrued and are only paid to the extent
that the aggregate amount of all proceeds (including those from warrants
exercised without cash) received by the Partnership from the sale or
other disposition of borrowing company equity securities plus the
aggregate fair market value of any equity interest distributed to the
partners exceeds the total management fees payable. All management fees
had been paid at June 30, 1995 and December 31, 1994.
As set forth in the Partnership Agreement, the Partnership may not pay
or reimburse the General Partners for annual expenses that aggregate
more than 2% of total Limited Partner capital contributions in any of
the first five years of Partnership operations, and 1% thereafter. For
purposes of this limitation, the Partnership's operating year begins
May 1st. Beginning May 1, 1994, the limitation was calculated using 1%.
This limitation was in effect and expenses absorbed by the General
Partners totaled $129,787 for the six months ended June 30, 1995.
Certain reimbursable expenses have been accrued and allocated based upon
interim estimates prepared by the Managing General Partner and are
adjusted to actual cost periodically. At June 30, 1995 and December 31,
1994, due to related parties for such expenses totaled $23,413 and
$7,376, respectively. Both amounts were paid in the respective
subsequent quarters.
Within the normal course of business, the Partnership participates with
affiliated partnerships in secured notes receivable granted to
nonaffiliated borrowing companies. The Partnership may also
reparticipate such secured notes receivable amongst affiliated
partnerships to meet business needs. At June 30, 1995 and December 31,
1994, the amounts due to affiliated partnerships were $9,184 and $1,054,
respectively. These amounts were paid to such affiliated partnerships
in the following respective quarters.
3. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1994 is included in the 1994 Annual Report. Activity from January 1
through June 30, 1995 consisted of
<TABLE>
<CAPTION>
January 1 -
June 30, 1995
------------------
Investment Cost Fair
Industry/Company Date Position Basis Value
- ---------------- ---------- -------- ----- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 4,070,004 1,492,524
--------- ---------
Significant changes:
WARRANTS:
- --------
Computers and Computer Equipment
- --------------------------------
Pinnacle Systems, Inc. 05/90 2,083 Common
shares at $8.00;
exercised 02/95 (2,500) (14,164)
Computer Software and Systems
- -----------------------------
Datalogix International, 01/92 35,575 Common
Inc. shares at $1.87;
exercised 06/95 (20,000) (20,000)
Telecommunications
- ------------------
Integrated Network 06/91 5,883 Common
Corporation shares at $17.00;
expiring 06/96 (10,000) (100,002)
Primary Access 10/90 30,000 Common
Corporation shares at $2.25;
exercised 06/95 (6,000) (6,000)
STOCKS:
- ------
Computers and Computer Equipment
- --------------------------------
MTI Technology 04/94 20,927 Common
Corporation shares 0 (17,851)
Wasatch Education 06/95 2,908,450 Series C
Systems Corporation Preferred shares 2,908,450 2,908,450
Industrial/Business Automation
- ------------------------------
Cyclean, Inc. 01/95 27,475 Series D
Preferred shares 76,656 76,656
Cyclean of Los Angeles, 03/95 Class A LLC Unit -
LLC 44% ownership 11,091 11,091
Medical
- -------
Allegiant Physicians 08/94 63,000 Common
Services, Inc. shares 0 (22,953)
Resonex Holding 02/94 22,804 Common
Corporation shares (1,682,507) 0
Retail/Consumer Products
- ------------------------
S-Tron 05/93 Subordinated note,
$390,000 principal
amount (392,015) (130,316)
S-Tron 05/93 3,650,356 Series 1
and 2 Preferred
shares (914,127) (201,551)
Telecommunications
- ------------------
3Com Corporation 06/95 5,222 Common
shares 55,474 349,913
3Com Corporation 06/95 580 Common shares
in escrow account 6,164 38,879
--------- ---------
Total significant changes 30,686 2,872,152
Other changes, net 471 707
--------- ---------
Total equity investments at June 30, 1995 $ 4,101,161 4,365,383
========= =========
</TABLE>
Marketable Equity Securities
- ----------------------------
At June 30, 1995 and December 31, 1994, marketable equity securities had
aggregate costs of $284,981 and $225,843, respectively, and aggregate
market values of $550,504 and $216,680, respectively. The net
unrealized gain (loss) at June 30, 1995 and December 31, 1994 included
gross gains of $397,154 and $104,617, respectively.
Cyclean, Inc./Cyclean of Los Angeles, LLC
- -----------------------------------------
In January 1995, the Partnership obtained the right to receive 51,051
Series D Preferred shares with a twelve month vesting schedule in
exchange for a one year maturity date extension of secured notes
receivable. At June 30, 1995, 27,475 shares were fully vested with a
recorded cost basis and fair value of $76,656.
In March 1995, Cyclean, Inc. ("Cyclean") formed Cyclean of Los Angeles,
LLC ("Cyclean LLC") and contributed certain assets and contracts to the
new entity. Cyclean LLC is completing a new round of financing through
the offering of Class A LLC Units. As a result of this transaction, one
of the Partnership's secured notes receivable was transferred from
Cyclean to Cyclean LLC with modified terms; Cyclean has guaranteed note
repayments. The Partnership received a participated percentage of one
Class A LLC Unit in exchange for certain interest payments and late
charges totaling $11,091. The Partnership is also entitled to royalty
payments and additional Series D Preferred shares based on the total
proceeds raised from the Cyclean LLC offering, which is expected to be
completed by late 1995.
Datalogix International, Inc.
- -----------------------------
In June 1995, Datalogix International, Inc. completed its initial public
offering. The Partnership exercised its warrant without cash and sold
all of its resulting common shares in the company for total proceeds of
$228,812 and a realized gain of $208,812. Approximately $28,600 of the
sale proceeds were recorded as an unsettled trade at June 30, 1995 and
is included in "other assets" on the Balance Sheets.
Integrated Network Corporation
- ------------------------------
During June 1995, the Partnership exercised its option to sell half of
its warrant holdings to the company for $100,000 and realized warrant
income of $90,000, which was included in "secured notes receivable
interest income" on the Statements of Operations. As the cash was
received subsequent to the quarter end, the $100,000 was included in
"other assets" on the Balance Sheets at June 30, 1995. The Partnership
does not have this option for its remaining warrant.
Pinnacle Systems, Inc.
- ----------------------
In February 1995, the Partnership exercised its warrant without cash and
received 1,971 common shares. The recorded cost basis of $13,244
included a realized gain of $10,744 and a warrant cost basis of $2,500.
In May 1995, the Partnership sold the common shares for total proceeds
of $37,449 and realized a gain of $24,205.
Primary Access Corporation/3Com Corporation
- -------------------------------------------
In June 1995, Primary Access Corporation ("Primary Access") was acquired
by 3Com Corporation ("3Com"), a public company. Immediately prior to
the acquisition, the Partnership exercised its Primary Access common
warrant holdings without cash and received 25,205 shares of Primary
Access common stock with a cost basis of $61,638, which reflects a
realized gain of $55,638 and a warrant cost basis of $6,000. Upon the
acquisition, these shares were then exchanged for 5,802 3Com common
shares, of which 580 shares are held in an escrow account until March
21, 1996 to indemnify 3Com for any loss it may incur as a result of any
contractual breach of the merger agreement by Primary Access. The
Partnership recorded an increase in the change in fair value of $327,154
to reflect this transaction and the market value at June 30, 1995.
Subsequent to June 30, 1995, the Partnership sold 5,222 common shares
for total proceeds of $359,725 and a realized gain of $304,251.
Resonex Holding Corporation
- ---------------------------
Resonex Holding Corporation is currently obtaining bids from potential
acquirers as this is determined to be the best option for the company.
Based on the opinion of the Managing General Partner, there has been a
decline in Partnership's investment value and accordingly, the common
stock cost basis of $1,682,507 was written off.
S-Tron
- ------
The company was unsuccessful in its recent efforts to obtain a major
government contract; as a result, operations will likely cease by year
end. Based on the Managing General Partner's opinion, the fair value of
the Partnership's investment has declined. Accordingly, the Partnership
has written off the cost basis of its Preferred stock investment of
$914,127 and recorded a write-down of $392,015 on its subordinated note
investment.
Wasatch Education Systems Corporation
- -------------------------------------
In June 1995, the Partnership converted its secured notes receivable
totaling $2,908,450 into 2,908,450 Series C Preferred shares at $1.00
per share. As part of the conversion, the Partnership wrote off or
reversed all accrued interest totaling $631,019.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market fluctuations
and the elimination of a discount relating to selling restrictions for
publicly-traded portfolio companies. The Partnership's investments in
MTI Technology Corporation and Allegiant Physicians Services, Inc. are
unrestricted.
4. Secured Notes Receivable, Net
-----------------------------
Activity from January 1 through June 30, 1995 consisted of:
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 8,569,060
1995 activity:
Secured notes receivable issued 999,134
Repayments of secured notes receivable (96 723)
Secured notes receivable converted
to equity investments (2,908,450)
Write-off or reversal of accrued interest (631,019)
Increase in accrued interest 168,185
Increase in allowance for loan losses (1,023,000)
Other, net (24,392)
---------
Total secured notes receivable,
net at June 30, 1995 $ 5,052,795
=========
</TABLE>
The Partnership had accrued interest of $51,798 and $514,632 at June 30,
1995 and December 31, 1994, respectively.
Refer to Note 3, Equity Investments, for disclosure regarding secured
notes receivable converted to equity investments and write-off or
reversal of accrued interest.
Activity in the allowance for loan losses was as follows:
<TABLE>
<S> <C>
Balance at January 1, 1995 $3,816,000
Change in net unrealized fair value of secured
notes receivable 1,023,000
---------
Balance at June 30, 1995 $4,839,000
=========
</TABLE>
The allowance for loan losses is adjusted quarterly based upon changes
to the portfolio size and risk profile. Although the allowance is
established by evaluating individual debtor repayment ability, the
allowance represents the Managing General Partner's assessment of the
portfolio as a whole.
Notes aggregating $7,966,802 and $6,867,764 were on nonaccrual status at
June 30, 1995 and December 31, 1994, respectively, due to uncertainties
in the financial condition of certain portfolio companies. The Managing
General Partner continues to monitor the progress of companies with
nonaccrual notes. The fair value at June 30, 1995 recognizes the
Managing General Partner's estimate of the collectibility of these
notes.
All notes are secured by specific assets of the borrowing companies.
Interest rates on notes issued during the six months ended June 30, 1995
ranged from 10% to 14%.
5. Cash and Cash Equivalents
-------------------------
At June 30, 1995 and December 31, 1994, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Demand and brokerage accounts $ 3,799 7,802
Money-market accounts 1,241,300 1,914,048
--------- ---------
Total $1,245,099 1,921,850
========= =========
</TABLE>
6. Commitments
-----------
The Partnership is a party to financial instruments with off-balance-
sheet risk in the normal course of its business. Generally, these
instruments are 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, 1995, the Partnership had unfunded
commitments of $323,201 related to bridge and term note financings.
<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, 1995, net cash used by operating
activities totaled $40,130. The Partnership paid management fees of
$103,749 to the Managing General Partner, reimbursed related parties for
operating expenses of $37,500 and received $8,130 from affiliated
partnerships for net loan participations. In addition, other operating
expenses of $284,976 were paid. The Partnership received $377,965 in
interest income.
During the six months ended June 30, 1995, the partnership issued
$999,134 in secured notes receivable primarily to a portfolio company in
the computers and computer industry. Repayments of notes receivable
provided cash of $96,723 and proceeds from sales of equity investments
totaled $266,261. As of June 30, 1995, the Partnership was committed to
fund up to $323,201 to existing borrowing companies related to bridge
and term note financings.
All management fees which are due have been paid through June 30, 1995.
Management fees are paid to the extent that the aggregate amount of all
proceeds (including those from warrants exercised without cash) received
by the Partnership from the sale or other disposition of borrowing
company equities, plus the aggregate fair market value of any equity
securities distributed to the partners, exceeds the total management fee
payable as defined in the Partnership Agreement.
Subsequent to June 30, 1995, the Partnership sold 5,222 3Com Corporation
common stares for total proceeds of $359,725.
Cash and cash equivalents at June 30, 1995 were $1,245,099. Future
distributions will be dependent upon loan repayments from borrowing
companies and available cash. Operating cash reserves combined with
investment sale proceeds, interest income received on short-term
investments and repayments of secured notes receivable are expected to
be sufficient to fund Partnership operations and loan requirements of
existing borrowing companies through the next twelve months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net losses were $226,152 and $3,129,281 for the quarters ended June 30,
1995 and 1994, respectively. The change was substantially due to a
$2,329,502 increase in the change in the net unrealized fair value of
equity investments, a $471,105 decrease in realized losses from
investment write-downs, and a $288,655 increase in net realized gain
from sales of equity investments. These changes were partially offset
by a $268,715 decrease in secured notes receivable interest income.
During the quarter ended June 30, 1995, the increase in fair value of
$2,829,736 was primarily due to the write-downs of portfolio companies
in the medical and retail/consumer products industries as these
investments had been reflected with a fair value less than cost. In
1994, the increase of $500,234 was primarily due to the write-down of a
portfolio company in the medical industry as the investment had also
been reflected with a fair value less than cost and a fair value
increase for a portfolio company in the computers and computer equipment
industry.
During the quarters ended June 30, 1995 and 1994, the realized losses
from investment write-downs totaled $3,423,527 and $3,894,632,
respectively. In 1995, the realized losses were primarily related to
equity investments in the medical and retail/consumer products
industries. Realized losses in 1994 primarily related to secured notes
receivable to a portfolio company in the computers and computer
equipment industry.
During the quarter ended June 30, 1995, the Partnership realized a
$288,655 gain primarily from the sale of equity investments in Datalogix
International, Inc. and the non-cash exercise of the Primary Access
Corporation warrant. No such gain was realized during the same period
in 1994.
In 1995, the secured notes receivable interest income of $122,879
included nonrecurring warrant income of $90,000 from the Integrated
Network Corporation warrant redemption. Secured notes receivable
interest income would have been $32,879 without such income, compared to
$391,594 during the quarter ended June 30, 1994. The decrease was
primarily due to the reversal of 1995 interest accrual on secured notes
receivable to Wasatch Education Systems Corporation as discussed in Note
3 to the financial statements. In addition, the 1994 income was higher
partially due to a cash collection of approximately $158,000 in interest
income from a portfolio company in the computer software and systems
industry that was previously on nonaccrual status.
Total operating expenses were $120,891 and $140,671 for the quarters
ended June 30, 1995 and 1994, respectively. For the three months ended
June 30, 1995, the General Partners absorbed $39,739 as explained in
Note 2 to the financial statements, compared to $78,694 reimbursed to
General Partners in 1994 due to recoveries of prior collection expenses.
During the three months ended June 30, 1994, the Partnership received a
reimbursement of $187,441 in collection expenses from a portfolio
company in the computers and computer equipment industry, of which
approximately $130,000 related to expenses incurred prior to December
31, 1993. Lending operations and investment management expenses have
been reduced by this amount with a corresponding reduction to expenses
absorbed by General Partners. Had the limitation not been in effect and
the June 1994 recovery not been received, total operating expenses for
the three months ended June 30, 1995 and 1994 would have been $160,630
and $190,344, respectively.
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 loss was $1,166,162 and $2,621,622 for the six months ended June 30,
1995 and 1994, respectively. The decrease in net loss was substantially
due to a $3,187,386 increase in the change in the net unrealized fair
value of equity investments and a $471,105 decrease in realized losses
from investment write-downs. These changes were partially offset by a
$2,089,000 decrease in the change in net unrealized fair value of
secured notes receivable.
In 1995, the increase in fair value of $2,841,702 was primarily due to
the write-downs of portfolio companies in the medical and
retail/consumer products industries as these investments had been
reflected with a fair value less than cost. During the six months ended
June 30, 1994, the decrease of $345,684 was primarily due to the
conversion of notes receivable to equity investments for a portfolio
company in the medical industry as discussed below.
During the six months ended June 30, 1995 and 1994, the Partnership
realized losses from investments write-downs of $3,423,527 and
$3,894,632, respectively. Realized losses in 1995 primarily related to
equity investments in medical and retail/consumer products industries.
Realized losses in 1994 primarily related to a portfolio company in the
computers and computer equipment industry.
In 1995, the Partnership recorded a decrease in the fair value of
secured notes receivable of $1,023,000, compared to an increase of
$1,066,000 in 1994, based upon the level of loan loss reserves deemed
adequate by the Managing General Partner at the respective quarter ends.
The 1994 increase primarily related to the conversion of notes
receivable to equity investments for a portfolio company in the medical
industry.
Total operating expenses were $139,696 and $251,363 for the six months
ended June 30, 1995 and 1994, respectively. For the six months ended
June 30, 1995 and 1994, the General Partners absorbed $129,787 and
$119,048, respectively. Had the limitation not been in effect, and had
the recovery of approximately $130,000 of operating expenses described
in the above section not occurred, total operating expenses for the six
months ended June 30, 1995 and 1994 would have been $269,483 and
$498,778, respectively. The decrease was primarily due to lower lending
operations and investment management expenses due to lower overall
portfolio activity.
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, 1995.
(b) Financial Data Schedule for the six months ended and as of June 30,
1995 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING SECURED INVESTORS III,
AN INCOME AND GROWTH PARTNERSHIP, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: August 11, 1995 By: /s/Frank R. Pope
------------------------------------
Frank R. Pope
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 13,992,956
<INVESTMENTS-AT-VALUE> 9,418,178
<RECEIVABLES> 0
<ASSETS-OTHER> 189,194
<OTHER-ITEMS-ASSETS> 1,245,099
<TOTAL-ASSETS> 10,852,471
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101,048
<TOTAL-LIABILITIES> 101,048
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,326,201
<SHARES-COMMON-STOCK> 399,977
<SHARES-COMMON-PRIOR> 399,977
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4,574,778)
<NET-ASSETS> 10,751,423
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 498,914
<OTHER-INCOME> 4,450
<EXPENSES-NET> 364,100
<NET-INVESTMENT-INCOME> 139,264
<REALIZED-GAINS-CURRENT> (3,124,128)
<APPREC-INCREASE-CURRENT> 1,818,702
<NET-CHANGE-FROM-OPS> (1,166,162)
<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> (1,166,162)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 103,749
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 402,629
<AVERAGE-NET-ASSETS> 11,334,504
<PER-SHARE-NAV-BEGIN> 46
<PER-SHARE-NII> (7)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 39
<EXPENSE-RATIO> .03
<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>
