<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 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)
September 30, December 31,
1995 1994
-------- -----------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $8,855,879 and
$12,385,060 in 1995 and 1994,
respectively) $ 4,737,879 8,569,060
Equity investments (cost basis
of $4,061,076 and $4,070,004 in
1995 and 1994, respectively) 3,996,758 1,492,524
---------- ----------
Total investments 8,734,637 10,061,584
Cash and cash equivalents 1,969,995 1,921,850
Other assets 59,284 75,113
---------- ----------
Total $10,763,916 12,058,547
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 52,930 100,005
Due to affiliated partnerships -- 1,054
Due to related parties 6,845 7,376
Other liabilities 30,873 32,527
---------- ---------
Total liabilities 90,648 140,962
Commitments (Notes 2 and 6)
Partners' capital:
Limited Partners
(Units outstanding of 399,997
for both 1995 and 1994) 14,998,797 18,419,721
General Partners (143,211) (108,656)
Net unrealized fair value decrease
from cost:
Secured notes receivable (4,118,000) (3,816,000)
Equity investments (64,318) (2,577,480)
---------- ----------
Total partners' capital 10,673,268 11,917,585
---------- ----------
Total $10,763,916 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
September 30, September 30,
------------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Secured notes receivable interest $ 472,930 317,371 928,074 923,995
Short-term investments interest 26,840 35,743 70,610 88,955
Other income -- 12,866 4,450 16,658
--------- --------- --------- ---------
Total income 499,770 365,980 1,003,134 1,029,608
Costs and expenses:
Management fees 49,225 59,884 152,974 213,423
Amortization of organizational costs -- -- -- 3,000
Other investment expenses 76,379 -- 197,034 129,585
Operating expenses:
Lending operations and investment
management 32,073 30,288 121,201 158,684
Administrative and investor
services 45,407 61,772 169,880 226,940
Computer services 16,350 19,059 48,421 62,499
Professional fees 16,293 10,534 40,104 43,941
Expenses reimbursed to (absorbed by)
General Partners -- 23,821 (129,787) (95,227)
--------- --------- --------- ---------
Total operating expenses 110,123 145,474 249,819 396,837
--------- --------- --------- ---------
Total costs and expenses 235,727 205,358 599,827 742,845
--------- --------- --------- ---------
Net operating income 264,043 160,622 403,307 286,763
Net realized gain (loss) from sales of
equity investments 339,267 (1,122) 638,666 425,431
Realized losses from investment
write-downs (1,073,925) (173,813) (4,497,452) (4,068,445)
--------- --------- --------- ---------
Net realized loss (470,615) (14,313) (3,455,479) (3,356,251)
Change in net unrealized
fair value:
Secured notes receivable 721,000 11,000 (302,000) 1,077,000
Equity investments (328,540) (1,149,039) 2,513,162 (1,494,723)
--------- --------- --------- ---------
Net loss $ (78,155) (1,152,352) (1,244,317) (3,773,974)
========= ========= ========= =========
Net realized loss per Unit $ (1) -- (9) (8)
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
--------------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest and other income received $ 976,625 713,634
Cash paid to vendors (345,255) (434,284)
Cash paid to related parties (287,504) (604,945)
Cash (paid to) received from affiliated
partnerships (1,553) 20,499
Reimbursement of collection expenses
received from a portfolio company -- 187,441
--------- ---------
Net cash provided (used) by
operating activities 342,313 (117,655)
--------- ---------
Cash flows from investing activities:
Secured notes receivable issued (1,138,035) (3,400,046)
Repayments of secured notes receivable 165,836 3,079,852
Proceeds from sales of equity
investments 678,502 430,181
Purchase of equity investments (471) (34,323)
--------- ---------
Net cash (used) provided by
investing activities (294,168) 75,664
--------- ---------
Cash flows from financing activities:
Distributions to General and Limited
Partners -- (574,167)
--------- ---------
Net cash used by financing activities -- (574,167)
--------- ---------
Net increase (decrease) in cash
and cash equivalents 48,145 (616,158)
Cash and cash equivalents at beginning
of year 1,921,850 3,069,767
--------- ---------
Cash and cash equivalents at
September 30 $ 1,969,995 2,453,609
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
--------------------------------------
1995 1994
---- ----
<S> <C> <C>
Reconciliation of net loss
to net cash provided (used) by
operating activities:
Net loss $(1,244,317) (3,773,974)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Net realized gain from sales of
equity investments (638,666) (425,431)
Realized losses from investment
write-downs 4,497,452 4,068,445
Change in net unrealized fair value:
Secured notes receivable 302,000 (1,077,000)
Equity investments (2,513,162) 1,494,723
Amortization of discount on secured
notes receivable and organizational
costs (4,589) (8,174)
Changes in:
Accrued interest on secured and
convertible notes receivable (31,920) (304,800)
Due to/from related parties (531) 26,144
Due to/from affiliated partnerships (1,553) 20,499
Accounts payable and accrued expenses (47,075) 18,915
Other assets 16,328 (166,243)
Other, net 8,346 9,241
--------- ---------
Net cash provided (used) by
operating activities $ 342,313 (117,655)
========= =========
Non-cash investing activities:
Conversion of secured notes
receivable and accrued interest
to equity investments $ 2,908,450 2,082,107
========= =========
Conversion of other investments to
secured notes receivable $ -- 650,000
========= =========
</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
September 30, 1995 and December 31, 1994, and the related Statements of
Operations for the three and nine months ended September 30, 1995 and
1994, and Statements of Cash Flows for the nine months ended September
30, 1995 and 1994, reflect all adjustments which are necessary for a
fair presentation of the financial position, results of operations and
cash flows for such periods. These statements should be read in
conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1994. The following notes to financial statements for
activity through September 30, 1995 supplement those included in the
Annual Report on Form 10-K. 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 nine months ended
September 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Management fees $ 152,974 213,423
Amortization of organizational costs -- 3,000
Reimbursable operating expenses 263,786 455,848
Expenses absorbed by General Partners (129,787) (95,227)
</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 September 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 and $95,227 for the nine months ended
September 30, 1995 and 1994, respectively.
Certain reimbursable expenses have been accrued and allocated based upon
interim estimates prepared by the Managing General Partner and are
adjusted to actual costs periodically. At September 30, 1995 and
December 31, 1994, due to related parties for such expenses totaled
$6,845 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 September 30, 1995, due from
affiliated partnerships was $499 (included in "other assets"), compared
to due to affiliated partnerships of $1,054 at December 31, 1994. These
amounts were received from or 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 September 30, 1995 consisted of
<TABLE>
<CAPTION>
January 1 -
September 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 (5,504)
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 39,263 Series D
Preferred shares 109,545 109,545
Cyclean of Los Angeles, 03/95 Class A LLC Unit -
LLC 44% ownership 11,091 11,091
Medical
- -------
Allegiant Physicians 08/94 31,500 Common
Services, Inc. shares (17,500) (75,453)
Resonex Holding 02/94 22,804 Common
Corporation shares (1,682,507) 0
Retail/Consumer Products
- ------------------------
S-Tron 05/93 Subordinated note (1),
$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 06/95 580 Common shares
in escrow 6,164 26,631
--------- ---------
Total significant changes (9,399) (2,502,727)
Other changes, net 471 1,507
--------- ---------
Total equity investments at September 30, 1995 $ 4,061,076 3,996,758
========= =========
(1) Subordinated note includes accrued interest. The subordinated note interest rate
was 6%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At September 30, 1995 and December 31, 1994, marketable equity
securities had aggregate costs of $212,007 and $225,843, respectively,
and aggregate market values of $148,990 and $216,680, respectively. The
net unrealized loss at September 30, 1995 and December 31, 1994 included
gross gains of $56,267 and $104,617, respectively.
Allegiant Physician Services, Inc.
- ----------------------------------
In August 1995, the Partnership exercised its option to sell half of its
common stock holdings to the company for $52,500 and realized a gain of
$35,000. The Partnership has retained its option to sell the remaining
unrestricted shares at a later date.
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 September 30, 1995, 39,263 shares were fully vested with
a recorded cost basis and fair value of $109,545.
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.
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. 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 5,222 shares were sold for total proceeds of $359,741
and a realized gain of $304,267 in July 1995. The remaining 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 $20,467 to reflect the above
transactions and the market value at September 30, 1995.
Resonex Holding Corporation
- ---------------------------
Resonex Holding Corporation has licensed certain technologies and is
currently obtaining additional bids from potential licensees. The
company will wind down its operations by year end. 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 and secured notes receivable investments totaling
$1,073,925 were 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. In addition, the
Partnership's existing common warrants were replaced with new five-year
warrants with similar exercise prices. New warrants were also received
as a result of previous maturity extensions.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market fluctuations
or the elimination of a discount relating to selling restrictions for
publicly-traded portfolio companies. The Partnership's investment in
MTI Technology Corporation is unrestricted.
4. Secured Notes Receivable, Net
-----------------------------
Activity from January 1 through September 30, 1995 consisted of:
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 8,569,060
1995 activity:
Secured notes receivable issued 1,138,035
Repayments of secured notes receivable (165,836)
Secured notes receivable converted
to equity investments (2,908,450)
Write-off of secured notes receivable (1,073,925)
Write-off or reversal of accrued interest (631,019)
Increase in accrued interest 168,708
Increase in allowance for loan losses (302,000)
Other, net (56,694)
---------
Total secured notes receivable,
net at September 30, 1995 $ 4,737,879
=========
</TABLE>
The Partnership had accrued interest of $52,321 and $514,632 at
September 30, 1995 and December 31, 1994, respectively.
Refer to Note 3, Equity Investments, for disclosure regarding secured
notes receivable converted to equity investments, write-off of secured
notes receivable, 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
---------
Provision for loan losses 1,375,925
Secured notes receivable write-downs:
Medical (1,073,925)
---------
Change in net unrealized fair value of secured
notes receivable 302,000
---------
Balance at September 30, 1995 $4,118,000
=========
</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 $6,962,663 and $6,867,764 were on nonaccrual status at
September 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 September 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 nine months ended September
30, 1995 ranged from 10% to 14%.
5. Cash and Cash Equivalents
-------------------------
At September 30, 1995 and December 31, 1994, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Demand and brokerage accounts $ 2,373 7,802
Money-market accounts 1,967,622 1,914,048
--------- ---------
Total $1,969,995 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 September 30, 1995, the Partnership had
unfunded commitments of $114,300 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 nine months ended September 30, 1995, net cash provided by
operating activities totaled $342,313. The Partnership paid management
fees of $152,974 to the Managing General Partner, reimbursed related
parties for operating expenses of $134,530 and paid $1,553 to affiliated
partnerships for net loan participations. In addition, other operating
expenses of $345,255 were paid. The Partnership received $976,625 in
interest and other income.
During the nine months ended September 30, 1995, the Partnership issued
$1,138,035 in secured notes receivable primarily to a portfolio company
in the computers and computer equipment industry. Repayments of notes
receivable provided cash of $165,836 and proceeds from sales of equity
investments totaled $678,502. As of September 30, 1995, the Partnership
was committed to fund up to $114,300 related to bridge and term note
financings to existing borrowing companies.
All management fees which are due have been paid through September 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.
Cash and cash equivalents at September 30, 1995 were $1,969,995. 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 $78,155 and $1,152,352 for the quarters ended September
30, 1995 and 1994, respectively. The change was primarily due to an
$820,499 increase in the change in net unrealized fair value of equity
investments, a $710,000 increase in the change in net unrealized fair
value of secured notes receivable, and a $340,389 increase in net
realized gain from sales of equity investments. These changes were
partially offset by a $900,112 increase in realized losses from
investment write-downs.
The change in the fair value of equity investments reflected a net
increase in the fair value of the Partnership's holdings. During the
quarter ended September 30, 1995, the decrease of $328,540 was mostly
due to the sale of 3Com Corporation as gains were realized. During the
quarter ended September 30, 1994, the decrease of $1,149,039 was mostly
due to a portfolio company in the medical industry.
The Partnership recorded increases of $721,000 and $11,000 in the fair
value of secured notes receivable during the quarters ended September
30, 1995 and 1994, respectively, based upon the level of loan loss
reserves deemed adequate by the Managing General Partner at the
respective quarter ends. The 1995 increase was primarily due to the
write-down of secured notes receivable from a portfolio company in the
medical industry as this investment had been reflected with fair value
less than cost.
During the quarter ended September 30, 1995, net realized gain from
sales of equity investments of $339,267 primarily related to the sale of
3Com Corporation. Losses of $1,122 were realized in 1994.
The Partnership recorded realized losses from investment write-downs of
$1,073,925 and $173,813 during the third quarters of 1995 and 1994,
respectively. These write-downs were primarily related to secured notes
receivable from portfolio companies in the medical and
industrial/business automation industries.
Secured notes receivable interest income were $472,930 and $317,371
during the quarters ended September 30, 1995 and 1994, respectively.
The increase was primarily due to the receipt of a secured note
receivable interest payment from a portfolio company in the computer
software and systems industry which had been on nonaccrual status. This
increase was partially offset by a decrease in interest income as a
result of lower notes receivable balances.
Other investment expenses were $76,379 for the quarter ended September
30, 1995, related to legal proceedings with a third party for a
portfolio company in the retail/consumer products industry. The
Managing General Partner is subject to indemnification for such costs
pursuant to the Partnership Agreement. There were no such costs in the
same period in 1994.
Total operating expenses were $110,123 and $145,474 for the quarters
ended September 30, 1995 and 1994, respectively. During the three
months ended September 30, 1994, the Partnership received a
reimbursement of approximately $28,000 in collection expenses, of which
$23,821 related to expenses incurred during the prior fiscal year when
the prior year operating expense limitation applied. Lending operation
and investment management expenses have been reduced by this
reimbursement with a $23,831 reduction to expenses absorbed by General
Partners. The decrease in total operating expenses was mostly due to
lower lending operations and investment management, and administrative
and investor services expenses from reduced overall portfolio
activities.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current nine months compared to corresponding nine months in the
- ----------------------------------------------------------------
preceding year
- --------------
Net losses were $1,244,317 and $3,773,974 for the nine months ended
September 30, 1995 and 1994, respectively. The decrease in net loss was
mainly due to a $4,007,885 increase in the change in net unrealized fair
value of equity investments, partially offset by a $1,379,000 decrease
in the change in net unrealized fair value of secured notes receivable
and a $429,007 increase in realized losses from investment write-downs.
In 1995, the increase in equity investment fair value of $2,513,162 was
primarily related to the write-downs of portfolio companies in the
medical and retail/consumer products industries as these investments had
been reflected with fair values less than cost. During the nine months
ended September 30, 1994, the decrease of $1,494,723 was primarily due
to a portfolio company in the medical industry.
The Partnership recorded a decrease in the fair value of secured notes
receivable of $302,000 for the nine months ended September 30, 1995
compared to an increase of $1,077,000 for the same period in 1994, based
upon the level of loan loss reserves deemed adequate by the Managing
General Partner at the respective quarter ends. The 1995 decrease was
mainly due to increases in notes receivable investments to a portfolio
company in the computers and computer equipment industry, partially
offset by the conversion of notes receivable to equity investments for a
portfolio company in the medical industry. The 1994 increase was
primarily related to the conversion of notes receivable to equity
investments for a portfolio company in the medical industry.
During the nine months ended September 30, 1995 and 1994, the
Partnership realized losses from investments write-downs of $4,497,452
and $4,068,445, respectively. Realized losses in 1995 primarily related
to equity and secured notes receivable investments in portfolio
companies in medical and retail/consumer industries. Realized losses in
1994 primarily related to secured notes receivable to a portfolio
company in the computers and computer equipment industry.
Net realized gain from sales of equity investments totaled $638,666 in
1995 mostly from sales of 3Com Corporation and Datalogix International,
Inc. In 1994, the realized gain of $425,431 substantially related to
the sale of Alantec.
Total operating expenses were $249,819 and $396,837 for the nine months
ended September 30, 1995 and 1994, respectively. In 1995 and 1994, the
General Partners absorbed $129,787 and $95,227 as explained in Note 2 to
the financial statements. The 1994 actual operating expenses were
reduced by collection expense reimbursements of $187,441 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. Had the limitation not been
in effect and the 1994 recovery not been received, total operating
expenses would have been $379,606 and $648,038 in 1995 and 1994,
respectively. The decrease was primarily due to lower overall portfolio
activities as discussed in the above section.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Partnership during the
quarter ended September 30, 1995.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 1995 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING SECURED INVESTORS III,
AN INCOME AND GROWTH PARTNERSHIP, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: November 10, 1995 By: /s/Frank R. Pope
------------------------------------
Frank R. Pope
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 12,916,955
<INVESTMENTS-AT-VALUE> 8,734,637
<RECEIVABLES> 0
<ASSETS-OTHER> 59,284
<OTHER-ITEMS-ASSETS> 1,969,995
<TOTAL-ASSETS> 10,763,916
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,648
<TOTAL-LIABILITIES> 90,648
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,855,586
<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> (4,182,318)
<NET-ASSETS> 10,673,268
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 998,684
<OTHER-INCOME> 4,450
<EXPENSES-NET> 599,827
<NET-INVESTMENT-INCOME> 403,307
<REALIZED-GAINS-CURRENT> (3,858,786)
<APPREC-INCREASE-CURRENT> 2,211,162
<NET-CHANGE-FROM-OPS> (1,244,317)
<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> (1,244,317)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 152,974
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 790,906
<AVERAGE-NET-ASSETS> 11,295,427
<PER-SHARE-NAV-BEGIN> 46
<PER-SHARE-NII> (9)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 37
<EXPENSE-RATIO> 5.31
<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>
