<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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 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,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $6,865,297 and
$6,861,823 in 1996 and 1995,
respectively) $ 2,756,297 2,833,823
Equity investments (cost basis
of $3,301,907 and $3,447,006 in
1996 and 1995, respectively) 3,099,987 3,656,184
---------- ----------
Total investments 5,856,284 6,490,007
Cash and cash equivalents 6,696,481 7,046,622
Restricted cash 139,586 50,000
Other assets 27,909 200
Due from related parties 9,197 --
---------- ----------
Total $12,729,457 13,586,829
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 342,341 349,663
Due to affiliated partnerships 2,666 1,930
Due to related parties -- 36,737
Distributions payable -- 391,777
Other liabilities 28,262 30,873
---------- ---------
Total liabilities 373,269 810,980
Commitments and contingencies
(Notes 2 and 6)
Partners' capital:
Limited Partners
(Units outstanding of 399,977
for both 1996 and 1995) 16,743,243 16,743,243
General Partners (76,135) (148,572)
Net unrealized fair value (decrease)
increase from cost:
Secured notes receivable (4,109,000) (4,028,000)
Equity investments (201,920) 209,178
---------- ----------
Total partners' capital 12,356,188 12,775,849
---------- ----------
Total $12,729,457 13,586,829
========== ==========
</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,
------------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Secured notes receivable interest $ 36,279 127,329 147,751 459,594
Short-term investments interest 78,631 14,800 172,446 43,770
--------- --------- --------- ---------
Total income 114,910 142,129 320,197 503,364
Costs and expenses:
Management fees 62,886 50,599 124,175 103,749
Other investment expenses 9,581 120,655 39,581 120,655
Operating expenses:
Lending operations and investment
management 61,243 53,912 95,339 89,128
Administrative and investor
services 95,378 76,414 150,398 124,473
Computer services 27,384 15,696 39,648 32,071
Professional fees 18,745 14,608 27,190 23,811
Expenses absorbed by General
Partners (66,094) (39,739) (143,040) (129,787)
--------- --------- --------- ---------
Total operating expenses 136,656 120,891 169,535 139,696
--------- --------- --------- ---------
Total costs and expenses 209,123 292,145 333,291 364,100
--------- --------- --------- ---------
Net operating (loss) income (94,213) (150,016) (13,094) 139,264
Net realized gain from sales of
equity investments 35,378 288,655 106,823 299,399
Recoveries from investments
previously written off -- -- 103,807 --
Realized losses from investment
write-downs (10,000) (3,423,527) (125,099) (3,423,527)
--------- --------- --------- ---------
Net realized (loss) income (68,835) (3,284,888) 72,437 (2,984,864)
Change in net unrealized
fair value:
Secured notes receivable (203,000) 229,000 (81,000) (1,023,000)
Equity investments (246,437) 2,829,736 (411,098) 2,841,702
--------- --------- --------- ---------
Net loss $ (518,272) (226,152) (419,661) (1,166,162)
========= ========= ========= =========
Net realized loss per Unit $ -- (8) -- (7)
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 257,694 377,965
Cash paid to vendors (139,556) (284,976)
Cash paid to related parties (302,181) (141,249)
Cash received from affiliated
partnerships 736 8,130
Reimbursement of collection expenses
from a portfolio company 24,870 --
--------- ---------
Net cash used by operating activities (158,437) (40,130)
--------- ---------
Cash flows from investing activities:
Secured notes receivable issued (251,102) (999,134)
Repayments of secured notes receivable 310,131 96,723
Proceeds from sales of equity
investments 126,823 266,261
Recoveries from investments previously
written off 103,807 --
Purchase of equity investments -- (471)
--------- ---------
Net cash provided (used) by
investing activities 289,659 (636,621)
--------- ---------
Cash flows from financing activities:
Distributions to General and Limited
Partners (391,777) --
--------- ---------
Net cash used by financing activities (391,777) --
--------- ---------
Net decrease in cash and cash
equivalents (260,555) (676,751)
Cash and restricted cash at beginning
of year 7,096,622 1,921,850
--------- ---------
Cash and restricted cash at June 30 $ 6,836,067 1,245,099
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Reconciliation of net loss
to net cash used by operating
activities:
Net loss $ (419,661) (1,166,162)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Net realized gain from sales of
equity investments (106,823) (299,399)
Realized losses from investment
write-downs 125,099 3,423,527
Recoveries from investments previously
written off (103,807) --
Change in net unrealized fair value:
Secured notes receivable 81,000 1,023,000
Equity investments 411,098 (2,841,702)
Amortization of discounts on secured
notes receivable (66,809) (4,002)
Changes in:
Accrued interest on secured and
convertible notes receivable 4,306 (31,397)
Due to/from related parties
and affiliated partnerships (45,198) 24,167
Accounts payable and accrued expenses (7,322) (63,611)
Other assets (27,709) (114,081)
Other changes, net (2,611) 9,530
--------- ---------
Net cash used by operating
activities $ (158,437) (40,130)
========= =========
Non-cash investing activities:
Conversion of secured notes
receivable to equity
investments $ -- 2,908,450
========= =========
</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, 1996, and December 31, 1995, and the related Statements of
Operations for the three and six months ended June 30, 1996 and 1995,
and Statements of Cash Flows for the six months ended June 30, 1996 and
1995, 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,
1995. The following notes to financial statements for activity through
June 30, 1996, supplement those included in the Annual Report on Form
10-K. Allocation of income and loss to Limited and General Partners is
based on cumulative income and loss. Adjustments, if any, are reflected
in the current quarter balances. Certain 1995 balances have been
reclassified to conform with the 1996 financial statement presentation.
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, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Management fees $ 124,175 103,749
Reimbursable operating expenses 275,112 183,324
Expenses absorbed by General Partners (143,040) (129,787)
</TABLE>
Certain reimbursable expenses have been allocated and accrued based upon
interim estimates prepared by the Managing General Partner and are
adjusted to actual cost periodically. At June 30, 1996, and December
31, 1995, due from related parties for such expenses was $9,197 at June
30, 1996, compared to due to related parties of $36,737 at December 31,
1995.
As set forth in the Partnership Agreement, the Partnership shall
reimburse the General Partners for operational costs incurred by the
General Partners in connection with the business of the Partnership.
The Partnership may not pay or reimburse the General Partners for
operational costs that aggregate more than 1% of total Limited Partner
capital contributions per year. For purposes of this limitation, the
Partnership's operating year begins May 1st. This limitation was in
effect in February and expenses absorbed by the General Partners totaled
$143,040 and $129,787 for the six months ended June 30, 1996 and 1995,
respectively.
Within the normal course of business, the Partnership participates with
affiliated partnerships in secured notes receivable issued to
nonaffiliated borrowing companies. The Partnership may also
reparticipate such secured notes receivable amongst affiliated
partnerships to meet business needs. At June 30, 1996, and December 31,
1995, the amounts due to affiliated partnerships were $2,666 and $1,930,
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, 1995, is included in the 1995 Annual Report. Activity from January
1 through June 30, 1996, consisted of
<TABLE>
<CAPTION>
January 1 -
June 30, 1996
------------------
Investment Cost Fair
Industry/Company Date Position Basis Value
- ---------------- ---------- -------- ----- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $3,447,006 3,656,184
--------- ---------
Significant changes:
WARRANTS:
- --------
Biotechnology
- -------------
Hybridon, Inc. 03/91 7,142 Common
shares at $3.50;
exercised 01/96 (2,500) (32,139)
Computer Software and Systems
- -----------------------------
Wasatch Education 06/95 1,159,546 Common
Systems Corporation shares at $0.50;
expiring 06/00 0 (217,415)
STOCKS:
- ------
Computers and Computer Equipment
- --------------------------------
MTI Technology 04/94 20,927 Common
Corporation shares (115,099) 5,755
Industrial/Business Automation
- ------------------------------
Cyclean, Inc. 09/94- 225,088 Series D
04/96 Preferred shares 0 (242,988)
Cyclean of Los Angeles, 03/95 Class A LLC Unit-
LLC 44% ownership 0 (11,091)
Medical
- -------
Allegiant Physicians 08/94- 49,000 Common
Services, Inc. 11/95 shares (17,500) (81,667)
Microelectronics
- ----------------
Celeritek, Inc. 05/94 6,784 Common
shares 0 25,114
Retail/Consumer Products
- ------------------------
S-TRON 05/93 Subordinated note,
$390,000 principal
amount (0) (0)
S-TRON 05/93 390,000 Common
shares (0) (0)
S-TRON 05/93 3,650,356 Series
1 and 2 Preferred
shares (0) (0)
--------- ---------
Total significant changes (135,099) (554,431)
Other changes, net (10,000) (1,766)
--------- ---------
Total equity investments at June 30, 1996 $3,301,907 3,099,987
========= =========
</TABLE>
Marketable Equity Securities
- ----------------------------
At June 30, 1996, and December 31, 1995, marketable equity securities
had aggregate costs of $115,495 and $248,130, respectively, and
aggregate market values of $177,654 and $230,994, respectively. The net
unrealized gain/loss at June 30, 1996, and December 31, 1995, included
gross gains of $85,701 and $127,260, respectively.
Allegiant Physicians Services, Inc.
- -----------------------------------
During the first six months of 1996, the Partnership exercised its
option to sell all of its 49,000 common shares to the company for
$81,725 resulting in a realized gain of $64,225.
Cyclean, Inc./Cyclean of Los Angeles, LLC
- -----------------------------------------
During the second quarter of 1996, the Partnership received 25,495
Series D Preferred shares as a stock dividend while another 112,500
shares were received pursuant to a prior debt restructure.
Subsequently, the Managing General Partner determined that the fair
value of the Partnership's investment has declined and accordingly, the
Partnership recorded a $254,079 decrease in fair value at June 30, 1996.
Hybridon, Inc.
- --------------
In January of 1996, Hybridon, Inc., completed its initial public
offering. The Partnership exercised its warrant holdings without cash
and received 5,062 shares of common stock, which were subsequently sold
for total proceeds of $45,098. The total realized gain from these
transactions was $42,598.
MTI Technology Corporation
- --------------------------
During the first quarter of 1996, the Managing General Partner
determined that there had been an other than temporary decline in value
of the Partnership's investment. As a result, the Partnership realized
a loss of $115,099. The Partnership also recorded an increase in fair
value of $5,755 to reflect the unrestricted market value at June 30,
1996.
S-TRON
- ------
The company was unsuccessful in its efforts to obtain a major government
contract; as a result, company operations ceased during March of 1996.
This investment, which had previously been written off, is no longer
held by the Partnership.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations or the elimination of a discount relating to selling
restrictions for publicly-traded portfolio companies.
4. Secured Notes Receivable, Net
-----------------------------
Activity from January 1 through June 30, 1996, consisted of:
<TABLE>
<S> <C>
Balance at January 1, 1996 $ 2,833,823
1996 activity:
Secured notes receivable issued 251,102
Repayments of secured notes receivable (310,131)
Increase in allowance for loan losses (81,000)
Amortization of discounts related to warrants 66,809
Decrease in accrued interest (4,306)
---------
Total secured notes receivable,
net, at June 30, 1996 $ 2,756,297
==========
</TABLE>
The Partnership had accrued interest of $4,306 at December 31, 1995.
There was no accrued interest at June 30, 1996.
Activity in the allowance for loan losses was as follows:
<TABLE>
<S> <C>
Balance at January 1, 1996 $ 4,028,000
Decrease in provision for loan losses (22,807)
Recoveries of previous write-offs:
Medical 103,807
---------
Total recoveries 103,807
---------
Change in net unrealized fair value of secured
notes receivable 81,000
---------
Balance at June 30, 1996 $ 4,109,000
=========
</TABLE>
The provision for loan losses is generally comprised of realized loan
losses, net of recognized recoveries, and a change in net unrealized
fair value based upon the level of loan loss reserves deemed adequate by
the Managing General Partner.
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.
Secured notes receivable of $6,365,292 and $6,357,717 were on nonaccrual
status due to uncertainty of certain borrowers' financial conditions at
June 30, 1996, and December 31, 1995, respectively. The Managing
General Partner continues to monitor the progress of these companies.
The fair value at June 30, 1996, reflected the Managing General
Partner's estimate of collectibility of these notes.
During the first quarter of 1996, the Partnership received approximately
$35,000 from a portfolio company in the medical industry to pay off its
principal balance. In addition, the Partnership was reimbursed $24,870
for legal, consulting, and other costs incurred in prior periods in the
defense of the Partnership's secured note rights through bankruptcy
court. The reimbursement was recorded as a reduction to lending
operations and investment management expense.
All notes are secured by specific assets of the borrowing companies.
The interest rate on notes issued during the six months ended June 30,
1996, ranged from 12% to 14%.
5. Cash and Cash Equivalents
-------------------------
At June 30, 1996, and December 31, 1995, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand and brokerage accounts $ 40,339 2,071
Money-market accounts 6,656,142 7,044,551
--------- ---------
Total $6,696,481 7,046,622
========= =========
</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 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, 1996, the Partnership had unfunded
commitments of $24,300 related to term note financings to an existing
borrowing company.
In June of 1996, a lawsuit was filed by a third party in the Los Angeles
County Superior Court against an affiliated partnership, the Managing
General Partner and certain of its officers, and Cyclean, Inc., a
portfolio company in the industrial/business automation industry. The
Partnership participated in investments to the portfolio company with
the affiliated partnership. The third party has asserted claims for
interference with contractual relations against the defendants. The
plaintiff further alleges that the affiliated partnership agreed to
purchase its interest in an entity partially owned by the plaintiff and
seeks unspecified damages against the affiliated partnership and its
affiliates. The Managing General Partner believes that the affiliated
partnership has adequate defenses and intends to pursue this matter
vigorously. The Managing General Partner believes the outcome will not
have a material adverse effect on the Partnership's financial position
at June 30, 1996.
<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, 1996, net cash used by operating
activities totaled $158,437. The Partnership paid management fees of
$124,175 to the Managing General Partner, reimbursed related parties for
operating expenses of $178,006 and received $736 from affiliated
partnerships for net loan participations. Other operating expenses of
$139,556 were paid and interest income of $257,694 was received. In
addition, the Partnership received a collection expense reimbursement of
$24,870 from a portfolio company. Distributions of $391,777 were paid
to Limited and General Partners.
During the six months ended June 30, 1996, the Partnership issued
$251,102 in secured notes receivable primarily to a portfolio company in
the computers and computer equipment industry. Repayments of notes
receivable provided cash of $310,131 and proceeds from sales of equity
investments totaled $126,823. Recoveries of $103,807 were received for
investments previously written off. As of June 30, 1996, the
Partnership was committed to fund up to $24,300 to an existing borrowing
company related to term note financings.
Cash and restricted cash at June 30, 1996, were $6,836,067. 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 $518,272 and $226,152 for the quarters ended June 30,
1996 and 1995, respectively. The increase in net loss was substantially
due to decreases of $3,076,173 and $432,000 in the change in the net
unrealized fair value of equity investments and secured notes
receivable, respectively, and a $253,277 decrease in net realized gain
from sales of equity investments. These changes were substantially
offset by a $3,413,527 decrease in realized losses from investment
write-downs.
During the quarter ended June 30, 1996, the $246,437 decrease in equity
investment fair value was mainly due to portfolio companies in the
industrial/business automation industry. During the same period in
1995, the increase of $2,829,736 was primarily due to the $3,423,527
write-downs which were mostly related to portfolio companies in the
medical and retail/consumer products industries as these investments had
been reflected with fair values less than cost. In 1996, the Integrated
Network Corporation warrant expired resulting in a realized loss of
$10,000.
The Partnership recorded a $203,000 decrease in secured notes receivable
fair value for the quarter ended June 30, 1996, compared to an increase
of $229,000 for the same period in 1995 based upon the levels of loan
loss reserves deemed adequate by the Managing General Partner at the
respective quarter ends.
During the three months ended June 30, 1996, the Partnership recorded
$35,378 in net realized gain from sales of Allegiant Physicians
Services, Inc., and Hybridon, Inc. In 1995, the Partnership realized a
gain of $288,655 primarily from the sale of Datalogix International,
Inc., and the non-cash exercise of the Primary Access Corporation
warrant.
Total operating expenses were $136,656 and $120,891 for the quarters
ended June 30, 1996 and 1995, respectively. For the three months ended
June 30, 1996 and 1995, the General Partners absorbed $66,094 and
$39,739, respectively, as explained in Note 2 to the financial
statements. Had the limitation not been in effect, total operating
expenses for the three months ended June 30, 1996 and 1995 would have
been $202,750 and $160,630, respectively. The increase was mainly due
to allocated overhead costs in 1996 as permitted by the Partnership
Agreement.
Other investment expenses of $9,581 and $120,655 for the quarters ended
June 30, 1996 and 1995, respectively, primarily reflected litigation
costs with a third party related to a portfolio company in the
retail/consumer products industry.
Secured notes receivable interest income totaled $36,279 and $127,329
for the quarters ended June 30, 1996 and 1995, respectively. The 1995
amount included nonrecurring warrant income of $90,000 from the
Integrated Network Corporation warrant redemption. Secured notes
receivable interest income would have been $32,329 without such income.
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 losses totaled $419,661 and $1,166,162 for the six months ended June
30, 1996 and 1995, respectively. The decrease in net loss was
substantially due to a $3,252,800 decrease in the change in the net
unrealized fair value of equity investments, a $311,843 decrease in
secured notes receivable interest income, and a $192,576 decrease in net
realized gain from sales of equity investments. These changes were
mostly offset by a $3,298,428 decrease in realized losses from
investment write-downs, and a $942,000 decrease in the change in net
unrealized fair value of secured notes receivable.
In 1996, the decrease in equity investment fair value of $411,098 was
primarily due to portfolio companies in the industrial/business
automation and computer software and systems industries. During the
same period in 1995, the increase of $2,841,702 was primarily due to the
$3,423,527 write-downs which were mostly related to portfolio companies
in the medical and retail/consumer products industries as these
investments had been reflected with a fair value less than cost.
Realized losses of $125,099 in 1996 primarily related to a portfolio
company in the computers and computer equipment industry.
Secured notes interest income were $147,751 and $459,594 during the six
months ended June 30, 1996 and 1995, respectively. The 1995 income was
higher partially due to a cash collection of approximately $166,000 in
interest income from a portfolio company in the computer software and
systems industry that was previously on nonaccrual status. In addition,
the 1995 income included a nonrecurring warrant income of $90,000 as
mentioned in the above section. Had the above cash collection and
warrant redemption not occurred, secured notes receivable interest
income would have been approximately $204,000. The decrease was
primarily due to lower interest-bearing notes receivable balances.
In 1996, the net realized gain of $106,823 related to the sales of
Allegiant Physicians Services, Inc., and Hybridon, Inc. In 1995, the
net realized gain of $299,399 mostly related to the sales of Datalogix
International, Inc., and Pinnacle Systems, Inc.
In 1996 and 1995, the Partnership recorded decreases of $81,000 and
$1,023,000, respectively, in the secured notes receivable fair value
based upon the level of loan loss reserves deemed adequate by the
Managing General Partner at the respective quarter ends.
In 1996, the Partnership recognized recoveries of $103,807, related to a
portfolio company in the medical industry. No such recoveries were
recorded in 1995.
II. OTHER INFORMATION
Item 1. Legal Proceedings
As disclosed in Note 6 to the financial statements, there is pending
litigation to which the Partnership is an indirect party.
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, 1996.
(b) Financial Data Schedule for the six months ended and as of June 30,
1996 (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 9, 1996 By: /s/Debbie A. Wong
------------------------------------
Debbie A. Wong
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 10,167,204
<INVESTMENTS-AT-VALUE> 5,856,284
<RECEIVABLES> 0
<ASSETS-OTHER> 37,106
<OTHER-ITEMS-ASSETS> 6,836,067
<TOTAL-ASSETS> 12,729,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 373,269
<TOTAL-LIABILITIES> 373,269
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,667,108
<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> (4,310,920)
<NET-ASSETS> 12,356,188
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 320,197
<OTHER-INCOME> 0
<EXPENSES-NET> 333,291
<NET-INVESTMENT-INCOME> (13,094)
<REALIZED-GAINS-CURRENT> 85,531
<APPREC-INCREASE-CURRENT> (492,098)
<NET-CHANGE-FROM-OPS> (419,661)
<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> (419,661)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 124,175
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 501,555
<AVERAGE-NET-ASSETS> 12,566,019
<PER-SHARE-NAV-BEGIN> 42
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 42
<EXPENSE-RATIO> 3
<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>
