<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 March 31, 2000
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)
(650) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
No 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)
March 31, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Investments:
Notes receivable, net (cost basis of
$6,095,223 in 2000 and 1999) $3,061,223 3,061,223
Equity investments (cost basis
of $5,733,573 in 2000 and 1999) 1,756,563 1,756,563
--------- ---------
Total investments 4,817,786 4,817,786
Cash and cash equivalents 9,910 8,934
Restricted cash 33,500 33,500
Due from affiliated partnerships 6,129 6,129
Other assets 145,337 139,468
--------- ---------
Total assets $5,012,662 5,005,817
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 68,004 70,587
Due to related parties 436,428 610,100
Related party note payable (includes accrued
interest of $31,974 and $19,470 in
2000 and 1999, respectively) 606,974 319,470
--------- ---------
Total liabilities 1,111,406 1,000,157
Commitments and contingencies
(Notes 3, 7 and 8)
Partners' capital:
Limited Partners (399,977 Units
outstanding) 4,005,964 4,109,324
General Partners (104,708) (103,664)
--------- ---------
Total partners' capital 3,901,256 4,005,660
--------- ---------
Total liabilities and partners'
capital $5,012,662 5,005,817
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Income:
Short-term investment interest $ 596 3,905
------- -------
Total income 596 3,905
Costs and expenses:
Management fees 20,028 35,778
Operating expenses:
Lending operations and investment
management 14,033 49,964
Administrative and investor
services 41,647 86,960
Computer services 16,552 18,999
Professional fees 196 18,813
Expenses absorbed by General
Partners -- (6,344)
Interest expense 12,544 --
------- -------
Total operating expenses 84,972 168,392
------- -------
Total costs and expenses 105,000 204,170
------- -------
Net loss $(104,404) (200,265)
======= =======
Net loss per Unit $ (0.26) (0.50)
======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
2000 1999
------ ------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 596 3,905
Cash paid to vendors (27,782) (62,373)
Cash paid to related parties (246,838) (1,370,755)
------- ---------
Net cash used by operating activities (274,024) (1,429,223)
------- ---------
Cash flows from investing activities:
Repayments of secured notes receivable -- 807,578
------- ---------
Net cash provided by investing
activities -- 807,578
------- ---------
Cash flows from financing activities:
Proceeds from related party borrowings 275,000 --
------- ---------
Net cash provided by financing
activities 275,000 --
------- ---------
Net increase (decrease) in cash and cash
equivalents 976 (621,645)
Cash and restricted cash at
beginning of year 42,434 809,477
------- ---------
Cash and restricted cash
at March 31 $ 43,410 187,832
======= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
2000 1999
------ ------
<S> <C> <C>
Reconciliation of net loss
to net cash used by operating
activities:
Net loss $(104,404) (200,265)
Changes in:
Due to related parties (173,672) (1,225,965)
Accounts payable and accrued expenses 9,921 6,127
Other (5,869) (9,120)
------- ---------
Net cash used by operating
activities $(274,024) (1,429,223)
======= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partner, the Balance Sheets as of
March 31, 2000, and December 31, 1999, and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 2000 and 1999, 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, 1999.
The following notes to financial statements for activity through March 31,
2000, 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.
The Partnership is scheduled to terminate on December 31, 2000. If the
General Partners so determine, the Partnership can be further extended for
an additional two-year period or the Partnership will be liquidated in
accordance with the Partnership Agreement. The General Partners expect to
extend the term of the Partnership.
Partners' Capital Reclassification
- ----------------------------------
Commencing in the fourth quarter of 1999, the Partnership is including the
change in net unrealized fair value of investments in the profits and
losses allocated to partners' capital accounts based on a reevaluation of
the Partnership Agreement. The allocations of the net unrealized fair
value increase (decrease) from cost of investments, and resulting
reclassifications, were determined by applying the provisions of the
Partnership Agreement from the inception of the Partnership. The
reclassification has no effect on total partners' capital or the
Partnership's net income or loss for any period. The reclassifications
resulting from the reevaluation of the Partnership Agreement have the
effect of accelerating the allocation of profits or losses to partners'
capital accounts and, as a result, may permit the acceleration of
distributions to Partners to the extent allowable under the Partnership
Agreement.
The allocation of the net unrealized fair value decrease reclassified as of
March 31, 1999 follows:
Net Unrealized
Fair Value
Decrease
Limited General From Cost of
Partners Partners Investments Total
-------- -------- -------------- ---------
Partners' capital,
March 31, 1999,
before reclassification $11,749,570 (199,013) (4,590,903) 6,959,654
Allocation of net
unrealized fair value
decrease from cost (4,715,792) 124,889 4,590,903 --
---------- ------- --------- ---------
Partners' capital,
March 31, 1999,
as reclassified $ 7,033,778 (74,124) -- 6,959,654
========== ======= ========= =========
2. Financing Partnership Operations
--------------------------------
The General Partners have made loans to the Partnership to finance its
recurring losses from on-going operations. The Partnership has very
limited cash resources and primarily illiquid assets. The General Partners
are under no obligation to continue the financing of the Partnership's
daily operations and may elect to discontinue such support at any time
during the remaining life of the Partnership. The General Partners may
attempt to secure third party financing to continue operations using the
collateral value of the Partnership's remaining investments. It is likely
that a potential lender will require the remaining Partnership investments
be appraised by an independent third party, specifically to assess their
value as readily liquid collateral prior to any financing. The collateral
values determined by a lender may differ significantly from the investment
fair value reflected in these financial statements.
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the three months ended
March 31, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Management fees $ 20,028 35,778
Reimbursable operating expenses 53,138 115,356
Expenses absorbed by General Partners -- (6,344)
</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. Amounts due to related parties for such
expenses were $351,690 and $545,390 at March 31, 2000 and December 31,
1999, respectively.
Amounts payable for management fees were $84,738 and $64,710 at March 31,
2000 and December 31, 1999, respectively.
The Partnership reimburses the Managing General Partner and affiliates for
operating costs incurred in connection with the business of the
Partnership. The Partnership may not 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
as of March 31, 1999 and expenses absorbed by the General Partners totaled
$6,344. There were no expenses absorbed by the General Partners at March
31, 2000.
4. Notes Receivable, Net
---------------------
A complete listing of the Partnership's notes receivable at December 31,
1999, is included in the 1999 Annual Report on Form 10-K. There was no
notes receivable activity from January 1 through March 31, 2000.
5. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December 31,
1999, is included in the 1999 Annual Report on Form 10-K. There was no
investment activity from January 1 through March 31, 2000.
6. Cash and Cash Equivalents
-------------------------
At March 31, 2000, and December 31, 1999, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Demand and brokerage accounts $8,166 7,214
Money-market accounts 1,744 1,720
----- -----
Total $9,910 8,934
===== =====
</TABLE>
7. Notes Payable to Related Party
-----------------------------
In the first quarter of 2000, the Partnership borrowed $275,000 from
MARCorp, a portfolio company of the Partnership, under an unsecured
promissory note. An affiliated partnership owns more than 80% of MARCorp.
The note bears interest at 9% and both principal and interest are payable
on December 31, 2000. The terms of the note require that the note be
repaid prior to any distributions to partners. At March 31, 2000 and
December 31, 1999, notes payable to MARCorp totaled $575,000 and $300,000,
respectively.
8. 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 March 31, 2000, the Partnership had no unfunded commitments.
The Partnership, together with an affiliated partnership, guaranteed a note
payable of a portfolio company. The Partnership's share of the guarantee
is $502,500.
In December 1997, the Partnership, together with an affiliated partnership,
guaranteed equipment financing for a portfolio company by depositing
$50,000 collateral in an escrow account with the lending institution. The
Partnership funded $33,500 of this deposit. If the portfolio company fails
to repay the loan, the Partnership may lose the escrowed funds.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the three months ended March 31, 2000, net cash used by operating
activities totaled $274,024. The Partnership reimbursed related parties
for operating expenses of $246,838. Other operating expenses of $27,782
were paid and interest income of $596 was received.
During the quarter ended March 31, 2000, the Partnership borrowed $275,000
from a portfolio company in the computer and computer equipment industry.
Cash and restricted cash at March 31, 2000 were $43,410. The Partnership
is scheduled to terminate on December 31, 2000. If the General Partners so
determine, the Partnership can be further extended for an additional two-
year period or the Partnership will be liquidated in accordance with the
Partnership Agreement. The General Partners expect to extend the term of
the Partnership.
The General Partners have made loans to the Partnership to finance its
recurring losses from on-going operations. The Partnership has very
limited cash resources and primarily illiquid assets. The General Partners
are under no obligation to continue financing the Partnership's daily
operations and may elect to discontinue such support at any time during the
remaining life of the Partnership. The General Partners may attempt to
secure third party financing to continue operations using the collateral
value of the Partnership's remaining investments. It is likely that a
potential lender would require the remaining Partnership investment be
appraised by an independent third party, specifically to assess their value
as readily liquid collateral prior to any financing. The collateral values
determined by a lender may differ significantly from the investment fair
value reflected in these financial statements.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net losses were $104,404 and $200,265 for the quarters ended March 31, 2000
and 1999, respectively. The decrease in net loss was substantially due to
a decrease in operating expenses of $83,420 and a $15,750 decrease in
management fees.
Total operating expenses were $84,972 and $168,392 for the quarters ended
March 31, 2000 and 1999, respectively. The decrease is primarily
attributable to decreased investment monitoring activities and decreased
professional and administrative fees, partially offset by an increase in
interest expense.
Total management fees were $20,028 and $35,778 for the quarters ended March
31, 2000 and 1999, respectively. The decrease was due to a decrease in
assets under management.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
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 March 31, 2000.
(b) Financial Data Schedule for the three months ended and as of March 31,
2000 (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: May 11, 2000 By: /s/Michael R. Brenner
------------------------------------
Michael R. Brenner
Vice President
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 11,828,796
<INVESTMENTS-AT-VALUE> 4,817,786
<RECEIVABLES> 0
<ASSETS-OTHER> 151,466
<OTHER-ITEMS-ASSETS> 43,410
<TOTAL-ASSETS> 5,012,662
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,111,406
<TOTAL-LIABILITIES> 1,111,406
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,912,266
<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> (7,011,010)
<NET-ASSETS> 3,901,256
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 596
<OTHER-INCOME> 0
<EXPENSES-NET> 105,000
<NET-INVESTMENT-INCOME> (104,404)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (104,404)
<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> (104,404)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20,028
<INTEREST-EXPENSE> 12,544
<GROSS-EXPENSE> 106,050
<AVERAGE-NET-ASSETS> 3,953,458
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> (0.26)
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 2.7
</TABLE>
