-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U9XXoddmTbidPSKH57ZL1j5ALLBU1Ok8IPaaFKc+HPeuSeItte0bRT2DE4V2kImy mxLITzZ5q70cppoMq3JT8A== 0000898733-96-000422.txt : 19960620 0000898733-96-000422.hdr.sgml : 19960620 ACCESSION NUMBER: 0000898733-96-000422 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUTECH RESEARCH & DEVELOPMENT PARTNERSHIP III CENTRAL INDEX KEY: 0000794357 STANDARD INDUSTRIAL CLASSIFICATION: 8731 IRS NUMBER: 770129484 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20081 FILM NUMBER: 96565760 BUSINESS ADDRESS: STREET 1: 440 MISSION COURT STE 250 CITY: FREMONT STATE: CA ZIP: 94539 BUSINESS PHONE: 5106561855 10-Q 1 PRUTECH RESEARCH & DEVELOPMENT PARTNERSHIP III SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ______________________ Commission file number 0-20081 PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP III - - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) California 77-0129484 - - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 440 Mission Court, Suite 250, Fremont, California 94539 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (510) 656-1855 N/A - - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report 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 _CK_ No __ Part I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP III (a limited partnership) STATEMENTS OF FINANCIAL CONDITION (unaudited)
March 31, December 31, 1996 1995 - - --------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 294,110 $ 480,692 Investments in equity securities 15,360,314 19,182,479 Other asset 216,669 216,669 ----------- ------------ Total assets $15,871,093 $19,879,840 ----------- ------------ ----------- ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Accrued management fee $ 204,670 $ 204,670 Accrued expenses and other liabilities 83,579 73,091 ----------- ------------ Total liabilities 288,249 277,761 ----------- ------------ Contingencies Partners' capital Unitholders (40,934 units issued and outstanding) 7,293,802 7,505,854 General partner 818,161 841,722 Unrealized gain on investments in equity securities 7,470,881 11,254,503 ----------- ------------ Total partners' capital 15,582,844 19,602,079 ----------- ------------ Total liabilities and partners' capital $15,871,093 $19,879,840 ----------- ------------ ----------- ------------ - - --------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements
2 PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP III (a limited partnership) STATEMENTS OF OPERATIONS (unaudited)
Three months ended March 31, ------------------------- 1996 1995 - - -------------------------------------------------------------------------------------------------- REVENUES Gain on sale of investments in equity securities $3,621,513 $4,256,226 Interest and other income 16,253 15,246 Termination of royalty rights -- 516,870 ---------- ---------- 3,637,766 4,788,342 ---------- ---------- EXPENSES Management fee 204,670 204,670 General and administrative 30,131 28,779 Interest -- 18,070 ---------- ---------- 234,801 251,519 ---------- ---------- Net income $3,402,965 $4,536,823 ---------- ---------- ---------- ---------- ALLOCATION OF NET INCOME Unitholders $3,062,668 $4,083,141 ---------- ---------- ---------- ---------- General partner $ 340,297 $ 453,682 ---------- ---------- ---------- ---------- Net income per unit $ 74.82 $ 99.75 ---------- ---------- ---------- ---------- - - --------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (unaudited)
UNREALIZED GENERAL GAIN ON UNITHOLDERS PARTNER INVESTMENTS TOTAL - - ----------------------------------------------------------------------------------------------------- Partners' capital--December 31, 1995 $7,505,854 $ 841,722 $11,254,503 $19,602,079 Net income 3,062,668 340,297 -- 3,402,965 Distribution (3,274,720 ) (363,858) -- (3,638,578) Change in unrealized gain on investments in equity securities -- -- (3,783,622 ) (3,783,622) ----------- --------- ----------- ----------- Partners' capital--March 31, 1996 $7,293,802 $ 818,161 $7,470,881 $15,582,844 ----------- --------- ----------- ----------- ----------- --------- ----------- ----------- - - ----------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements
3 PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP III (a limited partnership) STATEMENTS OF CASH FLOWS (unaudited)
Three months ended March 31, --------------------------- 1996 1995 - - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Interest and other income received $ 16,253 $ 15,246 Royalty income received -- 13,942 Management fee paid (204,670) (1,023,350) General and administrative expenses paid (17,710) (23,856) Evaluation and monitoring expenses paid (1,933) (1,854) Interest paid -- (55,742) ----------- ----------- Net cash used in operating activities (208,060) (1,075,614) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the sale of investments in equity securities 3,660,056 4,263,417 Proceeds from the termination of royalty rights -- 516,870 ----------- ----------- Net cash provided by investing activities 3,660,056 4,780,287 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Distributions (3,638,578) (1,182,538) Repayment of note payable -- (1,622,223) ----------- ----------- Net cash used in financing activities (3,638,578) (2,804,761) ----------- ----------- Net (decrease) increase in cash and cash equivalents (186,582) 899,912 Cash and cash equivalents at beginning of period 480,692 152,084 ----------- ----------- Cash and cash equivalents at end of period $ 294,110 $ 1,051,996 ----------- ----------- ----------- ----------- RECONCILIATION OF NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES Net income $ 3,402,965 $ 4,536,823 ----------- ----------- Adjustments to reconcile net income to net cash used in operating activities: Gain on sale of investments in equity securities (3,621,513) (4,256,226) Termination of royalty rights -- (516,870) Changes in: Accrued expenses and other liabilities 10,488 (34,603) Royalties receivable -- 13,942 Accrued management fee -- (818,680) ----------- ----------- Total adjustments (3,611,025) (5,612,437) ----------- ----------- Net cash used in operating activities $ (208,060) $(1,075,614) ----------- ----------- ----------- ----------- - - ---------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements
4 PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP III (a limited partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (unaudited) A. General These financial statements have been prepared without audit. In the opinion of management, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of PruTech Research and Development Partnership III (the ``Partnership'') as of March 31, 1996 and the results of its operations and its cash flows for the three months ended March 31, 1996 and 1995. However, the operating results for the interim periods may not be indicative of the results expected for the full year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1995. Certain balances for prior periods have been reclassified to conform with current financial statement presentation. B. Investments During the first quarter of 1996, the Partnership sold its remaining 75,000 shares of Forest Laboratories, Inc. common stock with a cost basis of $6,130 resulting in a gain of $3,594,350 and 4,334 shares of Kopin Corporation common stock with a cost basis of $32,413 resulting in a gain of $27,163. Investments in marketable equity securities available-for-sale include the following:
March 31, 1996 December 31, 1995 ------------------------------------------------------- ------------------------------------------------------ Gross unrealized Carrying Gross unrealized Carrying Shares Cost basis gains value Shares Cost basis gains value - - ----------------------------------------------------------------------- --------------------------------------------- Creative BioMolecules, Inc.-Common Stock 724,282 $2,370,177 $ 4,419,967 $ 6,790,144 724,282 $2,370,177 $ 2,699,797 $ 5,069,974 Forest Laboratories, Inc.- Common Stock -- -- -- -- 75,000 6,130 3,387,620 3,393,750 Kopin Corporation- Common Stock 537,333 4,019,256 1,488,414 5,507,670 541,667 4,051,669 3,667,086 7,718,755 Somatix Therapy Corporation- Common Stock 500,000 1,500,000 1,562,500 3,062,500 500,000 1,500,000 1,500,000 3,000,000 ---------- ---------------- ------------- ---------- ---------------- ------------ $7,889,433 $ 7,470,881 $15,360,314 $7,927,976 $ 11,254,503 $ 19,182,479 ---------- ---------------- ------------- ---------- ---------------- ------------ ---------- ---------------- ------------- ---------- ---------------- ------------
The gross unrealized gains would be allocated 90% to the Unitholders and 10% to R&D Funding Corp (the ``General Partner'') if realized at March 31, 1996; however, there is no assurance that the Partnership would receive these amounts in the event of the sale of its position in these securities. 5 C. Related Parties The General Partner and its affiliates perform certain services for the Partnership (for which they are reimbursed through the management fee) which include, but are not limited to: accounting and financial management; registrar, transfer and assignment functions; asset management; investor communications and other administrative services. The Partnership also reimburses an affiliate of the General Partner for printing services. The management fee and printing costs were:
Three months ended March 31, --------------------- 1996 1995 - - ----------------------------------------------------------- Management fee $204,670 $204,670 Printing 5,925 3,165 -------- -------- $210,595 $207,835 -------- -------- -------- --------
Printing costs payable to an affiliate of the General Partner (which are included in accrued expenses and other liabilities) as of March 31, 1996 and December 31, 1995 were $20,342 and $16,464, respectively. Prudential Securities Incorporated, an affiliate of R&D Funding Corp, owned 724 units in the Partnership at March 31, 1996. The Partnership maintains an account with the Prudential Institutional Liquidity Portfolio Fund, an affiliate of R&D Funding Corp, for investment of its available cash in short-term instruments pursuant to the guidelines established by the Partnership Agreement. The Partnership has engaged in research and development co-investment projects with PruTech Research and Development Partnership, PruTech Research and Development Partnership II and PruTech Project Development Partnership (collectively, the ``PruTech R&D Partnerships''), for which R&D Funding Corp serves as the general partner. The allocation of the co-investment projects' profits or losses among the PruTech R&D Partnerships is consistent with the costs incurred to fund the research and development projects. D. Contingencies On April 15, 1994 a multiparty petition captioned Mack et al. v. Prudential Securities Incorporated et al. (Cause No. 94-17695) was filed in the 80th Judicial District Court of Harris County, Texas, purportedly on behalf of investors in the Partnership against the Partnership, the General Partner, Prudential Securities Incorporated, The Prudential Insurance Company of America and a number of other defendants. The petition alleges common law fraud and fraud in the inducement and negligent misrepresentation in connection with the offering of the Partnership units; negligence and breach of fiduciary duty in connection with the operation of the Partnership; civil conspiracy; and violations of the Federal Securities Act of 1933 (sections 11 and 12), and of the Texas Securities and Deceptive Trade Practices statutes. The suit seeks, among other things, compensatory and punitive damages, costs and attorneys' fees. The ultimate outcome of this litigation as well as the impact on the Partnership cannot presently be determined. The General Partner, Prudential Securities Incorporated and the Partnership believe they have meritorious defenses to the complaint and intend to vigorously defend themselves against this action. 6 PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP III (a limited partnership) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources As of March 31, 1996, the Partnership had approximately $294,000 of cash and cash equivalents which is a decrease of approximately $187,000 as compared to December 31, 1995. This decrease was primarily due to the excess of the January 1996 distribution and payment of operating expenses over proceeds from the sale of stock as further discussed below. As of March 31, 1996, the Partnership had approximately $7.9 million invested in equity securities with an aggregate market value which exceeded its cost. Certain of these investments are in development stage companies which are more speculative and higher in risk than other equity investments. Additionally, the realization of this market value is further impacted by certain sale restrictions and market volume capacity. The amount to be distributed by the Partnership in future quarters will be based on the extent to which the market value of its investments can be realized and, to a lesser extent, from the revenue stream from royalties and interest income. During the three months ended March 31, 1996 and 1995, royalty positions did not generate royalty income for the Partnership. In January 1996, the Partnership sold its remaining 75,000 shares of Forest Laboratories, Inc. (``Forest'') common stock for approximately $3,600,000. The proceeds from the sale were used to pay the January 1996 distribution discussed below. During the first quarter of 1996, the Partnership sold 4,334 shares of Kopin Corporation (``Kopin'') common stock for approximately $60,000. In January 1996, the Partnership paid a distribution of approximately $3,639,000. Unitholders received a total of approximately $3,275,000 ($80 per unit) and the General Partner received the remainder. Results of Operations The Partnership's net income decreased by approximately $1,134,000 for the three months ended March 31, 1996 as compared to the same period in 1995 due to a decrease in gains on the sale of investments in equity securities and income from the termination of royalty rights recorded in 1995. During the first quarter of 1996, gains totalling approximately $3,622,000 were recorded on the sale of common stock of Forest and Kopin as discussed above as compared to a gain of approximately $4,256,000 on the sale of 88,000 shares of Forest common stock during the first quarter of 1995. In March 1995, the Partnership and the MacNeal-Schwendler Corporation (``MNS'') agreed to terminate the Partnership's contractual rights with respect to MNS software and to transfer the technology relating to the software to MNS in exchange for approximately $517,000. No further royalty payments will be received by the Partnership from MNS as a result of this agreement. Interest expense was eliminated following the repayment of the Partnership's note and related interest payable during February 1995. Interest expense recorded for the three months ended March 31, 1995 was approximately $18,000. 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings--This information is incorporated by reference to Note D to the financial statements filed herewith in Item 1 of Part 1 of the Registrant's Quarterly Report. Item 2. Changes in Securities--None Item 3. Defaults Upon Senior Securities--None Item 4. Submission of Matters to a Vote of Security Holders--None Item 5. Other Information--None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits-- PruTech Research and Development Partnership III Agreement of Limited Partnership (incorporated by reference to Exhibit 3.1 included with Registrant's Form S-1 Registration Statement, File No. 33-6091, filed on June 3, 1986) First Amendment to the Agreement of Limited Partnership of PruTech Research and Development Partnership III (incorporated by reference to Exhibit 3 included with Registrant's Annual Report on Form 10-K filed March 28, 1992) Financial Data Schedule (filed herewith) (b) Reports on Form 8-K Registrant's Current Report of Form 8-K dated January 9, 1996, as filed with the Securities and Exchange Commission on January 23, 1996, relating to Item 2 regarding the sale of Forest Laboratories, Inc. common stock. 8 SIGNATURES Pursuant to the requirements 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. PruTech Research and Development Partnership III By: R&D Funding Corp A Delaware corporation, General Partner By: /s/ Russell L. Allen Date: May 15, 1996 ---------------------------------------- Russell L. Allen President and Director for the Registrant By: R&D Funding Corp A Delaware corporation, General Partner By: /s/ Steven Carlino Date: May 15, 1996 ---------------------------------------- Steven Carlino Vice President and Chief Accounting Officer for the Registrant 9 EX-27 2 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 The Schedule contains summary financial information extracted from the financial statements for PruTech Research & Development Partnership III and is qualified in its entirety by reference to such financial statements 0000794357 PruTech Research & Development Partnership III 1 Dec-31-1996 Jan-1-1996 Mar-31-1996 3-Mos 294,110 15,360,314 216,669 0 0 15,871,093 0 0 15,871,093 288,249 0 0 0 0 15,582,844 15,871,093 3,621,513 3,637,766 0 0 234,801 0 0 0 0 0 0 0 0 3,402,965 74.82 0
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