-----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, PQZV50Uj3OieDJy6arHh/loPgpjUucESAC/kyGZSro08jyV/sqacfS+FLdBRp25/ WNxaPyupFS/LPK2E/GvgeA== 0000898733-98-000229.txt : 19980515 0000898733-98-000229.hdr.sgml : 19980515 ACCESSION NUMBER: 0000898733-98-000229 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUTECH RESEARCH & DEVELOPMENT PARTNERSHIP III CENTRAL INDEX KEY: 0000794357 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 770129484 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20081 FILM NUMBER: 98621002 BUSINESS ADDRESS: STREET 1: 440 MISSION COURT STE 250 CITY: FREMONT STATE: CA ZIP: 94539 BUSINESS PHONE: 5106561855 10-Q 1 PRUTECH RESEARCH AND 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, 1998 / / 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 of (I.R.S. Employer Identification No.) incorporation or organization) One Seaport Plaza, 28th Floor, New York, NY 10292 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 214-3500 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, 1998 1997 - ---------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 3,612,262 $3,668,595 Investments in equity securities 552,281 552,790 ------------- ------------ Total assets $ 4,164,543 $4,221,385 ------------- ------------ ------------- ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Accrued expenses and other liabilities $ 71,594 $ 84,357 Accrued management fee 62,500 62,500 ------------- ------------ Total liabilities 134,094 146,857 ------------- ------------ Contingencies Partners' capital Unitholders (40,934 units issued and outstanding) 3,366,753 3,405,966 General partner 381,822 386,179 Accumulated other comprehensive income 281,874 282,383 ------------- ------------ Total partners' capital 4,030,449 4,074,528 ------------- ------------ Total liabilities and partners' capital $ 4,164,543 $4,221,385 ------------- ------------ ------------- ------------ - ---------------------------------------------------------------------------------------------------- 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, ------------------------ 1998 1997 - ----------------------------------------------------------------------------------------------------- REVENUES Interest and other income $ 45,161 $ 15,857 Gain on sale of investments in equity securities -- 4,478,268 --------- ---------- 45,161 4,494,125 --------- ---------- EXPENSES Management fee 62,500 204,670 General and administrative 26,231 27,151 Write-down of investments in equity securities -- 295,000 --------- ---------- 88,731 526,821 --------- ---------- Net income (loss) $ (43,570) $3,967,304 --------- ---------- --------- ---------- ALLOCATION OF NET INCOME (LOSS) Unitholders $ (39,213) $3,570,574 --------- ---------- --------- ---------- General partner $ (4,357) $ 396,730 --------- ---------- --------- ---------- Net income (loss) per unit $ (.96) $ 87.23 --------- ---------- --------- ---------- - -----------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (unaudited)
ACCUMULATED GENERAL OTHER COMPREHENSIVE UNITHOLDERS PARTNER INCOME (LOSS) TOTAL - --------------------------------------------------------------------------------------------------- Partners' capital--December 31, 1997 $3,405,966 $386,179 $ 282,383 $4,074,528 Comprehensive loss: Net loss (39,213 ) (4,357) (43,570) Unrealized losses on investments in equity securities (509) (509) ---------- Comprehensive loss (44,079) ----------- -------- ------------------- ---------- Partners' capital--March 31, 1998 $3,366,753 $381,822 $ 281,874 $4,030,449 ----------- -------- ------------------- ---------- ----------- -------- ------------------- ---------- - --------------------------------------------------------------------------------------------------- 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, -------------------------- 1998 1997 - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Interest and other income received $ 45,161 $ 15,857 Management fee paid (62,500) (204,670) General and administrative expenses paid (38,994) (18,754) ---------- ----------- Net cash used in operating activities (56,333) (207,567) ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the sale of investments in equity securities -- 7,834,811 Purchase of investments in equity securities -- (58,650) ---------- ----------- Net cash provided by investing activities -- 7,776,161 ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Distributions -- (7,959,389) ---------- ----------- Net decrease in cash and cash equivalents (56,333) (390,795) Cash and cash equivalents at beginning of period 3,668,595 2,342,441 ---------- ----------- Cash and cash equivalents at end of period $3,612,262 $ 1,951,646 ---------- ----------- ---------- ----------- RECONCILIATION OF NET INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES Net income (loss) $ (43,570) $ 3,967,304 ---------- ----------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Changes in accrued expenses and other liabilities (12,763) 8,397 Gain on sale of investments in equity securities -- (4,478,268) Write-down of investments in equity securities -- 295,000 ---------- ----------- Total adjustments (12,763) (4,174,871) ---------- ----------- Net cash used in operating activities $ (56,333) $ (207,567) ---------- ----------- ---------- ----------- - --------------------------------------------------------------------------------------------------- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES 1997 At March 31, 1997, the General Partner concluded that an impairment in value that was not temporary had occurred for the Partnership's equity investment in Somatix Therapy Corporation. As a result, the value of the Partnership's 295,000 shares of common stock was written down by $295,000. - --------------------------------------------------------------------------------------------------- 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, 1998 (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, 1998 and the results of its operations and its cash flows for the three months ended March 31, 1998 and 1997. 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, 1997. Certain balances from the prior year have been reclassified to conform with the current financial statement presentation. Effective January 1, 1998, the Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 130, 'Reporting Comprehensive Income.' This Statement establishes standards for reporting and display of comprehensive income and its components within financial statements. Comprehensive income includes net income as well as certain revenues, expenses, gains, and losses that are excluded from net income under generally accepted accounting principles ('other comprehensive income'). During the three months ended March 31, 1998, the Partnership's only source of other comprehensive income is an unrealized holding loss on its investments in marketable equity securities which is included in the statement of changes in partners' capital. The adoption of SFAS No. 130 has had no impact on earnings or total partners' capital. B. Royalties At March 31, 1998 and December 31, 1997, the Partnership retains certain royalty rights with Forest Laboratories, Inc. and Creative BioMolecules, Inc. whose carrying values for financial reporting purposes are zero. The royalty rights with Forest Laboratories, Inc. ('Forest') relate to Synapton, a drug developed by Forest for the treatment of Alzheimer's disease. Forest filed a new drug application with the Food and Drug Administration, seeking approval of Synapton, on November 18, 1997. The Partnership's royalty rights with Forest and Creative BioMolecules, Inc. will expire in December 1999. C. Investments Investments in marketable equity securities available-for-sale include the following:
March 31, 1998 December 31, 1997 ------------------------------------------------------ ------------------------------------------------------ Gross unrealized Carrying Gross unrealized Carrying Shares Cost basis gains value Shares Cost basis gains value - ----------------------------------------------------------------------- ------------------------------------------- Creative BioMolecules, Inc.-Common Stock 24,484 $ 80,124 $121,869 $ 201,993 24,484 $ 80,124 $100,446 $180,570 Kopin Corporation- Common Stock 13,310 99,556 135,026 234,582 13,310 99,556 124,212 223,768 Cell Genesys Corporation- Common Stock 17,465 90,727 24,979 115,706 17,465 90,727 57,725 148,452 ---------- ---------------- ------------- ---------- ---------------- ------------ $270,407 $281,874 $ 552,281 $270,407 $282,383 $552,790 ---------- ---------------- ------------- ---------- ---------------- ------------ ---------- ---------------- ------------- ---------- ---------------- ------------
5 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, 1998; however, there is no assurance that the Partnership would receive these amounts in the event of the sale of its position in these securities. D. 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, -------------------- 1998 1997 - ------------------------------------------------------------------------ Management fee $62,500 $204,670 Printing 3,182 2,833 ------- -------- $65,682 $207,503 ------- -------- ------- --------
Printing costs payable to an affiliate of the General Partner (which are included in accrued expenses and other liabilities) as of March 31, 1998 and December 31, 1997 were $8,710 and $7,788, respectively. Prudential Securities Incorporated ('PSI'), an affiliate of the General Partner, owned 724 units in the Partnership at March 31, 1998. The Partnership maintains an account with the Prudential Institutional Liquidity Portfolio Fund, an affiliate of the General Partner, for investment of its available cash in short-term instruments pursuant to the guidelines established by the Partnership Agreement. The Partnership engaged in research and development co-investment projects with PruTech Research and Development Partnership which was dissolved and liquidated in December 1996, 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. E. 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, PSI, 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; 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 General Partner, PSI and the Partnership believe they have meritorious defenses to the complaint and are vigorously defending themselves in this action. The claims of most plaintiffs have been settled or dismissed. It is currently expected that the remaining claims will be resolved shortly. The Partnership has not contributed to any settlement or paid any costs of the litigation, nor is it anticipated that it will. 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, 1998, the Partnership had approximately $3,612,000 of cash and cash equivalents which is a decrease of approximately $56,000 as compared to December 31, 1997. The decrease in cash and cash equivalents was primarily due to the payment of management fees and general and administrative expenses offset, in part, by interest received on the Partnership's cash and cash equivalents. As of March 31, 1998, the Partnership had approximately $270,000 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 market volume capacity. The Partnership's royalty positions with Forest Laboratories, Inc. ('Forest') and Creative BioMolecules, Inc. did not generate income for the Partnership during the three months ended March 31, 1998 and 1997. 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 from the revenue stream from royalties and interest income. It is not expected that the Partnership's eventual total distributions will equal the Unitholders initial investments. Results of Operations The Partnership recognized a net loss of approximately $44,000 for the three months ended March 31, 1998 as compared to net income of approximately $3,967,000 during the same period in 1997. This fluctuation of approximately $4,011,000 was primarily due to gains recognized during the first quarter of 1997 on the sale of investments in equity securities (no sales of investments in equity securities were made in the comparable period in 1998) offset, in part, by higher management fees during the first quarter of 1997 versus 1998 and a 1997 write-down of an investment in an equity security as discussed below. Interest and other income increased by approximately $29,000 during the three months ended March 31, 1998 as compared to the corresponding period in 1997. The increase reflects a higher level of Partnership investments in short-term instruments during the first quarter of 1998 than in the comparable 1997 period. During the 1997 period, Partnership funds varied with the timing of sales of investments in equity securities and distributions made to Unitholders. During the first quarter of 1998, there were no sales of investments in equity securities. During the first quarter of 1997, gains totalling approximately $4,478,000 were recorded on the sale of common stock of Creative BioMolecules, Inc., Kopin Corporation and Somatix Therapy Corporation. Management fees decreased by approximately $142,000 during the three months ended March 31, 1998 as compared to the corresponding period in 1997. Effective July 1, 1997, the General Partner reduced its management fee to the greater of (a) $250,000 annually or (b) ten percent of the aggregate amount received from the Partnership's royalty position in a treatment for Alzheimer's disease with Forest after July 1, 1997 until the dissolution and liquidation of the Partnership, not to exceed the aggregate management fee payable under the terms of the Agreement of Limited Partnership, as amended ($818,680 per annum.) At March 31, 1997, the General Partner concluded that an impairment in value that was not temporary had occurred for the Partnership's equity investment in Somatix Therapy Corporation. As a result, the value of the Partnership's common stock was written down by $295,000. 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings--This information is incorporated by reference to Note E to the financial statements filed herewith in Item 1 of Part I 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-- No reports on Form 8-K were filed during the quarter. 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/ Brian J. Martin Date: May 14, 1998 ---------------------------------------- Brian J. Martin President, Chief Executive Officer, Chairman of the Board of Directors and Director for the Registrant By: R&D Funding Corp A Delaware corporation, General Partner By: /s/ Steven Carlino Date: May 14, 1998 ---------------------------------------- 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 and Development Partnership III and is qualified in its entirety by reference to such financial statements 0000794357 PruTech Research and Development Partnership III 1 Dec-31-1998 Jan-1-1998 Mar-31-1998 3-Mos 3,612,262 552,281 0 0 0 4,164,543 0 0 4,164,543 134,094 0 0 0 0 4,030,449 4,164,543 0 45,161 0 0 88,731 0 0 0 0 0 0 0 0 (43,570) (.96) 0
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