-----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, V3ocqEoZPD/goOszjDLEKpC+pOw8Lr/ynp9EKoH9v14XPYipwHllgk6NFJRqvWPs EAyYWlRRBagup8aG6qRE4Q== 0000898733-98-000762.txt : 19981116 0000898733-98-000762.hdr.sgml : 19981116 ACCESSION NUMBER: 0000898733-98-000762 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98749107 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 September 30, 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)
September 30, December 31, 1998 1997 - ---------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 1,218,094 $3,668,595 Investments in equity securities 73,452 552,790 ------------- ------------ Total assets $ 1,291,546 $4,221,385 ------------- ------------ ------------- ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Accrued expenses and other liabilities $ 76,866 $ 84,357 Accrued management fee 62,500 62,500 ------------- ------------ Total liabilities 139,366 146,857 ------------- ------------ Contingencies Partners' capital Unitholders (40,934 units issued and outstanding) 1,036,002 3,405,966 General partner 122,850 386,179 Accumulated other comprehensive (loss) income (6,672) 282,383 ------------- ------------ Total partners' capital 1,152,180 4,074,528 ------------- ------------ Total liabilities and partners' capital $ 1,291,546 $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)
Nine months ended Three months ended September 30, September 30, ----------------------- ----------------------- 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------- REVENUES Gain on sale of investments in equity securities $246,504 $7,090,925 $ -- $1,404,674 Interest income 100,815 89,720 16,391 33,921 -------- ---------- -------- ---------- 347,319 7,180,645 16,391 1,438,595 -------- ---------- -------- ---------- EXPENSES Management fee 187,500 471,840 62,500 62,500 General and administrative 64,179 94,449 20,744 41,799 Write-down of investments in equity securities -- 295,000 -- -- -------- ---------- -------- ---------- 251,679 861,289 83,244 104,299 -------- ---------- -------- ---------- Net income (loss) $ 95,640 $6,319,356 $(66,853) $1,334,296 -------- ---------- -------- ---------- -------- ---------- -------- ---------- ALLOCATION OF NET INCOME (LOSS) Unitholders $ 86,076 $5,687,420 $(60,168) $1,200,866 -------- ---------- -------- ---------- -------- ---------- -------- ---------- General partner $ 9,564 $ 631,936 $ (6,685) $ 133,430 -------- ---------- -------- ---------- -------- ---------- -------- ---------- Net income (loss) per unit $ 2.10 $ 138.94 $ (1.47) $ 29.34 -------- ---------- -------- ---------- -------- ---------- -------- ---------- - ----------------------------------------------------------------------------------------------------
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 income 86,076 9,564 95,640 Net unrealized losses on investments in equity securities (289,055) (289,055) ---------- Comprehensive loss (193,415) ---------- Distribution (2,456,040 ) (272,893) (2,728,933) ----------- --------- ------------------- ---------- Partners' capital--September 30, 1998 $1,036,002 $ 122,850 $ (6,672) $1,152,180 ----------- --------- ------------------- ---------- ----------- --------- ------------------- ---------- - ----------------------------------------------------------------------------------------------------- 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)
Nine months ended September 30, ---------------------------- 1998 1997 - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Interest income received $ 100,815 $ 89,720 Management fee paid (187,500) (614,010) General and administrative expenses paid (71,670) (94,977) ----------- ------------ Net cash used in operating activities (158,355) (619,267) ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the sale of investments in equity securities 436,787 13,321,537 Purchase of investments in equity securities -- (58,650) ----------- ------------ Net cash provided by investing activities 436,787 13,262,887 ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Distributions (2,728,933) (12,507,611) ----------- ------------ Net (decrease) increase in cash and cash equivalents (2,450,501) 136,009 Cash and cash equivalents at beginning of period 3,668,595 2,342,441 ----------- ------------ Cash and cash equivalents at end of period $ 1,218,094 $ 2,478,450 ----------- ------------ ----------- ------------ RECONCILIATION OF NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES Net income $ 95,640 $ 6,319,356 ----------- ------------ Adjustments to reconcile net income to net cash used in operating activities: Gain on sale of investments in equity securities (246,504) (7,090,925) Changes in accrued expenses and other liabilities (7,491) (528) Changes in accrued management fee -- (142,170) Write-down of investments in equity securities -- 295,000 ----------- ------------ Total adjustments (253,995) (6,938,623) ----------- ------------ Net cash used in operating activities $ (158,355) $ (619,267) ----------- ------------ ----------- ------------ - ---------------------------------------------------------------------------------------------------- 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. On June 2, 1997, Cell Genesys Corporation acquired Somatix Therapy Corporation. As a result, the Partnership received 111,265 shares of Cell Genesys Corporation common stock or 0.385 shares for each of its 289,000 shares of Somatix Therapy Corporation common stock. - ---------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
4 PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP III (a limited partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 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 September 30, 1998, the results of its operations for the nine and three months ended September 30, 1998 and 1997 and its cash flow for the nine months ended September 30, 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. 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 nine months ended September 30, 1998, the Partnership's only source of other comprehensive income is an unrealized holding loss, net of a reclassification adjustment, on its investments in marketable equity securities, which is included in the statement of changes in partners' capital and is more fully described in Note C. The adoption of SFAS No. 130 has had no impact on earnings or total partners' capital. B. Royalties At September 30, 1998 and December 31, 1997, the Partnership retains certain royalty rights with Forest Laboratories, Inc. ('Forest') and Creative BioMolecules, Inc. whose carrying values for financial reporting purposes are zero. The royalty rights with 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:
September 30, 1998 December 31, 1997 ------------------------------------------------------ ------------------------------------------------------ Gross unrealized Carrying Gross unrealized Carrying Shares Cost basis loss value Shares Cost basis gains value - ----------------------------------------------------------------------- ----------------------------------------------------- Creative BioMolecules, Inc.-Common Stock 24,484 $ 80,124 $ (6,672) $ 73,452 24,484 $ 80,124 $100,446 $180,570 Kopin Corporation- Common Stock -- -- -- -- 13,310 99,556 124,212 223,768 Cell Genesys Corporation- Common Stock -- -- -- -- 17,465 90,727 57,725 148,452 ---------- ---------------- ------------- ---------- ---------------- ------------ $ 80,124 $ (6,672) $ 73,452 $270,407 $282,383 $552,790 ---------- ---------------- ------------- ---------- ---------------- ------------ ---------- ---------------- ------------- ---------- ---------------- ------------
If upon the sale of the Partnership's investments, the gross unrealized gain/loss were to be realized, such gain/loss would be allocated 90% to the Unitholders and 10% to R&D Funding Corp (the 'General Partner'); however, there is no assurance that the Partnership would receive such amount in the event of the sale of its remaining equity position. 5 During the second quarter of 1998, the Partnership sold 13,310 shares of Kopin Corporation common stock and 17,465 shares of Cell Genesys Corporation common stock for proceeds of approximately $286,000 and $151,000 resulting in gains of approximately $186,000 and $60,000, respectively. These sales liquidated the Partnerships' remaining holdings of Kopin Corporation common stock and Cell Genesys Corporation common stock. The Partnership's net unrealized losses on investments in equity securities of $289,055 for the nine months ended September 30, 1998 are comprised as follows: Unrealized holding losses $ (42,551) Less: reclassification adjustment for realized gains included in net income (246,504) --------- Net unrealized losses on investments in equity securities $(289,055) --------- --------- 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:
Nine months ended Three months ended September 30, September 30, --------------------- ------------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------ Management fee $187,500 $471,840 $62,500 $62,500 Printing 6,741 9,735 1,861 3,150 -------- -------- ------- ------- $194,241 $481,575 $64,361 $65,650 -------- -------- ------- ------- -------- -------- ------- -------
Printing costs payable to an affiliate of the General Partner (which are included in accrued expenses and other liabilities) as of September 30, 1998 and December 31, 1997 were $4,779 and $7,788, respectively. Prudential Securities Incorporated ('PSI'), an affiliate of the General Partner, owned 724 units in the Partnership at September 30, 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. 6 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. 7 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 September 30, 1998, the Partnership had approximately $1,218,000 of cash and cash equivalents, which is a decrease of approximately $2,451,000 as compared to December 31, 1997. The decrease in cash and cash equivalents was primarily due to distributions made in excess of proceeds from the sales of certain investments in equity securities as further discussed below. As of September 30, 1998, the Partnership had approximately $80,000 invested in the common stock of Creative BioMolecules, Inc. ('Creative') with an aggregate market value of approximately $73,000. This investment is a speculative and high risk equity investment. Additionally, the realization of the market value of Creative common stock is further impacted by market volume capacity. The Partnership's royalty positions with Forest and Creative did not generate income for the Partnership during the nine months ended September 30, 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 investment 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. During May 1998, the Partnership made a $2,728,933 distribution. Unitholders received 90% of the total or $2,456,040 ($60 per unit) on this distribution and the General Partner received the 10% remainder. During the second quarter of 1998, the Partnership sold its remaining 13,310 shares of Kopin Corporation common stock for approximately $286,000 and its remaining 17,465 shares of Cell Genesys Corporation common stock for approximately $151,000. Results of Operations The Partnership's net income decreased by approximately $6,224,000 for the nine months ended September 30, 1998 as compared to the same period in 1997. Additionally, the Partnership had a net loss of $67,000 for the three months ended September 30, 1998 as compared to net income of $1,334,000 for the same period in 1997. These variances were primarily due to larger gains on the sale of investments in equity securities recorded in 1997 versus 1998, offset, in part, by a first quarter 1997 write-down of the Partnership's equity investment in Somatix Therapy Corporation and higher management fees in 1997 versus 1998 as discussed below. During the nine months ended September 30, 1998, gains totalling approximately $247,000 were recorded on the sale of common stock of Kopin Corporation and Cell Genesys Corporation as discussed in Liquidity and Capital Resources above as compared to gains of approximately $7,091,000 recorded on 1997 sales of 461,798 shares of Creative common stock, 492,217 shares of Kopin Corporation common stock, 211,000 shares of Somatix Therapy Corporation common stock, and 72,100 shares of Cell Genesys Corporation common stock. Interest income increased by approximately $11,000 during the nine months ended September 30, 1998, but decreased by approximately $18,000 during the three months ended September 30, 1998 as compared to the same periods in 1997. During the 1998 and 1997 periods, Partnership funds invested in short-term instruments varied with the timing of sales of investments in equity securities and distributions made to Unitholders causing the fluctuations in interest income during the respective periods. Management fees decreased by approximately $284,000 during the nine months ended September 30, 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.) 8 General and administrative expenses decreased by approximately $30,000 and $21,000 for the nine and three months ended September 30, 1998 as compared to the same periods in 1997. These decreases reflect lower costs incurred in monitoring the Partnership's investments. Additionally, professional and other costs were incurred during 1997 in evaluating the orderly liquidation of the Partnership. 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. 9 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. 10 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: November 13, 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: November 13, 1998 ---------------------------------------- Steven Carlino Vice President and Chief Accounting Officer for the Registrant 11 EX-27 2 ART. 5 FDS FOR 3RD 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 Sep-30-1998 9-Mos 1,218,094 73,452 0 0 0 1,291,546 0 0 1,291,546 139,366 0 0 0 0 1,152,180 1,291,546 0 347,319 0 0 251,679 0 0 0 0 0 0 0 0 95,640 2.10 0
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