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 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 _______________________ to ______________________
Commission file number 0-11965
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP
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(Exact name of Registrant as specified in its charter)
California 13-3179284
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
440 Mission Court, Suite 250, California 94539
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 656-1855
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check CK 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
(a limited partnership)
STATEMENT OF NET ASSETS
(in process of liquidation)
June 30, 1996
(Unaudited)
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Assets
Cash and cash equivalents $1,307,905
Royalties receivable 214,184
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Total assets 1,522,089
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Liabilities
Estimated liquidation costs 229,000
Accrued expenses and other liabilities 238,180
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Total liabilities 467,180
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Contingencies
Net assets in liquidation $1,054,909
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Net assets in liquidation
Limited partners (73,903 units issued and outstanding) $ 901,269
General partner 153,640
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Total net assets in liquidation $1,054,909
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STATEMENT OF FINANCIAL CONDITION
(going concern basis)
December 31, 1995
(Unaudited)
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ASSETS
Cash and cash equivalents $1,308,343
Royalties receivable 105,564
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Total assets $1,413,907
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued expenses and other liabilities $ 250,281
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Contingencies
Partners' capital
Limited partners (73,903 units issued and outstanding) 999,114
General partner 164,512
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Total partners' capital 1,163,626
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Total liabilities and partners' capital $1,413,907
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The accompanying notes are an integral part of these statements
2
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP
(a limited partnership)
STATEMENTS OF OPERATIONS
(going concern basis)
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
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REVENUES
Royalty income $ 311,819 $467,568 $ 170,834 $151,619
Gain on sale of investments in equity securities -- 63,742 -- 63,742
Interest and other income 32,126 258,521 16,199 148,536
--------- -------- --------- --------
343,945 789,831 187,033 363,897
--------- -------- --------- --------
General and administrative expenses 223,662 179,614 86,253 112,703
--------- -------- --------- --------
Net operating income 120,283 610,217 100,780 251,194
Estimated liquidation costs 229,000 -- 229,000 --
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Net income (loss) $(108,717) $610,217 $(128,220) $251,194
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ALLOCATION OF NET INCOME (LOSS)
Limited partners $ (97,845) $549,195 $(115,398) $226,075
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--------- -------- --------- --------
General partner $ (10,872) $ 61,022 $ (12,822) $ 25,119
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Net income (loss) per limited partnership unit $ (1.32) $ 7.43 $ (1.56) $ 3.06
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STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(going concern basis)
(Unaudited)
LIMITED GENERAL
PARTNERS PARTNER TOTAL
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Partners' capital--December 31, 1995 $999,114 $164,512 $1,163,626
Net loss (97,845) (10,872) (108,717)
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Net assets in liquidation--June 30, 1996 $901,269 $153,640 $1,054,909
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The accompanying notes are an integral part of these statements
3
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP
(a limited partnership)
STATEMENT OF CASH FLOWS
(going concern basis)
(Unaudited)
Six months ended
June 30,
---------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Royalty income received $ 203,199 $ 477,543
Interest and other income received 32,126 2,070,661
General and administrative expenses paid (235,763) (103,638)
Increase in cash held in escrow -- (58,628)
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Net cash (used in) provided by operating activities (438) 2,385,938
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CASH FLOWS FROM INVESTING ACTIVITIES
Collection of note receivable -- 1,842,393
Proceeds from the sale of investments in equity securities -- 1,755,932
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Net cash provided by investing activities -- 3,598,325
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CASH FLOWS FROM FINANCING ACTIVITIES
Distribution -- (2,956,120)
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Net (decrease) increase in cash and cash equivalents (438) 3,028,143
Cash and cash equivalents at beginning of period 1,308,343 2,010,931
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Cash and cash equivalents at end of period $ 1,307,905 $ 5,039,074
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RECONCILIATION OF NET INCOME (LOSS) TO NET CASH (USED IN) PROVIDED
BY OPERATING ACTIVITIES
Net income (loss) $ (108,717) $ 610,217
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Adjustments to reconcile net income to net cash (used in) provided
by
operating activities:
Gain on sale of investments in equity securities -- (63,742)
Changes in:
Royalties receivable (108,620) 9,975
Interest receivable -- 1,812,140
Cash held in escrow -- (58,628)
Estimated liquidation costs 229,000 --
Accrued expenses and other liabilities (12,101) 75,976
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Total adjustments 108,279 1,775,721
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Net cash (used in) provided by operating activities $ (438) $ 2,385,938
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
1995
Converted holdings in The Allen Group Inc. Series B convertible debenture (principal of $84,478)
into 6,047 shares of common stock of The Allen Group Inc.
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The accompanying notes are an integral part of these statements
4
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments necessary to
fairly present the financial position of the PruTech Research and Development
Partnership (the ``Partnership'') as of June 30, 1996, the results of its
operations for the six and three months ended June 30, 1996 and 1995 and its
cash flows for the six months ended June 30, 1996 and 1995 subject to the
effects of any further liquidation accounting adjustments that would have been
required had the current realizable values of assets and the amounts of
liabilities been known when the Partnership first adopted the liquidation basis
of accounting. (See discussion below.)
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.
R&D Funding Corp (the ``General Partner'') mailed to all limited partners a
consent solicitation statement dated April 10, 1996 (the ``Statement'') asking
for their written consent to approve a plan of dissolution and liquidation of
the Partnership (the ``Plan''), as more fully described in the Statement.
Holders of 68.5% of the limited partnership units approved the Plan on June 10,
1996 and accordingly, the Plan was adopted.
In accordance with the terms of the Plan, the General Partner will attempt to
sell or otherwise dispose of the Partnership's remaining investments and
distribute the resulting proceeds (reduced by a working capital reserve to
satisfy any liabilities or contingencies of the Partnership) to the partners in
an amount equal to their respective capital account balances at the time of
liquidation under the terms of the Partnership Agreement. (Such
capital accounts will reflect adjustments for gains/losses recognized
in connection with the operations of the Partnership as well as the
disposition of its remaining assets, with such losses allocated 90% to
the limited partners and 10% to the General Partner and gains allocated in
the same fashion unless total cumulative net profits of the Partnership equal
all losses previously allocated, whereupon the General Partner will be allocated
an additional amount pursuant to the Partnership Agreement.) It is not expected
that the Partnership's eventual total distributions will equal the partners'
initial investment.
As a result of the adoption of the Plan, the Partnership adopted the
liquidation basis of accounting effective June 30, 1996, whereby assets are
valued at their estimated net realizable values and liabilities stated at their
estimated settlement amounts. However, due to the nature of the Partnership's
remaining investments, the General Partner is not able to predict with any
degree of certainty the amounts which will be realized from these investments
and therefore, such assets continue to be carried at zero. Accruals totaling
$229,000 have been recorded as of June 30, 1996 for the estimated future costs
of liquidating the Partnership which include, but are not limited to, costs of
selling or otherwise disposing of the Partnership's remaining investments and
general and administrative costs through the estimated conclusion of
liquidation. The General Partner estimates that the final liquidation of the
Partnership's remaining investments will occur by December 31, 1995; however,
due to the nature of these investments, liquidation may take longer.
Direct costs incurred in connection with the preparation, printing and
mailing of the Statement and the solicitation of votes of the limited partners
were $94,448 and $47,448 during the six and three months ended June 30, 1996,
respectively, and are included in general and administrative expenses on the
statements of operations.
B. Related Parties
The General Partner and its affiliates perform services for the Partnership
which include, but are not limited to: accounting and financial management;
registrar, transfer and assignment functions; asset management; investor
communications; printing and other administrative services. The General Partner
and its affiliates receive reimbursements for costs incurred in connection with
these services, the amount of which
5
is limited by the provisions of the Partnership Agreement. These costs and
expenses were $103,867 and $102,447 for the six months ended June 30, 1996 and
1995 and $29,386 and $60,132 for the three months ended June 30, 1996 and 1995,
respectively. General and administrative expenses payable to the General Partner
and its affiliates (which are included in accrued expenses and other
liabilities) at June 30, 1996 and December 31, 1995 were $178,611 and $158,738,
respectively.
Additionally, in conjunction with the adoption of the liquidation basis of
accounting, the Partnership recorded an accrual as of June 30, 1996 for the
estimated future costs expected to be incurred to liquidate the Partnership, as
discussed in Note A above. Included in these liquidation cost estimates are
approximately $202,000 expected to be charged by the General Partner and its
affiliates during the anticipated remaining liquidation period. The actual
charges will depend primarily upon the length of time required to liquidate the
Partnership and may differ from amounts accrued as of June 30, 1996.
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.
Prudential Securities Incorporated, an affiliate of the General Partner,
owned 145 limited partnership units at June 30, 1996.
The Partnership has engaged in research and development co-investment
projects with PruTech Research and Development Partnership II, PruTech Research
and Development Partnership III, 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.
C. Contingencies
On April 15, 1994 a multiparty petition entitled 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. Additonaly, the General Partner believes
that the litigation discussed above will not have an adverse impact on its
ability to liquidate the Partnership in accordance with the Plan and in the time
frame currently contemplated by the General Partner.
6
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership's cash and cash equivalents remained essentially unchanged at
June 30, 1996 as compared to December 31, 1995.
As more fully discussed in Note A to the financial statements, the General
Partner mailed to all limited partners a consent solicitation statement dated
April 10, 1996 (the ``Statement'') asking for their written consent to approve a
plan of dissolution and liquidation of the Partnership (the ``Plan''), as more
fully described in the Statement. Holders of 68.5% of the limited partnership
units approved the Plan on June 10, 1996 and accordingly, the Plan was adopted.
In accordance with the terms of the Plan, the General Partner will attempt to
sell or otherwise dispose of the Partnership's remaining investments and
distribute the resulting proceeds (reduced by a working capital reserve to
satisfy any liabilities or contingencies of the Partnership) to the partners in
accordance with the terms of the Partnership Agreement. Due to the nature of the
Partnership's remaining investments, the General Partner is not able to predict
with any degree of certainty the timing of any sales, the proceeds that will be
received or the cash amounts that may ultimately be available for distribution
by the Partnership. It is not expected that the Partnership's eventual total
distributions will equal the partners' initial investment.
Results of Operations
The Partnership's net operating income for the six and three months ended
June 30, 1996 decreased by approximately $490,000 and $150,000 as compared with
the same periods in 1995 primarily due to variances in royalty and interest
income as well as general and administrative expenses as discussed below.
As more fully discussed in Note A to the financial statements, the
Partnership adopted the liquidation basis of accounting effective June 30, 1996
and accordingly, accruals totaling $229,000 have been recorded for the estimated
future costs of liquidating the Partnership during the anticipated remaining
liquidation period. The General Partner estimates that the final liquidation of
the Partnership's remaining investments will occur by December 31, 1995;
however, due to the nature of these investments, liquidation may take longer.
Royalty income for the six and three months ended June 30, 1996 decreased by
approximately $156,000 but increased by approximately $19,000 as compared with
the same periods in 1995. The six month decrease was due primarily to lower 1996
royalties recorded from American Software, Inc. The three month increase was
primarily due to higher royalties recorded from Syntro Corporation.
Interest and other income decreased for the six and three months ended June
30, 1996 by approximately $226,000 and $132,000 as compared with the same
periods in 1995 generally because interest relating to a note receivable
resulting from the Partnership's investment in Tridom Corporation which matured
in June 1995.
In May 1995, the Partnership received 6,047 shares of The Allen Group Inc.
common stock through the conversion of its Series B convertible debenture
(principal of $84,478). In accordance with the conversion agreement, the
Partnership established an escrow fund of approximately $59,000 which was
subject to certain offset provisions. In June 1995, the Partnership sold the
common stock resulting in a gain of approximately $64,000 and in July 1995, sold
its interest in the escrow fund and all related obligations relating to the
offset provision. A provision for loss of approximately $29,000 was recorded
during the three months ended June 30, 1995 relating to the sale of the escrow.
General and administrative expenses increased by approximately $44,000 but
decreased by approximately $26,000 for the six and three months ended June 30,
1996 as compared with the same periods in 1995. The six month increase was
primarily caused by professional and other costs incurred in 1996 in connection
with the Statement as discussed above. The three month decrease was primarily
due to the provision for loss related to the sale of the escrow established in
connection with the conversion of The Allen Group debenture discussed above.
7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--
This information is incorporated by reference to Note C 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--
On April 10, 1996, the General Partner solicited the consent of the
limited partners to approve the dissolution and liquidation of the
Partnership pursuant to a Plan of Dissolution and Liquidation (the
``Plan''). On June 10, 1996, the limited partners voted to approve the
Plan as follows: 68.5% voted in favor of the Plan, 2.8% voted against
the Plan and 2.5% abstained. For further information see Note A to the
financial statements filed herewith in Item 1 of Part I of the
Registrant's Quarterly Report.
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K--
(a) Exhibits:
PruTech Research and Development Partnership Amended and Restated
Agreement of Limited Partnership (incorporated by reference to
Exhibit 3.1 included with Registrant's Form S-1 Registration
Statement, File No. 2-86528, filed on November 16, 1983)
First Amendment to the Amended and Restated Agreement of Limited
Partnership of PruTech Research and Development Partnership
(incorporated by reference to Exhibit 3 included with Registrant's
Annual Report on Form 10-K filed March 28, 1992)
Second Amendment to the Amended and Restated Agreement of Limited
Partnership of PruTech Research and Development Partnership
(incorporated by reference to Exhibit 3 included with Registrant's
Annual Report on Form 10-K filed March 31, 1994)
Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
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
By: R&D Funding Corp
A Delaware corporation, General Partner
By: /s/ Michael S. Hasley Date: August 14, 1996
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Michael S. Hasley
President for the Registrant
By: R&D Funding Corp
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: August 14, 1996
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Steven Carlino
Vice President
Chief Accounting Officer for the
Registrant
9