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, 1995
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 2-98260
PAINEWEBBER R&D PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3304143
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1285 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 713-2000
----------------
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
---------------
<PAGE>
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Form 10-Q
March 31, 1995
Table of Contents
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Statements of Financial Condition
(unaudited) at March 31, 1995 and
December 31, 1994 2
Statements of Operations
(unaudited) for the three months
ended March 31, 1995 and 1994 3
Statement of Changes in Partners' Capital
(unaudited) for the three months
ended March 31, 1995 3
Statements of Cash Flows
(unaudited) for the three months
ended March 31, 1995 and 1994 4
Notes to Financial Statements
(unaudited) 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
All schedules are omitted either because they are not applicable or the
information required to be submitted has been included in the financial
statements or notes thereto.
<PAGE>
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Financial Condition
(unaudited)
March 31, December 31
1995 1994
- - ----------------------------------------------------------------------------
Assets:
Cash $ 25,053 $ 25,667
Marketable 424,835 526,502
securities,
at market
value
Interest 1,245 1,566
receivable
Royalty 1,201,000 1,330,800
income ----------- ---------
receivable
Total assets $ 1,652,133 $ 1,884,535
============ ===========
Liabilities and partners' capital:
Accrued $ 166,395 $ 155,544
liabilities
Partners' 1,485,738 1,728,991
capital ------------ -----------
Total liabilities and partners' capital $ 1,652,133 $ 1,884,535
============ ===========
- - ------------------------------------------------------------------------
See notes to financial statements.
<PAGE>
Page 3
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Operations
(unaudited)
For the three
months ended
March 31, 1995 1994
- - ----------------------------------------------------------------------------
Revenues:
Interest $ 8,239 $ 16,083
income
Income from 1,141,452 1,052,607
product
development
projects
Unrealized
depreciation
of marketable
securities (5,209) (18,749)
--------- ----------
1,144,482 1,049,941
--------- ----------
Expenses:
General and 51,407 27,236
administrative
costs
Write-down of - 750,000
investment --------- -----------
51,407 777,236
--------- -----------
Net income $ 1,093,075 $ 272,705
========= ===========
Net income per partnership unit:
Limited $ 28.63 $ 7.14
partners
(based on
37,799 units)
General $ 10,930.75 $ 2,727.05
partner
- - -------------------------------------------------------------------------
See notes to financial statements.
Statement of Changes in Partners' Capital
(unaudited)
For the three
months ended
March 31, Limited General
1995 Partners Partner Total
- - ------------------------------------------------------------------------------
Balance at $ 1,732,435 $ (3,444) $ 1,728,991
December 31,
1994
Net income 1,082,144 10,931 1,093,075
Cash distribution to partners (1,322,965) (13,363) (1,336,328)
---------- ------- ---------
Balance at March 31, 1995 $ 1,491,614 $ (5,876) $ 1,485,738
========== ======= =========
- - ------------------------------------------------------------------------------
See notes to financial statements.
<PAGE>
Page 4
PAINEWEBBER R&D PARTNERS, L.P.
(a Delaware Limited Partnership)
Statements of Cash Flows
(unaudited)
For the three months ended March 31, 1995 1994
- - ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,093,075 $ 272,705
Adjustments to reconcile net income to
cash provided by operating activities:
Unrealized 5,209 18,749
depreciation
of marketable
securities
Write-down - 750,000
of investment
Decrease (increase) in operating assets:
Marketable securities 96,458 (1,391,169)
Interest receivable 321 (4,792)
Royalty income receivable 129,800 130,496
Increase in operating liabilities:
Accrued liabilities 10,851 2,194
Distributions payable - 1,909,040
--------- ---------
Cash provided by operating activities 1,335,714 1,687,223
--------- ---------
Cash flows from financing activities:
Distributions (1,336,328) (1,909,040)
to partners ---------- ---------
Cash used for financing activities (1,336,328) (1,909,040)
---------- ----------
Decrease in cash (614) (221,817)
Cash at beginning of period 25,667 243,842
---------- ----------
Cash at end of period $ 25,053 $ 22,025
=========== ==========
- - --------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest during the three months
ended March 31, 1995 and 1994.
- - --------------------------------------------------------------------------
See notes to financial statements.
<PAGE>
Page 5
PAINEWEBBER R&D PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1995 and 1994
1. Organization and Business
The financial information as of and for the periods ended March 31, 1995 and
1994 is unaudited. However, in the opinion of management of PaineWebber R&D
Partners, L.P. (the "Partnership"), such information includes all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation. These financial statements should be read in conjunction with
the most recent annual report of the Partnership on Form 10-K for the year
ended December 31, 1994.
The Partnership is a Delaware limited partnership that commenced operations
on March 6, 1986. PWDC Holding Company (the "Manager") is the general partner
of PaineWebber Technologies, L.P. (the "General Partner"), which is the general
partner of the Partnership. PWDC Holding Company is a wholly owned subsidiary
of PaineWebber Development Corporation ("PWDC"), an indirect wholly owned
subsidiary of Paine Webber Group Inc. ("PWG"). The Partnership had a total of
$62.1 million available for investment from all Partnership closings. The
Partnership will terminate on December 31, 1998, unless its term is extended or
reduced by the General Partner.
The principal objective of the Partnership was to provide long-term capital
appreciation to investors through investing in the development and
commercialization of new products with technology companies ("Sponsor
Companies"), which were expected to address significant market opportunities.
In connection with product development projects (the "Projects"), the
Partnership sought to obtain warrants to purchase the common stock of Sponsor
Companies. These warrants provided additional capital appreciation to the
Partnership which was not directly dependent upon the outcome of the Projects.
As a result of restructuring some of the original Projects, the Partnership
also obtained common and preferred stock in some of the Sponsor Companies (See
Note 3). As such, the Partnership was engaged in diverse Projects through
contracts, participation in other partnerships and joint ventures and
investments in securities of the Sponsor Companies.
On November 14, 1994, the General Partner commenced with the dissolution of
the Partnership's assets but does not intend to terminate the Partnership until
the contingent payment rights ("CPR") due from Amgen, Inc. ("Amgen") have been
fully realized and a dispute with Centocor, Inc. ("Centocor") has been fully
resolved. Other than marketable securities and certain other assets which may
have only nominal realizable values or that will be distributed in cash or in
kind, the remaining asset of the Partnership is the CPR due from sales of
Neupogen<reg-trade-mark> through the year 2005. The Partnership intends to
distribute the CPR to its General Partner and limited partners (the "Limited
Partners"; with the General Partner, the "Partners") so that the Partners will
continue to receive CPR payments through such year (see Note 6). In addition,
the Partnership has retained counsel to consider and advise the Partnership
with respect to the dispute with Centocor. The dispute relates to whether the
Partnership, as well as the other former limited partners of Centocor Partners
II, L.P., are entitled to money from Centocor by virtue of certain agreements
entered into by Centocor and Eli Lilly & Company concerning the rights to a
drug called Centoxin<trademark>. The dissolution of the Partnership's assets
will not affect the ability of the Partnership to pursue its claim against
Centocor. There is no assurance that the Partnership will pursue the claim or,
if it does, that it will be successful.
<PAGE>
Page 6
PAINEWEBBER R&D PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 1 Continued)
The Partnership has completed the funding of its eight Projects.
All distributions to the Partners from the Partnership will be made pro rata
in accordance with their respective net capital contributions. The following
table sets forth the proportion of each distribution to be received by the
Limited Partners and the General Partner, respectively:
Limited General
Partners Partner
-------- -------
I. Until the value of the aggregate distributions
for each limited partnership unit ("Unit")
equals $1,850 plus interest on such amount
accrued at 5% per annum, compounded
annually ("Contribution Payout") 99% 1%
II. After Contribution Payout and until the value
of the aggregate distributions for each Unit
equals $9,250 ("Final Payout") 80% 20%
III. After Final Payout 75% 25%
At March 31, 1995, the Partnership has made cash and securities
distributions since inception of $859 and $593 per Unit, respectively.
2. Summary of Significant Accounting Policies
The Partnership adopted the provisions of Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("Statement No. 115") for investments held as of or acquired after
January 1, 1994. In accordance with Statement No. 115, prior period financial
statements have not been restated to reflect the change in accounting method.
There was no financial statement impact as of January 1, 1994 of adopting
Statement No. 115.
Marketable securities consist of readily marketable securities that are
valued at market value. Marketable securities are not considered cash
equivalents for the Statements of Cash Flows.
The Partnership's investment consisting of convertible preferred stock is
not publicly traded and is subject to fluctuations in value dependent on the
underlying value of the issuing company. Non-publicly traded securities are
valued at cost, except when a decrease is required based on the Manager's
evaluations. These evaluations are based on available information and do not
necessarily represent the amount which might ultimately be realized, since such
an amount depends on future circumstances and cannot reasonably be determined
until the position is actually liquidated.
Realized and unrealized gains or losses are determined on a specific
identification method and are reflected in the Statements of Operations during
the period in which the change in value occurs.
<PAGE>
Page 7
PAINEWEBBER R&D PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 2 Continued)
The Partnership had investments in Projects, as more fully described in Note
5, through one of the following two vehicles:
- Product Development Contracts
The Partnership paid amounts to Sponsor Companies under product
development contracts. Such amounts were expensed by the Partnership
when incurred by the Sponsor Companies.
- Product Development Limited Partnerships
The Partnership participated as a limited partner in product
development limited partnerships formed to develop specific products.
Such participations were accounted for using the equity method. Such
partnerships expensed product development costs when incurred.
The Partnership carries warrants at a zero value in cases where the Sponsor
Company's stock is not publicly traded or the exercise period has not been
attained. To the extent that the Partnership's warrant is currently
exercisable and the Sponsor Company's stock is publicly traded, the warrant is
carried at intrinsic value (the excess of market price per share over the
exercise price per share), which approximates fair value.
3. Marketable Securities and Investments
Marketable Securities:
The money market fund consists of obligations with maturities of one year or
less that are subject to fluctuations in value.
At March 31, 1995, the Partnership held the following marketable securities:
MARKET COST
Money market fund $372,752 $372,752
41,666 shares of AgriDyne Technologies Inc.
common stock 52,083 0
-------- --------
$424,835 $372,752
======== ========
At December 31, 1994, the Partnership held the following marketable
securities:
MARKET COST
Money market fund $469,211 $469,211
41,666 shares of AgriDyne Technologies Inc.
common stock 57,291 0
-------- --------
$526,502 $469,211
======== ========
<PAGE>
Page 8
PAINEWEBBER R&D PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 3 Continued)
The closing prices of AgriDyne Technologies, Inc. common stock per share were
$1.25 and $1.375 at March 31, 1995 and December 31, 1994, respectively.
Investment:
At March 31, 1995 and December 31, 1994, the Partnership had an investment
of 9,000,000 shares of Applied Diagnostics, Inc. (a subsidiary of Teknowledge
Corporation ("Teknowledge") (formerly Cimflex Teknowledge Corporation)) Series
A Convertible Preferred Stock. This investment is not a publicly traded
security and is subject to fluctuations in value dependent upon the underlying
value of the Sponsor Company. The Partnership's carrying value of this
investment at March 31, 1995 and December 31, 1994 was zero. In addition, the
Partnership had one warrant to purchase 1,050,000 shares of Teknowledge common
stock with an exercise price of $3.83 per share and an expiration date of
September 1995. The warrant is carried at a cost basis of zero. The market
value of Teknowledge common stock was $0.17 on March 31, 1995. The share
prices of technology companies are generally highly volatile and the shares are
often thinly traded. Therefore, the market price of Teknowledge common stock
of $0.17 may have changed significantly subsequent to March 31, 1995 and/or may
change significantly in the future.
4. Related Party Transactions
Prior to January 1, 1994, the Manager received an annual management fee for
management and administrative services provided to the Partnership. As of
January 1, 1994, the Manager elected to discontinue the management fee charged
to the Partnership.
The Partnership's portfolio of money market funds is managed by Mitchell
Hutchins Institutional Investors ("MHII"), an affiliate of PWDC. PWDC (not the
Partnership) pays MHII a fee with respect to such money management services.
PWDC and PaineWebber Incorporated ("PWI"), and its affiliates, have acted in
an investment banking capacity for several of the Sponsor Companies. In
addition, PWDC and its affiliates have had direct limited partnership interests
in the same product development limited partnerships as the Partnership.
The Partnership is involved in certain legal actions. The General Partner
believes these actions will be resolved without material adverse effect on the
Partnership's financial statements taken as a whole.
5. Income Taxes
The Partnership is not subject to federal, state or local income taxes.
Accordingly, the individual partners are required to report their distributive
shares of realized income or loss on their individual federal and state income
tax returns.
<PAGE>
Page 9
PAINEWEBBER R&D PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
6. Subsequent Event
On April 21, 1995, the Partnership distributed the CPR due from Amgen to its
Partners of record as of March 1, 1995.
<PAGE>
Page 10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity and Capital Resources
Partners' capital was $1.5 million at March 31, 1995 compared to $1.7
million at December 31, 1994, a decrease of $0.2 million. The reduction in
partners' capital was principally a result of cash distributions to the
Partners of $1.3 million that were offset by net income of $1.1 million (as
discussed in Results of Operations below).
The Partnership's working capital is invested in marketable securities and a
money market fund. Liquid assets at March 31, 1995 totaled $0.5 million, a
decrease of $0.1 million from the balance of $0.6 million at December 31, 1994.
The decrease is primarily due to the excess of distributions paid to Partners
over the royalty income received by the Partnership. The balance of the liquid
assets will be used for the payment of administrative costs related to the
dissolution of the Partnership.
The Partnership adopted the provisions of Statement No. 115 for investments
held as of or acquired after January 1, 1994. In accordance with Statement No.
115, prior period financial statements have not been restated to reflect the
change in accounting method. There was no financial statement impact as of
January 1, 1994 of adopting Statement No. 115.
Results of Operations
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1994:
Net income for the quarter ended March 31, 1995 was $1.1 million compared to
net income of $0.3 million for the quarter ended March 31, 1994, an increase of
$0.8 million. The variance of $0.8 million is due primarily to a decrease of
$0.7 million in expenses.
Revenues, which consisted primarily of income from product development
projects, for the quarters ended March 31, 1995 and 1994 were $1.1 million.
The product development income earned during these periods consisted primarily
of distributions received from Amgen related to sales of
Neupogen<reg-trade-mark>.
Expenses for the quarter ended March 31, 1995 approximated $51,000 compared
to $0.8 million for the same period in 1994, a decrease of $0.75 million. The
variance is primarily attributable to a $0.75 million writedown in the
Partnership's investment in DAVID Systems, Inc. in the first quarter of 1994.
<PAGE>
Page 11
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS.
In November 1994, a series of purported class actions (the "New York Limited
Partnership Actions") were filed in the United States District Court for the
Southern District of New York concerning PWI's sale and sponsorship of various
limited partnership investments, including those offered by the Partnership.
The lawsuits were brought against PWI and PWG (together, "PaineWebber"), among
others, by allegedly dissatisfied investors in these partnerships. In March
1995, after the actions were consolidated under the title IN RE PAINEWEBBER
LIMITED PARTNERSHIP LITIGATION, the plaintiffs amended their complaint to
assert claims against a variety of other defendants, including PaineWebber
Technologies, L.P., the General Partner of the Partnership and an affiliate of
PaineWebber. Other affiliates of the General Partner were also named in the
complaint.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in the Partnership, PaineWebber
and the General Partner (1) failed to provide adequate disclosure of the risks
involved; (2) made false and misleading representations about the safety of the
investments and the Partnership's anticipated performance; and (3) marketed the
Partnership to investors for whom such investments were not suitable. The
plaintiffs, who purport to be suing on behalf of all persons who invested in
the Partnership, also allege that following the sale of the Partnership
interests, PaineWebber and the General Partner misrepresented financial
information about the Partnership's value and performance. The amended
complaint alleges that PaineWebber and the General Partner violated the
Racketeer Influenced and Corrupt Organizations Act ("RICO") and the federal
securities laws. The plaintiffs seek unspecified damages, including
reimbursement for all sums invested by them in the limited partnerships, as
well as disgorgement of all fees and other income derived by PaineWebber from
the limited partnerships. In addition, the plaintiffs also seek treble damages
under RICO. The defendants' time to move against or answer the complaint has
not yet expired.
Pursuant to provisions of the Partnership Agreement and other contractual
obligations, under certain circumstances the Partnership may be required to
indemnify the General Partner and its affiliates for costs and liabilities in
connection with this litigation. The General Partner intends to vigorously
contest the allegations of the action, and believes that the action will be
resolved without material adverse effect on the Partnership's financial
statements, taken as a whole.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None
b) Reports on Form 8-K:
On February 3, 1995, the Partnership filed a current report on Form
8-K relating to the dissolution of the Partnership.
<PAGE>
Page 12
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, on this 12th day of May
1995.
PAINEWEBBER R&D PARTNERS, L.P.
By: PaineWebber Technologies, L.P.
(General Partner)
By: PWDC Holding Company
(General partner of the General Partner)
By: EUGENE M. MATALENE, JR. /S/
Eugene M. Matalene, Jr.
President and Principal Executive Officer
By: PIERCE R. SMITH/S/
Pierce R. Smith
Principal Financial and Accounting Officer
* The capacities listed are with respect to PWDC Holding Company, the Manager,
as well as the general partner of the General Partner of the Registrant.
<TABLE> <S> <C>
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<CIK> 0000770470
<NAME> PaineWebber R&D Partners, L.P.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 25,053
<SECURITIES> 424,835
<RECEIVABLES> 1,202,245
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,652,133
<PP&E> 0
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<TOTAL-ASSETS> 1,652,133
<CURRENT-LIABILITIES> 166,395
<BONDS> 0
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0
0
<OTHER-SE> 1,485,738
<TOTAL-LIABILITY-AND-EQUITY> 1,652,133
<SALES> 0
<TOTAL-REVENUES> 1,144,482
<CGS> 0
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<OTHER-EXPENSES> 51,407
<LOSS-PROVISION> 0
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<INCOME-TAX> 0
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