<PAGE>
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, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-21464
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 13-3268435
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
440 Mission Court, Suite 250, Fremont, California 94539
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 656-1855
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes CK No _
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 3,664,149 $2,936,616
Investments in equity securities 3,099,174 3,911,066
U.S. Treasury bills held in escrow, at amortized cost -- 585,707
Royalties receivable 5,000 147,560
Stock warrants 74,349 74,349
Due from affiliate 2,734 462,586
Note receivable, net -- 19,031
Interest receivable -- 5,585
------------- ------------
Total assets $ 6,845,406 $8,142,500
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued management fee $ 500,000 $ 500,000
Accrued expenses and other liabilities 202,997 102,103
------------- ------------
Total liabilities 702,997 602,103
------------- ------------
Commitments and contingencies
Partners' capital
Limited partners (100,000 units issued and outstanding) 3,666,158 4,595,879
General partner 483,462 586,764
Unrealized gain on investments in equity securities 1,992,789 2,357,754
------------- ------------
Total partners' capital 6,142,409 7,540,397
------------- ------------
Total liabilities and partners' capital $ 6,845,406 $8,142,500
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
2
<PAGE>
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------------------- ----------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
REVENUES
Royalty income $ 299,070 $ 901,186 $ 9,655 $422,456
Gain on sale of investment in equity
securities 915,947 2,166,518 101,129 226,875
Termination of royalty rights 3,472,000 983,130 -- --
Interest and other income 567,682 243,061 63,510 50,990
---------- ---------- --------- --------
5,254,699 4,293,895 174,294 700,321
---------- ---------- --------- --------
EXPENSES
Management fee 1,500,000 1,500,000 500,000 500,000
General and administrative 343,278 225,495 165,466 61,273
---------- ---------- --------- --------
1,843,278 1,725,495 665,466 561,273
---------- ---------- --------- --------
Net income (loss) $3,411,421 $2,568,400 $(491,172) $139,048
---------- ---------- --------- --------
---------- ---------- --------- --------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $3,070,279 $2,311,560 $(442,055) $125,143
---------- ---------- --------- --------
---------- ---------- --------- --------
General partner $ 341,142 $ 256,840 $ (49,117) $ 13,905
---------- ---------- --------- --------
---------- ---------- --------- --------
Net income (loss) per limited partnership
unit $ 30.70 $ 23.12 $ (4.42) $ 1.25
---------- ---------- --------- --------
---------- ---------- --------- --------
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(unaudited)
<TABLE>
<CAPTION>
UNREALIZED
LIMITED GENERAL GAIN ON
PARTNERS PARTNER INVESTMENTS TOTAL
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1995 $4,595,879 $586,764 $2,357,754 $ 7,540,397
Net income 3,070,279 341,142 -- 3,411,421
Distribution (4,000,000) (444,444) -- (4,444,444)
Change in unrealized gain on investments
in equity securities -- -- (364,965 ) (364,965)
---------- -------- ----------- -----------
Partners' capital--September 30, 1996 $3,666,158 $483,462 $1,992,789 $ 6,142,409
---------- -------- ----------- -----------
---------- -------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Royalty income received $ 441,630 $ 898,611
Interest and other income received 291,340 1,113,108
General and administrative expenses paid (214,603) (203,075)
Evaluation and monitoring expenses paid (27,781) (27,495)
Management fee paid (1,500,000) (3,000,000)
Cash received from affiliate, net 459,852 --
----------- -----------
Net cash used in operating activities (549,562) (1,218,851)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of investment in equity securities 1,362,874 2,168,735
Proceeds from the sale of stock and warrant rights 288,718 --
Proceeds from the termination of royalty rights 3,472,000 983,130
Collection of note receivable 19,031 937,612
Purchase of U.S. Treasury bills held in escrow (1,991,217) (1,167,416)
Redemption of U.S. Treasury bills held in escrow 2,570,133 1,171,800
Proceeds from the sale of technology -- 27,418
----------- -----------
Net cash provided by investing activities 5,721,539 4,121,279
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITY
Distribution paid (4,444,444) (2,222,222)
----------- -----------
Net increase in cash and cash equivalents 727,533 680,206
Cash and cash equivalents at beginning of period 2,936,616 628,469
----------- -----------
Cash and cash equivalents at end of period $ 3,664,149 $ 1,308,675
----------- -----------
----------- -----------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES
Net income $ 3,411,421 $ 2,568,400
----------- -----------
Adjustments to reconcile net income to net cash
used in operating activities:
Gain on sale of investment in equity securities (915,947) (2,166,518)
Gain on sale of stock and warrant rights (288,718) --
Termination of royalty rights (3,472,000) (983,130)
Gain on sale of technology -- (27,418)
Changes in:
Royalties receivable 142,560 (2,575)
Interest receivable 12,376 897,465
Due from affiliate 459,852 --
Accrued management fee -- (1,500,000)
Accrued expenses and other liabilities 100,894 (5,075)
----------- -----------
Total adjustments (3,960,983) (3,787,251)
----------- -----------
Net cash used in operating activities $ (549,562) $(1,218,851)
----------- -----------
----------- -----------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
STATEMENTS OF CASH FLOWS--(Continued)
(unaudited)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
1996
Received 21,965 shares of Biocompatibles International plc (``Biocompatibles'')
common stock in July 1996 as a result of Biocompatibles' achievement of
certain financial targets in 1995.
Received 17,360 shares of Optical Specialties, Inc. common stock for
granting an extension of its term loan as further discussed in Note E.
Ecogen Inc. completed a 1:5 reverse stock split which resulted in
the receipt of 102,165 shares of common stock in exchange for
510,827 shares of common stock.
Silicon Valley Research, Inc. completed a 1:2 reverse stock split
which resulted in the receipt of 146,806 shares of common stock
in exchange for 293,612 shares of common stock.
1995
Converted 161,448 shares of Biocompatibles preferred stock into
1,614,480 shares of common stock.
Partially exercised a warrant to acquire, on a net issuance,
23,731 shares of Silicon Valley Research, Inc. common stock.
Received 281 shares of Texas Biotechnology Corporation common
stock after certain contractual conditions were met.
- --------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
5
<PAGE>
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of PruTech Research and Development Partnership II (the
``Partnership'') as of September 30, 1996, the results of its operations for the
nine and three months ended September 30, 1996 and 1995 and its cash flows for
the nine months ended September 30, 1996 and 1995. However, the operating
results for the interim periods may not be indicative of the results expected
for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1995.
Certain balances for prior periods have been reclassified to conform with
current financial statement presentation.
In September 1996, R&D Funding Corp (the ``General Partner'') mailed to all
limited partners a Consent Solicitation Statement (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. On October
30, 1996, the Plan was approved as more fully discussed in Note F.
B. Royalties
Pursuant to an agreement which closed January 26, 1996 between the
Partnership, an affiliate of the Partnership and Boston Scientific Corporation
(``BSX''), the Partnership and its affiliate assigned to BSX all of their
rights, titles and interests in and to certain technologies licensed to BSX and
agreed to terminate all license agreements with BSX in exchange for $4,000,000
in cash, of which the Partnership's portion was $3,472,000. No further royalty
payments will be received by the Partnership from BSX as a result of this
agreement.
C. Investments
Investments in equity securities include the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------------------------------------ ------------------------------------------------
Marketable equity Gross Gross
securities Cost unrealized Carrying Cost unrealized Carrying
available-for-sale Shares basis gains value Shares basis gains value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Ecogen Inc.--Common Stock 102,165 $ 20,537 $ 349,813 $ 370,350 510,827 $ 20,537 $ 713,777 $ 734,314
Somatix Therapy Corpora-
tion--Common Stock -- -- -- -- 113,692 341,076 341,076 682,152
Synbiotics Corporation--
Common Stock 411,503 797,288 925,881 1,723,169 460,303 891,837 201,383 1,093,220
Silicon Valley Research,
Inc.--Common Stock 146,806 -- 715,679 715,679 293,612 -- 1,101,044 1,101,044
Texas Biotechnology
Corporation--Common
Stock 603 770 1,416 2,186 603 770 474 1,244
---------- ---------- ---------- ---------- ---------- ----------
818,595 1,992,789 2,811,384 1,254,220 2,357,754 3,611,974
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------------------------------------ ------------------------------------------------
Not readily marketable Gross Gross
equity Cost unrealized Carrying Cost unrealized Carrying
securities Shares basis gains value Shares basis gains value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Optical Specialties,
Inc.--
Common Stock 125,589 $ -- $ -- $ -- 108,229 $ -- $ -- $ --
Optical Specialties,
Inc.--
Preferred Stock 144,666 43,400 -- 43,400 144,666 43,400 -- 43,400
Biocompatibles
International
plc--Common Stock 942,045 242,172 -- 242,172 968,688 253,474 -- 253,474
Navigation Technologies
Corporation--Common
Stock 2,284,541 2,218 -- 2,218 2,284,541 2,218 -- 2,218
---------- ---------- ---------- ---------- ---------- ----------
287,790 -- 287,790 299,092 -- 299,092
---------- ---------- ---------- ---------- ---------- ----------
$1,106,385 $1,992,789 $3,099,174 $1,553,312 $2,357,754 $3,911,066
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The gross unrealized gains would be allocated 90% to the limited partners and
10% to R&D Funding Corp (the ``General Partner'') if realized at September 30,
1996; however, there is no assurance that the Partnership would receive these
amounts in the event of the sale of its position in these securities.
Ecogen Inc.
During January 1996, Ecogen Inc. completed a 1:5 reverse stock split which
resulted in the receipt of 102,165 shares of common stock in exchange for
510,827 shares of common stock. This transaction resulted in no gain or loss to
the Partnership.
Somatix Therapy Corporation
During the first quarter of 1996, the Partnership sold its remaining 113,692
shares of Somatix Therapy Corporation common stock for approximately $765,000
resulting in a gain of approximately $424,000.
Synbiotics Corporation
In June 1996, the Partnership sold 2,300 shares of Synbiotics Corporation
common stock for approximately $11,000 resulting in a gain of approximately
$7,000. Additionally, during the third quarter of 1996, the Partnership sold
46,500 shares of Synbiotics Corporation common stock for approximately $191,000
resulting in a gain of approximately $101,000.
Silicon Valley Research, Inc.
During January 1996, Silicon Valley Research, Inc. completed a 1:2 reverse
stock split which resulted in the receipt of 146,806 shares of common stock in
exchange for 293,612 shares of common stock. This transaction resulted in no
gain or loss to the Partnership.
Optical Specialties, Inc.
During April 1996, the Partnership received 17,360 shares of Optical
Specialties, Inc. (``OSI'') common stock for granting an extension of its term
loan as further discussed in Note E.
Biocompatibles International plc
In February 1996, the Partnership sold 48,608 shares of Biocompatibles common
stock for approximately $396,000 resulting in a gain of approximately $384,000.
During April 1996, Biocompatibles launched a rights offering to its
shareholders. Pursuant to the offering, the Partnership was entitled to purchase
one unit (stock and warrant) for every six Biocompatibles common stock shares
owned. The Partnership decided not to participate in the offering, but instead
sold the Partnership's rights in the marketplace. This sale of rights resulted
in a gain of approximately $289,000 which is included in interest and other
income on the statement of operations.
In connection with its 1995 investment in Biocompatibles, the Partnership
received 21,965 shares of Biocompatibles common stock in July 1996 as a result
of Biocompatibles' achievement of certain financial targets in 1995.
7
<PAGE>
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:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------------------- ---------------------
1996 1995 1996 1995
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Management fee $1,500,000 $1,500,000 $500,000 $500,000
Printing 4,520 17,635 2,919 4,125
---------- ---------- -------- --------
$1,504,520 $1,517,635 $502,919 $504,125
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
Printing costs payable to an affiliate of the General Partner (which are
included in accrued expenses and other liabilities) as of September 30, 1996 and
December 31, 1995 were approximately $5,000 and $10,000, respectively.
Prudential Securities Incorporated, an affiliate of the General Partner,
owned 340 limited partnership units at September 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.
The Partnership has engaged in research and development co-investment
projects with PruTech Research and Development Partnership, 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.
E. Commitments and Contingencies
On June 30, 1988, the Partnership and an affiliated partnership guaranteed
for OSI $750,000 of a $1.5 million bank credit line (later changed to a term
loan) of which the Partnership was responsible for $651,000. The loan was
obtained to sustain OSI's operations. The Partnership purchased U.S. Treasury
bills which were held in escrow to collateralize its portion of the guarantee.
Prior to 1996, OSI paid $75,000 of the loan reducing the Partnership's guarantee
to $585,900. Additionally, the General Partner agreed to extend the
Partnership's guarantee in return for shares of OSI common stock as discussed in
Note C. During the three months ended June 30, 1996, OSI paid $260,400 of the
loan and during July 1996, OSI paid the balance. Therefore, the Partnership's
guarantee was eliminated and the remaining escrowed funds were released to the
Partnership.
On April 15, 1994 a multiparty petition captioned Mack et al. v. Prudential
Securities Incorporated et al. (Cause No. 94-17695) was filed in the 80th
Judicial District Court of Harris County, Texas, purportedly on behalf of
investors in the Partnership against the Partnership, the General Partner,
Prudential Securities Incorporated, The Prudential Insurance Company of America
and a number of other defendants. The petition alleges common law fraud, 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), as
amended, 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. Additionally, the General Partner
believes that the litigation discussed above will not have an adverse impact on
its ability to
8
<PAGE>
<PAGE>
liquidate the Partnership in accordance with the Plan and in the time frame
currently contemplated by the General Partner.
F. Subsequent Event
Holders of 68.4% of the limited partnership units approved the Plan on
October 30, 1996. Accordingly, the Plan has been 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. 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.
9
<PAGE>
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At September 30, 1996, the Partnership had cash and cash equivalents of
approximately $3,664,000 which is approximately $728,000 greater than the
Partnership's cash balance at December 31, 1995. This increase in cash was
primarily due to proceeds received in 1996 relating to the termination of
royalty rights, the sale of warrant and stock rights, the sales of stock and the
release of cash held in escrow partially offset by the payment of the management
fee and the April 1996 distribution as further discussed below.
In September 1996, R&D Funding Corp (the ``General Partner'') mailed to all
limited partners a Consent Solicitation Statement (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
68.4% of the limited partnership units approved the Plan on October 30, 1996 and
accordingly, the Plan has been 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.
As of September 30, 1996, the Partnership had approximately $1.1 million
invested in equity securities with an aggregate market value which exceeded its
cost. Certain of these investments are in development stage companies which are
more speculative and higher in risk than other equity investments. Additionally,
the realization of this market value is further impacted by certain sale
restrictions and market volume capacity. As discussed in the Statement, 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, the
revenue streams from royalties, and to a lesser extent, interest income.
Pursuant to an agreement which closed January 26, 1996 between the
Partnership, an affiliate of the Partnership and Boston Scientific Corporation
(``BSX''), the Partnership and its affiliate assigned to BSX all of their
rights, titles and interests in and to certain technologies licensed to BSX and
agreed to terminate all license agreements with BSX in exchange for $4,000,000
in cash, of which the Partnership's portion was $3,472,000. No further royalty
payments will be received by the Partnership from BSX as a result of this
agreement.
In February 1996, the Partnership sold 48,608 shares of Biocompatibles
International plc (``Biocompatibles'') common stock for approximately $396,000
resulting in a gain of approximately $384,000.
During the first quarter of 1996, the Partnership sold its remaining 113,692
shares of Somatix Therapy Corporation (``Somatix'') common stock for
approximately $765,000 resulting in a gain of approximately $424,000.
In April 1996, the Partnership distributed $4,444,444 to its partners from
net proceeds resulting primarily from the transactions described above. Limited
partners received $4,000,000 ($40 per unit) and the General Partner received the
remainder.
During April 1996, Biocompatibles launched a rights offering to its
shareholders. Pursuant to the offering, the Partnership was entitled to purchase
one unit (stock and warrant) for every six Biocompatibles common stock shares
owned. The Partnership decided not to participate in the offering, but rather
sold the Partnership's rights. The sale resulted in a gain of approximately
$289,000.
In June 1996, the Partnership sold 2,300 shares of Synbiotics Corporation
(``Synbiotics'') common stock for approximately $11,000 resulting in a gain of
approximately $7,000. During the third quarter of 1996, the Partnership sold
46,500 shares of Synbiotics common stock for approximately $191,000 resulting in
a gain of approximately $101,000.
10
<PAGE>
The Partnership owned U.S. Treasury bills which were held in escrow as
collateral in connection with a guarantee of a term loan for Optical
Specialties, Inc. (``OSI''). Through June 30, 1996, OSI paid half of the
original loan. In July 1996, OSI paid the balance of the loan and the remaining
escrowed funds were released.
Results of Operations
The Partnership's net income increased by approximately $843,000 but
decreased by $630,000 for the nine and three months ended September 30, 1996,
respectively, as compared to the same periods in 1995. The nine month increase
was primarily due to the 1996 transactions with BSX, Somatix, Synbiotics and
Biocompatibles discussed above reduced by an increase in general and
administrative expenses during the 1996 period offset, in part, by income of
approximately $983,000 from the termination of the Partnership's royalty rights
with MacNeal Schwendler Corporation during March 1995 and gains of approximately
$1,940,000 and $227,000 on sales of common stock in Navigation Technologies
Corporation and Silicon Valley Research, Inc. during 1995. The three month
decrease was primarily due to lower royalty income and a lower gain on the sale
of investments as well as an increase in general and administrative expenses
during the 1996 period.
Royalty income for the nine and three months ended September 30, 1996
decreased by approximately $602,000 and $413,000 as compared to the same periods
in 1995. These decreases were due primarily to lower 1996 royalties received
from BSX (as a result of the termination of royalty rights discussed above) and
OSI.
Interest and other income for the nine and three months ended September 30,
1996 increased by approximately $325,000 and $13,000 as compared with the same
periods in 1995. The nine month increase was due primarily to income from the
Biocompatibles rights offering as discussed above and the recognition of
previously deferred income upon the collection of a note receivable from Lombart
Lenses Limited, Inc. (which was recorded at a net value of $19,000) during March
1996 offset, in part, by interest recorded in 1995 in conjunction with a
promissory note which matured in June 1995 relating to the Partnership's
investment in Tridom Corporation.
General and administrative expenses increased by approximately $118,000 and
$104,000 for the nine and three months ended September 30, 1996 as compared with
the same periods in 1995. These increases were due primarily to professional and
other costs incurred in 1996 in connection with the Statement as discussed
above.
11
<PAGE>
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--
On September 4, 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 October 30, 1996, holders of a majority of the limited
partnership units voted to approve the Plan as follows: 68.4% voted in
favor of the Plan, 2.7% voted against the Plan and 2.0% abstained. For
further information see Notes A and F 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 II Agreement of Limited
Partnership (incorporated by reference to Exhibit 3.1 included with
Registrant's Form S-1 Registration Statement, File No. 2-94273, dated
November 9, 1984)
First Amendment to the Agreement of Limited Partnership of PruTech
Research and Development Partnership II (incorporated by reference to
Exhibit 3 included with Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991)
Financial Data Schedule (filed herewith)
b. Reports on Form 8-K--None
12
<PAGE>
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 II
By: R&D Funding Corp
A Delaware corporation, General Partner
By: /s/ Michael S. Hasley Date: November 13, 1996
----------------------------------------
Michael S. Hasley
President for the Registrant
By: R&D Funding Corp
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: November 13, 1996
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for PruTech Research and
Development Partnership II and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000774560
<NAME> PruTech Research and Development Partnership II
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Sep-30-1996
<PERIOD-TYPE> 9-Mos
<CASH> 3,664,149
<SECURITIES> 3,173,523
<RECEIVABLES> 7,734
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,845,406
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,845,406
<CURRENT-LIABILITIES> 702,997
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,142,409
<TOTAL-LIABILITY-AND-EQUITY> 6,845,406
<SALES> 4,687,017
<TOTAL-REVENUES> 5,254,699
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,843,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,411,421
<EPS-PRIMARY> 30.70
<EPS-DILUTED> 0
</TABLE>
