<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, 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 0-21464
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
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(Exact name of registrant as specified in its charter)
California 13-3268435
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Seaport Plaza, 28th Floor, New York, NY 10292
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-3500
N/A
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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 NET ASSETS
(in process of liquidation)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 3,294,761 $ 3,452,809
Liabilities
Estimated liquidation costs 366,683 873,549
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Contingencies
Net assets in liquidation $ 2,928,078 $ 2,579,260
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Net assets in liquidation
Limited partners (100,000 units issued and outstanding) $ 2,566,770 $ 2,252,834
General partner 361,308 326,426
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Total net assets in liquidation $ 2,928,078 $ 2,579,260
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</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in process of liquidation)
(unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNER TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Net assets in liquidation--December 31, 1997 $2,252,834 $326,426 $2,579,260
Changes in estimated liquidation values of assets and
liabilities 313,936 34,882 348,818
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Net assets in liquidation--September 30, 1998 $2,566,770 $361,308 $2,928,078
---------- -------- ----------
---------- -------- ----------
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The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP II
(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 fairly present the financial
statements of PruTech Research and Development Partnership II (the
'Partnership') as of September 30, 1998, subject to the effects of any further
liquidation accounting adjustments that would have been required had the
realizable values of certain assets and the settlement amounts of certain
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, 1997.
In accordance with the terms of the plan of dissolution and liquidation of
the Partnership (the 'Plan'), R&D Funding Corp (the 'General Partner') has sold
or otherwise disposed of all of the Partnership's remaining
investments of value. The Partnership has a few remaining assets (which are
estimated to have little or no value), and outstanding and potential liabilities
and contingencies to be resolved before the final liquidation of the
Partnership. The final liquidation of the Partnership will occur upon the
resolution of the Partnership's remaining liabilities and contingencies, certain
of which are involved in ongoing discussions. Due to the nature of the remaining
contingencies to be resolved, the date of liquidation is uncertain. However, the
Partnership has utilized a December 31, 1998 date for purposes of estimating
costs through the conclusion of liquidation. If, however, the Partnership is
unable to liquidate by December 31, 1998, additional costs will be incurred.
Upon liquidation, the General Partner intends to distribute the assets of the
Partnership (reduced by a reserve to satisfy any liabilities or contingencies of
the Partnership) to the partners by making a single, final distribution in
accordance with the terms of the Agreement of Limited Partnership, as amended.
It is expected that the Partnership's eventual total distributions will not
equal the partners' initial investment.
As a result of the adoption of the Plan, the Partnership adopted the
liquidation basis of accounting effective December 31, 1996, whereby assets are
valued at their estimated net realizable values and liabilities stated at their
estimated settlement amounts. As of September 30, 1998, the Partnership's
estimated liquidation costs were $367,000. These estimated costs include, but
are not limited to, costs of selling or otherwise disposing of the Partnership's
remaining investments, costs of achieving resolution to remaining contingencies
and general and administrative costs through the estimated conclusion of
liquidation. During the nine months ended September 30, 1998, the Partnership
reflected an increase of $349,000 in the estimated net liquidation value of its
assets and liabilities, of which $49,000 was recorded during the third quarter.
The nine-month increase is primarily due to the sale of certain royalty rights
with Optical Specialties, Inc. (see Note B) which was reflected in the first
quarter, a reduction in the management fee (see Note D) and to interest earned
on the Partnership's cash and cash equivalents.
B. Royalties
In March 1998, the Partnership reached an agreement to sell to Nanometrics
Incorporated ('Nanometrics') its right, title and interest in and to certain
technologies which had been licensed to Optical Specialties, Inc. (hereinafter
referred to as the 'Metra Technologies') in exchange for approximately $144,000
which was received in April 1998. Prior to this agreement, the Metra
Technologies had a carrying value of zero on the Partnership's financial
statements. No further royalty payments will be received by the Partnership for
Metra Technologies as a result of this agreement. At September 30, 1998, the
Partnership continues to retain certain royalty rights for other technologies
licensed to Optical Specialties, Inc., which have a carrying value of zero.
3
<PAGE>
C. Investments in Equity Securities
At September 30, 1998 and December 31, 1997, the Partnership's remaining
investments in equity securities consist of 274,628 shares of Optical
Specialties, Inc. common stock and 144,666 shares of its preferred stock. The
carrying value of these remaining positions as of September 30, 1998 and
December 31, 1997 is zero.
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.
In conjunction with the adoption of the liquidation basis of accounting (see
Note A), the estimated costs expected to be incurred through the complete
liquidation of the Partnership are reflected in the Statements of Net Assets.
Included within these estimated liquidation costs as of September 30, 1998 and
December 31, 1997 are approximately $155,000 and $644,000 expected to be charged
by the General Partner and its affiliates during the remaining anticipated
liquidation period. Effective April 1, 1998, the General Partner reduced its
management fee from $125,000 per quarter to $75,000 per quarter which resulted
in an anticipated cost reduction from the December 31, 1997 estimate of
$150,000. The actual charges will depend primarily upon the length of the time
required to liquidate the Partnership and may differ from the amount accrued.
Prudential Securities Incorporated ('PSI'), an affiliate of the General
Partner, owned 340 limited partnership units 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 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. 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, 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), 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 General Partner, PSI and the Partnership believe they have meritorious
defenses to the complaint and are vigorously defending themselves against 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. Additionally, 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.
4
<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, 1998, the Partnership had cash and cash equivalents of
approximately $3,295,000 which is approximately $158,000 less than the
Partnership's balance at December 31, 1997. This decrease was primarily due to
the payment of management fees which was offset, in part, by proceeds from the
sale of certain royalty rights with Optical Specialties, Inc. and interest
received on the Partnership's cash and cash equivalents.
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 was adopted.
In accordance with the terms of the Plan, the General Partner has sold or
otherwise disposed of all of the Partnership's remaining
investments of value. The Partnership has a few remaining assets (which are
estimated to have little or no value), and outstanding and potential liabilities
and contingencies to be resolved before the final liquidation of the
Partnership. The final liquidation of the Partnership will occur upon the
resolution of the Partnership's remaining liabilities and contingencies, certain
of which are involved in ongoing discussions. Due to the nature of the remaining
contingencies to be resolved, the date of liquidation is uncertain. However, the
Partnership has utilized a December 31, 1998 date for purposes of estimating
costs through the conclusion of liquidation. If, however, the Partnership is
unable to liquidate by December 31, 1998, additional costs will be incurred.
Upon liquidation, the General Partner intends to distribute the assets of the
Partnership (reduced by a reserve to satisfy any liabilities or contingencies of
the Partnership) to the partners by making a single, final distribution in
accordance with the terms of the Agreement of Limited Partnership, as amended.
It is expected that the Partnership's eventual total distributions will not
equal the partners' initial investment.
During the nine months ended September 30, 1998, the Partnership reflected an
increase of $349,000 in the estimated net liquidation value of its assets and
liabilities primarily due to the sale of certain royalty rights with Optical
Specialties, Inc. (as more fully discussed in Note B to the accompanying
financial statements), a reduction in the management fee (as more fully
discussed in Note D to the accompanying financial statements) and to interest
earned on the Partnership's cash and cash equivalents.
Results of Operations
The Partnership adopted the liquidation basis of accounting as of December
31, 1996 in accordance with generally accepted accounting principles and no
longer reports results of operations. As such, there is no management's
discussion regarding the results of operations.
5
<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--None
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--
No reports on Form 8-K were filed during the quarter.
6
<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/ Brian J. Martin Date: November 16, 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 16, 1998
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
7
<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-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Sep-30-1998
<PERIOD-TYPE> 9-Mos
<CASH> 3,294,761
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,294,761
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,294,761
<CURRENT-LIABILITIES> 366,683
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,928,078
<TOTAL-LIABILITY-AND-EQUITY> 3,294,761
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>
Registrant adopted the liquidation basis of accounting
on December 31, 1996, and, accordingly, has not
reflected operations subsequent to 1996. See Note A to
the financial statements for further details.
</FN>
</TABLE>
