United States
SECURITIES & 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 June 30, 1999
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 33-35938
PAINEWEBBER R&D PARTNERS III, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3588219
(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>
SPECIAL NOTE REGARDING
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Except for the historical information
contained herein, the matters discussed herein are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of PaineWebber R&D Partners III, L.P. or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: general economic and business conditions; fluctuations in the
value of securities for which only a limited, or no, public market exists;
dependence on the development of new technologies; dependence on timely
development and introduction of new and competitively priced products; the need
for regulatory approvals; the Sponsor Companies (hereinafter defined) having
insufficient funds to commercialize products to their maximum potential; the
restructuring of Sponsor Companies; the dependence of PaineWebber R&D Partners
III, L.P. on the skills of certain scientific personnel; and the dependence of
PaineWebber R&D Partners III, L.P. on the General Partner (hereinafter defined).
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Form 10-Q
June 30, 1999
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Statements of Financial Condition (unaudited) at
June 30, 1999 and December 31, 1998 2
Statements of Operations
(unaudited) for the three months and six months
ended June 30, 1999 and 1998 3
Statement of Changes in Partners' Capital
(unaudited) for the six months ended
June 30, 1999 4
Statements of Cash Flows
(unaudited) for the six months ended
June 30, 1999 and 1998 5
Notes to Financial Statements
(unaudited) 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statements of Financial Condition
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Marketable securities, at market value $ 9,112,997 $ 9,147,266
Advances to product development projects 21,784 21,784
----------------- -----------------
Total assets $ 9,134,781 $ 9,169,050
================= =================
Liabilities and partners' capital:
Accrued liabilities 66,777 74,205
Partners' capital 9,068,004 9,094,845
----------------- -----------------
Total liabilities and partners' capital $ 9,134,781 $ 9,169,050
================= =================
- --------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
2
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the three months ended June 30, 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Interest income $ 27,749 $ 12,634
Unrealized depreciation of marketable
securities (35,358) (357,255)
Realized loss on sale of marketable
securities (46,456) -
----------------- -----------------
(54,065) (344,621)
----------------- -----------------
Expenses:
General and administrative costs 48,377 42,366
----------------- -----------------
48,377 42,366
----------------- -----------------
Net loss $ (102,442) $ (386,987)
================= =================
Net loss per partnership unit:
Limited partners (based on 50,000 units) $ (2.03) $ (7.66)
General partner $ (1,024.42) $ (3,869.87)
- --------------------------------------------------------------------------------------------------------
<CAPTION>
For the six months ended June 30, 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Interest income $ 45,413 $ 26,112
Unrealized appreciation (depreciation) of marketable
securities 434,144 (3,382,676)
Realized loss on sale of marketable
securities (414,865) -
----------------- -----------------
64,692 (3,356,564)
----------------- -----------------
Expenses:
General and administrative costs 91,533 80,105
----------------- -----------------
91,533 80,105
----------------- -----------------
Net loss $ (26,841) $ (3,436,669)
================= =================
Net loss per partnership unit:
Limited partners (based on 50,000 units) $ (0.53) $ (68.05)
General partner $ (268.41) $ (34,366.69)
- --------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
3
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statement of Changes in Partners' Capital
(unaudited)
<TABLE>
<CAPTION>
Limited General
For the six months ended June 30, 1999 Partners Partner Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1999 $ 9,002,361 $ 92,484 $ 9,094,845
Net loss (26,573) (268) (26,841)
----------------- ----------------- ----------------
Balance at June 30, 1999 $ 8,975,788 $ 92,216 $ 9,068,004
================= ================= ================
- -----------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
4
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30, 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (26,841) $ (3,436,669)
Adjustments to reconcile net loss to
cash provided by operating activities:
Unrealized (appreciation) depreciation of marketable
securities (434,144) 3,382,676
Decrease (increase) in operating assets:
Marketable securities 468,413 87,188
Prepaid expense and other assets - (3,608)
Decrease in operating liabilities:
Payable to PaineWebber Development Corporation - (3,613)
Accrued liabilities (7,428) (25,974)
----------------- -----------------
Cash provided by operating activities - -
----------------- -----------------
Cash at beginning of period - -
----------------- -----------------
Cash at end of period $ - $ -
================= =================
- --------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the six months ended
June 30, 1999 and 1998.
- --------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
5
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Business
The financial information as of and for the periods ended June 30, 1999
and 1998 is unaudited. However, in the opinion of management of PaineWebber R&D
Partners III, L.P. (the "Partnership") such information includes all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation. The results of operations reported for the interim periods ended
June 30, 1999, are not necessarily indicative of results to be expected for the
year ended December 31, 1999. 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, 1998 and the previously issued quarterly report
on Form 10-Q for the quarter ended March 31, 1999.
The Partnership is a Delaware limited partnership that commenced
operations on June 3, 1991. Paine Webber Development Corporation ("PWDC" or the
"General Partner"), an indirect, wholly-owned subsidiary of Paine Webber Group
Inc., is the general partner and manager of the Partnership. The Partnership
will terminate on December 15, 2015, unless its term is extended or reduced by
the General Partner.
The principal objective of the Partnership has been to provide long-term
capital appreciation to investors through investing in the development and
commercialization of new products with technology and biotechnology companies
("Sponsor Companies"), which have been expected to address significant market
opportunities. The Partnership has been engaged in diverse product development
projects (the "Projects") including product development contracts, participation
in other partnerships and investments in securities of Sponsor Companies. Once
the product development phase has been completed, the Sponsor Companies have the
option to license and commercialize the products resulting from the product
development project, and the Partnership has the right to receive payments based
upon the sale of such products. The Partnership obtained warrants to purchase
the common stock of Sponsor Companies to provide additional capital appreciation
to the Partnership which was not directly dependent upon the outcome of the
Projects (see Note 5).
6
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 1 Continued)
All distributions from the Partnership to the General Partner and the
limited partners of the Partnership (the "Limited Partners"; collectively, the
"Partners") have been made pro rata in accordance with their respective capital
contributions. The table below sets forth the proportion of each distribution to
be received by the Limited Partners and the General Partner, respectively:
Limited
Partners General Partner
-------- ---------------
I. Until the value of the aggregate
distributions for each limited
partnership unit ("Unit") equals
$1,000 plus simple interest on
such amount accrued at 5% per annum
("Contribution Payout"); At June
30, 1999, Contribution Payout
was $1,400 per Unit.................... 99% 1%
II. After Contribution Payout and until
the value of the aggregate
distributions for each Unit equals
$5,000 ("Final Payout")................ 80% 20%
III. After Final Payout..................... 75% 25%
During the quarter ended June 30, 1999, the Partnership made no cash or
security distributions. At June 30, 1999, the Partnership has made cash and
security distributions, as valued on the dates of distribution, since inception
of $1,143 and $98 per Unit, respectively.
Profits and losses of the Partnership are allocated as follows: (i) until
cumulative profits and losses for each Unit equals Contribution Payout, 99% to
Limited Partners and 1% to the General Partner, (ii) after Contribution Payout
and until cumulative profits and losses for each unit equals Final Payout, 80%
to Limited Partners and 20% to the General Partner, and (iii) after Final
Payout, 75% to Limited Partners and 25% to the General Partner. As of June 30,
1999, the cumulative profits of the Partnership were $558 per Unit.
2. Summary of Significant Accounting Policies
The financial statements are prepared in conformity with generally
accepted accounting principles which require management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("Statement No. 115"), the Partnership accounted for its investments
in restricted common stock (where the restriction period expired in one year or
less) at market value with unrealized gains and losses reflected in the
Statements of Operations during the period in which the change in value
occurred. Investments in restricted common stock, whereby the restriction period
exceeded one year, were accounted for at the lower of cost or fair value.
7
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 2 Continued)
Marketable securities consist of a money market fund and common stock
which are recorded at market value. Marketable securities are not considered
cash equivalents for the Statements of Cash Flows.
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.
The Partnership invests in product development contracts with Sponsor
Companies either directly or through product development limited partnerships.
The Partnership expenses product development costs when incurred by the Sponsor
Companies and such costs are reflected as expenditures under product development
projects in the accompanying Statements of Operations. Income received and/or
accrued from investments in Projects is reflected in the Statements of
Operations for the period in which the income is earned.
The Partnership's warrants are currently exercisable and the Sponsor
Company's stock is publicly traded, therefore, the warrants are carried at
intrinsic value (the excess, if any, of market price per share over the exercise
price per share), which approximates fair value.
8
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. Marketable Securities
The Partnership held the following marketable securities at:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
Carrying Carrying
Value Cost Value Cost
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Money market fund $ 4,169,971 $ 4,169,971 $ 1,565,184 $ 1,565,184
Biocompatibles International plc
(815,000 common shares) ---- ---- 1,162,957 815,000
Gensia Sicor, Inc.
(137,772 common shares) ---- ---- 624,280 936,850
Genzyme Molecular Oncology
(713,091 common shares) 1,961,001 1,000,000 2,317,546 1,000,000
Medarex, Inc.
(281,708 restricted common shares) ---- ---- 853,927 ----
(722,915 and 441,207 unrestricted 2,982,025 ---- 1,337,409 ----
common shares at June 30, 1999 and
December 31, 1998, respectively)
Pharming Group N.V.
(129,555 ordinary shares) ---- ---- 1,285,963 3,500,000
------------- ------------- ------------- -------------
$ 9,112,997 $ 5,169,971 $ 9,147,266 $ 7,817,034
============= ============= ============= =============
</TABLE>
During the quarter ended June 30, 1999, the Partnership sold its
investments in Biocompatibles International plc ("Biocompatibles"), Gensia
Sicor, Inc. ("Gensia") and Pharming Group N.V. ("Pharming"). Upon the sale of
Biocompatibles the Partnership received aggregate proceeds of $1,302,967
(average price of $1.60 per share) and recognized a gain (loss) for the three
months and six months ended June 30, 1999 of $(110,036) and $140,010,
respectively. Aggregate proceeds from the sale of Gensia were $558,564 (average
price of $4.05 per share) resulting in a gain (loss) for the three months and
six months ended June 30, 1999 of $171,080 and $(65,716), respectively. The sale
of Pharming generated proceeds of $796,804 ($6.15 per share) which resulted in a
loss of $107,501 and $489,159 for these same periods ended June 30, 1999. The
market value of the Biocompatibles shares at June 30, 1998, was $1.99 per share
as compared to $2.875 and $8.124 per share at March 31, 1998 and December 31,
1997, respectively. Accordingly, the Partnership recognized unrealized
depreciation on its investment of 815,000 shares for the three months and six
months ended June 30, 1998, of $721,275 and $4,999,210, respectively. As of June
30, 1998, the market value of Gensia shares decreased to $4.00 per share as
compared to $5.00 and $5.813 per share as of March 31, 1998 and December 31,
1997, respectively. Accordingly, the Partnership recognized unrealized
depreciation of $137,772 and $249,781 for the three months and six months ended
June 30, 1998, respectively.
In November 1998, Genzyme Molecular Oncology ("GMO") commenced trading on
the Nasdaq National Market. The Partnership reclassified its investment of
713,091 non-publicly traded common shares (with a carrying value of $1,000,000)
from investments to marketable securities and recorded the
9
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 3 Continued)
investment at its market value of $2,317,546 ($3.25 per share) at December 31,
1998 and $2,674,092 ($3.75 per share) at March 31, 1999. As of June 30, 1999 the
Partnership recorded its investment in GMO at the market value of $2.75 per
share resulting in unrealized depreciation of $713,091 and $356,545 for the
three months and six months then ended.
In 1997, upon the acquisition of GenPharm International, Inc. ("GenPharm")
by Medarex, Inc. ("Medarex"), the Partnership's investment of 1,000,000 GenPharm
convertible preferred shares was converted to 281,708 restricted shares of
Medarex which became saleable on or after January 1, 1999. In accordance with
Statement No. 115, the Partnership recorded its investment in Medarex shares as
of March 31 and June 30, 1998 at market values of $1,364,523 ($4.84375 per
share) and $1,866,315 ($6.625 per share), respectively. Accordingly, the
Partnership recognized unrealized appreciation of $501,792 and $1,866,315 for
the three months and six months ended June 30, 1998, respectively. In September
1998, the Partnership received 441,207 unrestricted Medarex shares in connection
with its remaining interest as a former GenPharm shareholder. The Partnership
recorded its total investment of 722,915 shares as of March 31, 1999 and
December 31, 1998, at the aggregate market value of $2,304,292 ($3.1875 per
share) and $2,191,336 ($3.03125 per share), respectively. As of June 30, 1999,
the Partnership recorded its investment in Medarex at $4.125 per share and
recognized unrealized appreciation of $677,733 and $790,688 for the three months
and six months then ended.
4. Related Party Transactions
The General Partner is entitled to receive an annual management fee for
management and administrative services provided to the Partnership. As of
January 1, 1997, the General Partner elected to discontinue the management fee
charged to the Partnership.
The money market fund invested in by the Partnership is managed by an
affiliate of PaineWebber Incorporated ("PWI").
PWDC and PWI, and its affiliates, have acted in an investment banking
capacity for several of the Sponsor Companies. In addition, PWDC and its
affiliates have direct limited partnership interests in some of the same product
development limited partnerships as the Partnership.
5. Product Development Projects
Of the Partnership's seven original Projects, the following two Projects
are currently active: a $6.0 million investment in Alkermes Clinical Partners,
L.P., a $46.0 million limited partnership formed to fund the development,
clinical testing, manufacturing and marketing of Receptor-Mediated
Permeabilizers for use in the treatment of diseases of the brain and central
nervous system by enabling the delivery of drugs across the blood brain barrier;
and a $6.0 million investment in Cephalon Clinical Partners, L.P., a $45.0
million limited partnership formed to fund the development, clinical testing,
manufacturing and marketing of Myotrophin(TM) for use in the treatment of
amyotrophic lateral sclerosis and certain other peripheral neuropathies.
10
<PAGE>
PAINEWEBBER R&D PARTNERS III, L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Note 5 Continued)
If the Projects produce any product for commercial sale, the Sponsor
Companies have the option to license the Partnership's technology to manufacture
and market the products developed. In addition, the Sponsor Companies have the
option to purchase the Partnership's interest in the technology. In
consideration for granting such purchase options, the Partnership has received
warrants to purchase shares of common stock of certain of the Sponsor Companies.
At June 30, 1999, the Partnership owned warrants to purchase 133,000 shares and
252,700 shares of Repligen Corporation at an exercise price of $2.50 per share
and $3.50 per share, respectively. The exercise period expires March 2001. The
market price of Repligen Corporation stock at June 30, 1999 was $2.875 per
share. The Partnership's warrant to purchase 35,512 shares of Cayenne Software,
Inc. at an exercise price of $25.91 per share expired in July 1998. The
Partnership did not exercise the warrant since, during the exercise period, the
market price of the stock never exceeded the exercise price.
6. Income Taxes
The Partnership is not subject to federal, state or local income taxes.
Accordingly, the individual partners are required to report their distributive
share of realized income or loss on their individual federal and state income
tax returns.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
Partners' capital approximated $9.1 million at December 31, 1998 and June
30, 1999.
The Partnership's funds are invested in a money market fund and marketable
securities until cash is needed to pay for the ongoing management and
administrative expenses of the Partnership or upon the remittance of cash
distributions to the Partners. Liquid assets decreased from $9.2 million at
December 31, 1998 to $9.1 million at June 30, 1999 resulting from a net decrease
in the market values of marketable securities held as of these dates.
Results of Operations
Three months ended June 30, 1999 compared to the three months ended June 30,
1998:
Net loss for the three months ended June 30, 1999 and 1998 was $102,500
and $387,000, respectively. The decrease in net loss resulted primarily from a
favorable change in revenues of $290,500.
Net revenues for the three months ended June 30, 1999 and 1998 were
$(54,100) and $(344,600), respectively. The variance was due primarily to a
favorable change in net unrealized depreciation of $321,900 offset by the
recognition of a loss upon the sale of marketable securities as of June 30, 1999
of $46,500. For the three months ended June 30, 1999 the Partnership recognized
net unrealized depreciation of $35,400 resulting from its investment of 713,100
shares of GMO and 722,900 shares of Medarex. The market value of GMO decreased
from $3.75 per share at March 31, 1999 to $2.75 per share at June 30, 1999,
resulting in unrealized depreciation for the three moths ended June 30, 1999 of
$713,100. This was offset by the market value increase of Medarex from $3.1875
per share at March 31, 1999 to $4.125 per share at June 30, 1999, resulting in
unrealized appreciation for the three months ended June 30, 1999 of $677,700.
For the three months ended June 30, 1998, the Partnership recognized net
unrealized depreciation of $357,300 resulting from its investment of 815,000
shares of Biocompatibles, 137,800 shares of Gensia and 281,700 shares of
Medarex. The market value of Biocompatibles decreased from $2.875 per share at
March 31, 1998 to $1.99 per share as of June 30, 1998, resulting in unrealized
depreciation for the three months ended June 30, 1998 of $721,300. Likewise, the
market value per share of Gensia decreased as of these dates from $5.00 to $4.00
resulting in unrealized depreciation for the three months ended June 30, 1998 of
$137,800. The market value per share of Medarex increased from $4.84375 as of
March 31, 1998 to $6.625 per share as of June 30, 1998 resulting in the
recognition of unrealized appreciation of $501,800 for the quarter ended June
30, 1998.
During the three months ended June 30, 1999 the partnership sold 815,000
shares of Biocompatibles for proceeds of $1,303,000, with a carrying value at
March 31, 1999 of $1,413,000. The Partnership recognized a loss on the sale of
$110,000. Aggregate proceeds from the sale of Gensia were $558,600 as compared
to a March 31, 1999 carrying value of $387,500 resulting in a gain upon the sale
for the quarter ended June 30, 1999 of $171,000. The sale of Pharming shares
(with a carrying value of $904,300 at March 31, 1999) for proceeds of $796,800
resulted in a loss of $107,500.
There were no material variances in expenses for the three months ended
June 30, 1999 as compared to the same period in 1998.
12
<PAGE>
(Item 2 Continued)
Six months ended June 30, 1999 compared to the six months ended June 30, 1998:
Net loss for the six months ended June 30, 1999 and 1998 was $26,800 and
$3,436,700, respectively. The decrease in net loss resulted from a favorable
change in revenues.
Net revenues for the six months ended June 30, 1999 and 1998 were $64,700
and $(3,356,600), respectively. The variance was due primarily to a favorable
change in unrealized appreciation (depreciation) of $3,816,800 offset by the
recognition in 1999 of realized losses on sales of marketable securities of
$414,900. For the six months ended June 30, 1999 the Partnership recognized net
unrealized appreciation of $434,100 resulting from its investment of 713,100
shares of GMO and 722,900 shares of Medarex. The market value of GMO decreased
from $3.25 per share at December 31, 1998 to $2.75 per share at June 30, 1999,
resulting in unrealized depreciation for the six months ended June 30, 1999 of
$356,500. This was offset by the increase in market value of Medarex from
$3.03125 per share at December 31, 1998 to $4.125 at June 30, 1999, resulting in
unrealized appreciation for the six months ended June 30, 1999 of $790,600. For
the six months ended June 30, 1998, the Partnership recognized net unrealized
depreciation of $3,382,700 resulting from its investment of 815,000 shares of
Biocompatibles, 137,800 shares of Gensia and 281,700 shares of Medarex. The
market value of Biocompatibles decreased from $8.124 per shares at December 31,
1997 to $1.99 per share as of June 30, 1998, resulting in unrealized
depreciation for the six months ended June 30, 1998 of $4,999,200. Likewise, the
market value per share of Gensia decreased as of these dates from $5.813 to
$4.00 resulting in unrealized depreciation for the six months ended June 30,
1998 of $249,800. During the six months ended June 30, 1998, in accordance with
Statement No. 115, the Partnership recorded its investment in Medarex restricted
shares (with a restriction period of less than one year) at a market value of
$6.625 per share and, accordingly, recognized unrealized appreciation of
$1,866,300.
During the six months ended June 30, 1999, the Partnership recognized a
net loss from the sale of marketable securities of $414,900. The Partnership
sold its investment in Biocompatibles with a carrying value as of December 31,
1998 of $1,163,000 for proceeds of $1,303,000 and realized a gain of $140,000.
Aggregate proceeds from the sale of shares of Gensia were $558,600 as compared
to the carrying value of $624,300. The Partnership recognized a loss of $65,700
upon this sale for the six months ended June 30, 1999. The sale of Pharming
shares (with a carrying value of $1,286,000) for proceeds of $796,800 resulted
in a loss of $489,200 for the six months ended June 30, 1999.
There were no material variances in expenses for the six months ended June
30, 1999 as compared to the same period in 1998.
13
<PAGE>
(Item 2 Continued)
Year 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Calculations
performed with these abbreviated date fields may misinterpret the Year 2000 as
1900 resulting in erroneous calculations or program failures. Currently, the
Partnership utilizes computer programs, through services provided by a
third-party servicing agent, that can adversely affect the Partnership's
operations if they are not Year 2000 compliant. The servicing agent has informed
the Partnership that it has been executing a plan to modify or replace
significant applications as necessary to ensure Year 2000 compliance.
Programming changes and final testing were completed by June 30, 1999.
Conversion of client databases was also completed by June 30, 1999. Incremental
costs associated with the development and implementation of the above plan have
been, and will continue to be, borne by the servicing agent. The status of the
Partnership's investments in Sponsor Companies could be adversely affected if
the computer systems of the Sponsor Companies are not Year 2000 compliant. Based
on the recent available public disclosure of those Sponsor Companies in which
the Partnership has investments of value, the Sponsor Companies have stated that
they have undertaken programs to insure Year 2000 compliance. As of the dates of
disclosure, these Sponsor Companies do not expect that the Year 2000 Issue will
adversely effect their future financial condition. However, they cannot provide
assurances that unanticipated problems or costs will not arise. To date, the
Partnership has no contingency plan in place but intends to evaluate in
September 1999 the status of the Year 2000 Issue with third parties to determine
whether such a plan is necessary.
14
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
None
b) Reports on Form 8-K:
None
15
<PAGE>
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 16th day of August
1999.
PAINEWEBBER R&D PARTNERS III, L.P.
By: PaineWebber Development Corporation
(General Partner)
By: /s/ Dhananjay M. Pai
--------------------
Dhananjay M. Pai
President
By: /s/ Anthony M. DiIorio
----------------------
Anthony M. DiIorio
Principal Financial and Accounting Officer
16
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<NAME> PAINEWEBBER R&D PARTNERS III, L.P.
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