<PAGE>
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 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 N/A to N/A
--- ---
Commission File No. 0-14607
TECHNOLOGY FUNDING PARTNERS II
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2970428
------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(415) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 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
--- ---
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units cannot be
determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1995 1994
---------- -----------
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis
of $2,189,096 at both
1995 and 1994) $4,340,438 6,130,253
Secured notes receivable, net
(cost basis of $222,803 and
$217,465 at 1995 and 1994,
respectively) 183,803 177,465
--------- ---------
Total investments 4,524,241 6,307,718
Cash and cash equivalents 56 2,934
Due from related parties -- 9,384
--------- ---------
Total $4,524,297 6,320,036
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 31,389 34,732
Due to related parties 211,978 --
Short-term borrowings 2,499,253 2,497,736
--------- ---------
Total liabilities 2,742,620 2,532,468
Commitments and subsequent events
(Notes 3 and 4)
Partners' capital:
Limited Partners
(Units outstanding of 50,000
for both 1995 and 1994) -- 87,801
General Partners (330,665) (201,390)
Net unrealized fair value increase
(decrease) from cost:
Equity investments 2,151,342 3,941,157
Secured notes receivable (39,000) (40,000)
--------- ---------
Total partners' capital 1,781,677 3,787,568
--------- ---------
Total $4,524,297 6,320,036
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1995 1994
---- ----
<S> <C> <C>
Interest income: $ 5,359 3,687
Costs and expenses:
Management fees 125,000 125,000
Operating expenses:
Administrative and investor
services 22,918 38,081
Investment operations 6,090 15,981
Computer services 5,927 9,185
Professional fees 7,161 8,330
Interest expense 55,339 23,950
--------- -------
Total operating expenses 97,435 95,527
--------- -------
Total costs and expenses 222,435 220,527
--------- -------
Net realized loss (217,076) (216,840)
Change in net unrealized fair value:
Equity investments (1,789,815) 333,775
Secured notes receivable 1,000 (32,000)
--------- -------
Net (loss) income $(2,005,891) 84,935
========= =======
Net realized loss per Unit $ (2) (4)
========= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- ------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash paid to related parties $ -- (239,257)
Cash paid to vendors (17,147) (24,831)
Interest paid on short-term
borrowings (55,339) (23,950)
Interest received 21 842
--------- -------
Net cash used by operating activities (72,465) (287,196)
--------- -------
Cash flows from financing activities:
Proceeds from short-term
borrowings, net 1,517 227,140
Short-term advances from Managing
General Partner 68,070 --
--------- -------
Net cash provided by financing
activities 69,587 227,140
--------- -------
Net decrease in cash and
cash equivalents (2,878) (60,056)
Cash and cash equivalents at beginning
of year 2,934 81,073
--------- -------
Cash and cash equivalents at March 31 $ 56 21,017
========= =======
Reconciliation of net (loss) income to
net cash used by operating activities:
Net (loss) income $(2,005,891) 84,935
Adjustments to reconcile net (loss) income
to net cash used by operating activities:
Change in net unrealized fair value:
Equity investments 1,789,815 (333,775)
Secured notes receivable (1,000) 32,000
Other, net (88) (150)
Changes in:
Accrued interest on notes
receivable (5,250) (2,695)
Accounts payable and accrued
expenses (3,343) (6,949)
Due to related parties, net of
short-term advances 153,292 (60,562)
--------- -------
Net cash used by operating activities $ (72,465) (287,196)
========= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partner, the Balance Sheets as of
March 31, 1995 and December 31, 1994 and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 1995 and 1994, reflect all adjustments which are necessary for a
fair presentation of the financial position, results of operations and
cash flows for such periods. These statements should be read in
conjunction with the annual report on Form 10-K for the year ended
December 31, 1994. The following notes to financial statements for
activity through March 31, 1995 supplement those included in the annual
report on Form 10-K.
2. Financing of Partnership Operations
-----------------------------------
The Managing General Partner expects cash received from the liquidation
of Partnership investments and the collection of notes receivable will
provide the necessary liquidity to service Partnership debt and fund
Partnership operations. Until such future proceeds are received, the
Partnership is dependent upon the financial support of the Managing
General Partner to fund operations. The Managing General Partner has
committed to support the Partnership's working capital requirements
through advances as necessary.
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party expenses for the three months
ended March 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Management fees $125,000 125,000
Reimbursable operating expenses 28,292 53,695
</TABLE>
Certain reimbursable operating expenses have been accrued based upon
interim estimates prepared by the Managing General Partner and are
adjusted to actual costs periodically. Given the Partnership's low cash
resources, the Managing General Partner has deferred collection of
reimbursable operating expenses and management fees, and made advances
to the Partnership to pay other operating expenses. At March 31, 1995,
due to related parties for such advances and reimbursable operating
costs was $211,978 compared to due from related parties of $9,384 at
December 31, 1994.
Officers of the General Partners occasionally receive stock options as
compensation for serving on the Boards of Directors of portfolio
companies. At March 31, 1995, the Partnership had an indirect interest
in such options, worth approximately $4,462, in non-transferable
Viewlogic Systems, Inc. and Cytocare, Inc. options.
4. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1994 is in the 1994 Annual Report. Activity from January 1 through
March 31, 1995 consisted of
<TABLE>
<CAPTION>
January 1 -
March 31, 1995
Principal ---------------
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $2,189,096 6,130,253
--------- ---------
Significant changes:
Electronic Design Automation
- ----------------------------
Viewlogic Systems, Inc. Common 12/91 &
shares 10/92 211,306 0 (1,832,052)
Industrial/Business Automation
- ------------------------------
Acuity Imaging, Common
Inc. shares 03/88 27,685 0 86,516
Medical
- -------
Cytocare, Inc. Common
shares 06/88 211,351 0 (44,882)
--------- ---------
Total significant changes during the three months
ended March 31, 1995 0 (1,790,418)
Other changes, net 0 603
--------- ---------
Total equity investments at March 31, 1995 $2,189,096 4,340,438
========= =========
</TABLE>
Marketable Equity Securities
- ----------------------------
At March 31, 1995 and December 31, 1994, marketable equity securities had
aggregate costs of $559,860 and $559,243, respectively, and aggregate
fair values of $2,428,781 and $3,982,963, respectively. The net
unrealized gains at March 31, 1995 and December 31, 1994 included gross
gains of $1,883,678 and $3,438,556, respectively.
Acuity Imaging, Inc.
- --------------------
The increase in fair value in the above table of $86,516 reflected the
publicly-traded unrestricted market value of $281,002 at March 31, 1995.
In April 1995, the company announced a definitive agreement to become a
subsidiary of Robotic Vision Systems Inc. ("RVSI"), a public company. A
targeted date for the completion of the merger has not been announced as
the merger is still subject to various conditions customary for
transactions of this nature and stockholder approval. Upon consummation
of the merger, the Partnership will exchange its common share holdings in
Acuity for approximately 29,700 RVSI common shares; at May 5, 1995, these
shares had an approximate market value of $252,000.
Cytocare, Inc.
- --------------
The Partnership recorded a decrease in fair value of $44,882 to reflect
the publicly-traded market price at March 31, 1995; the fair value was
adjusted to reflect a 25% discount for restricted securities.
Viewlogic Systems, Inc.
- -----------------------
The Partnership recorded a decrease in fair value of $1,832,052 to
reflect the publicly-traded market price at March 31, 1995; a portion of
the investment fair value was adjusted to reflect a 25% discount for
restricted securities.
As of May 5, 1995, the fair value increased to $2,137,118 compared to
$1,809,426 at March 31, 1995. This change reflects changes in common
stock prices which fluctuate daily on stock exchanges. The Managing
General Partner continues to believe that its investment is capable of a
higher future value.
5. Secured Notes Receivable, Net
-----------------------------
<TABLE>
<CAPTION>
Activity from January 1 through March 31, 1995 consisted of:
<S> <C>
Balance at January 1, 1995 $177,465
1995 Activity:
Accrued interest 5,250
Decrease in allowance for loan losses 1,000
Other activity, net 88
-------
Total secured notes receivable, net
at March 31, 1995 $183,803
=======
</TABLE>
The Partnership had accrued interest of $48,503 and $43,253 at March 31,
1995 and December 31, 1994, respectively.
<TABLE>
<CAPTION>
Activity in the allowance for loan losses was as follows:
<S> <C>
Balance at January 1, 1995 $40,000
Change in net unrealized fair value of
secured notes receivable (1,000)
------
Balance at March 31, 1995 $39,000
======
</TABLE>
The allowance for loan losses is adjusted quarterly based upon changes to
the portfolio size and risk profile. Although the allowance is
established by evaluating individual debtor repayment ability, the
allowance represents the Managing General Partner's assessment of the
portfolio as a whole.
6. Short-term Borrowings
---------------------
The Partnership maintains a line of credit with a financial institution,
which has been renewed with a maturity date of April 5, 1996. At March
31, 1995, the outstanding balance was $2,499,253; the Partnership may not
make additional draws based on current collateral values. The maximum
and weighted average amounts outstanding on this account during the three
months ended March 31, 1995 were $2,499,253 and 2,482,496, respectively.
The quarter-end and weighted average interest rates during the three
months ended March 31, 1995 were 9.0% and 8.82%, respectively; interest
expense of $55,339 was recorded. The Partnership's shares in Cytocare,
Inc. and Viewlogic Systems, Inc. were pledged as collateral.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the three months ended March 31, 1995, net cash used by operations
totaled $72,465. Operating expenses to vendors of $17,147 were paid.
The Partnership also paid $55,339 in interest on short-term borrowings.
Given the Partnership's low cash resources, the Managing General Partner
has advanced $68,070 to the Partnership to pay certain operating expenses
and has deferred collection of reimbursable expenses and management fees.
The Partnership has a line of credit with a financial institution. This
line of credit has been renewed with a maturity date of April 5, 1996.
At March 31, 1995, the outstanding balance was $2,499,253; the
Partnership may not make additional draws based on current collateral
values. The maximum and weighted average amounts outstanding during the
three months ended March 31, 1995 were $2,499,253 and $2,482,496,
respectively. The Partnership's shares in Viewlogic Systems, Inc. and
Cytocare, Inc. were pledged as collateral.
Cash and cash equivalents at March 31, 1995 were $56. Proceeds from the
future sale of investments and General Partner support are expected to be
adequate to fund Partnership operations through the next twelve months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net loss was $2,005,891 for the three months ended March 31, 1995
compared to net income of $84,935 during the same period in 1994. The
change was primarily due to a $2,123,590 decrease in the change in net
unrealized fair value of equity investments.
During the quarter ended March 31, 1995, the decrease in fair value of
equity investments of $1,789,815 was primarily due to portfolio companies
in the electronic design automation industry. During the same quarter in
1994, the increase of $333,775 was primarily due to portfolio companies
in the electronic design automation and industrial/business automation
industries, partially offset by portfolio companies in the medical
industry.
Total operating expenses were $97,435 and $95,527 for the quarters ended
March 31, 1995 and 1994, respectively. The slight increase was primarily
due to higher short-term borrowings interest expense, mostly offset by
lower administrative and investor services and investment operations
expenses as a result of lower portfolio monitoring activities.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Partnership during the
quarter ended March 31, 1995.
(b) Financial Data Schedule for the quarter ended and as of March 31,
1995 (Exhibit 27).
<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.
TECHNOLOGY FUNDING PARTNERS II
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: May 12, 1995 By: /s/Frank R. Pope
-----------------------------------------
Frank R. Pope
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 2,411,899
<INVESTMENTS-AT-VALUE> 4,524,241
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 56
<TOTAL-ASSETS> 4,524,297
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,742,620
<TOTAL-LIABILITIES> 2,742,620
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> (330,665)
<SHARES-COMMON-STOCK> 50,000
<SHARES-COMMON-PRIOR> 50,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,112,342
<NET-ASSETS> 1,781,677
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,359
<OTHER-INCOME> 0
<EXPENSES-NET> 222,435
<NET-INVESTMENT-INCOME> (217,076)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (1,788,815)
<NET-CHANGE-FROM-OPS> (2,005,891)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,005,891)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 125,000
<INTEREST-EXPENSE> 55,339
<GROSS-EXPENSE> 222,535
<AVERAGE-NET-ASSETS> 2,784,623
<PER-SHARE-NAV-BEGIN> 2
<PER-SHARE-NII> (2)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .08
<AVG-DEBT-OUTSTANDING> 2,482,496
<AVG-DEBT-PER-SHARE> 50
<FN>
<F1>
A zero value is used since the change in net unrealized fair value is not
allocated to General Partners and Limited Partners as it is not taxable.
Only taxable gains or losses are allocated in accordance with the
Partnership Agreement.
</FN>
</TABLE>
