SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended March 31, 1995
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-14217
ML VENTURE PARTNERS II, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3324232
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center, North Tower
New York, New York 10281-1327
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 449-1000
Not applicable
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 X No
<PAGE>
ML VENTURE PARTNERS II, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of March 31, 1995 (Unaudited) and December 31, 1994
Schedule of Portfolio Investments as of March 31, 1995 (Unaudited)
Statements of Operations for the Three Months Ended March 31, 1995 and 1994
(Unaudited)
Statements of Cash Flows for the Three Months Ended March 31, 1995 and 1994
(Unaudited)
Statement of Changes in Partners' Capital for the Three Months Ended March 31,
1995 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ML VENTURE PARTNERS II, L.P.
BALANCE SHEETS
<TABLE>
March 31, 1995 December 31,
(Unaudited) 1994
<S> <C> <C>
ASSETS
Investments - Note 2
Portfolio investments, at fair value
(cost $46,941,541 at March 31, 1995
and $52,936,366 at December 31, 1994) $ 73,180,728 $ 75,400,208
Short-term investments, at amortized cost 18,152,127 6,935,099
Cash and cash equivalents 731,899 638,868
Accrued interest receivable 629,119 563,815
Notes receivable - 250,656
Receivable from securities sold 2,755,026 7,655
--------- -----
TOTAL ASSETS $ 95,448,899 $ 83,796,301
= ========== = ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable - Note 7 $ 11,234,189
Accounts payable 204,889 $ 43,472
Due to Management Company - Note 4 322,618 325,000
Due to Independent General Partners - Note 5 30,450 25,350
------ ------
Total liabilities 11,792,146 393,822
---------- -------
Partners' Capital:
Managing General Partner 1,648,259 2,191,479
Individual General Partners 1,857 3,917
Limited Partners (120,000 Units) 55,767,450 58,743,241
Unallocated net unrealized appreciation of investments - Note 2 26,239,187 22,463,842
---------- ----------
Total partners' capital 83,656,753 83,402,479
---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 95,448,899 $ 83,796,301
= ========== = ==========
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
March 31, 1995
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Biocircuits Corporation*(A)
<C> <C> <C> <C>
515,269 shares of Common Stock May 1991 $ 1,422,501 $ 242,821
- ------------------------------ -------- - --------- - -------
Borg-Warner Automotive, Inc.*(A)
444,664 shares of Common Stock Sept. 1988 2,223,320 8,078,989
- ------------------------------ ---------- --------- ---------
Borg-Warner Security Corporation*(A)
500,000 shares of Common Stock Sept. 1988 2,500,000 2,756,250
- ------------------------------ ---------- --------- ---------
CellPro, Incorporated(A)
411,333 shares of Common Stock Mar. 1989 764,525 3,496,331
- ------------------------------ --------- ------- ---------
Clarus Medical Systems, Inc.*(B)
754,748 shares of Preferred Stock Jan. 1991 2,248,764 754,748
Warrants to purchase 20,238 shares of Common Stock
at $3.75 per share, expiring on 7/31/97 0 0
Warrants to purchase 23,401 shares of Common Stock
at $.01 per share, expiring on 3/7/00 0 0
Warrants to purchase 14,127 shares of Preferred Stock
at $1.00 per share, expiring on 3/7/00 0 0
-------------------------------------- - -
Corporate Express, Inc.*(A)(C)
591,799 shares of Common Stock May 1992 2,609,179 10,930,558
- ------------------------------ -------- --------- ----------
Diatech, Inc.*
1,258,006 shares of Preferred Stock Dec. 1991 2,620,015 3,145,015
- ----------------------------------- --------- --------- ---------
Eckerd Corporation*(A)
92,843 shares of Common Stock July 1992 857,004 2,012,372
- ----------------------------- --------- ------- ---------
Elantec, Inc.
2,889,947 shares of Preferred Stock Aug. 1988 1,069,569 1,069,569
852,273 shares of Common Stock 340,909 340,909
- ------------------------------ ------- -------
Home Express, Inc.*
486,067 shares of Preferred Stock June 1992 1,822,751 2,303,957
- --------------------------------- --------- --------- ---------
Horizon Cellular Telephone Company, L.P.:
HCTC Investment, L.P.
10% Promissory Note due 3/26/98 May 1992 2,587,500 2,587,500
SPTHOR Corporation
10% Promissory Note due 3/26/98 May 1992 646,875 646,875
34.5 shares of Common Stock 215,625 215,625
--------------------------- ------- -------
I.D.E. Corporation*
493,391 shares of Preferred Stock Mar. 1988 1,110,909 555,455
- --------------------------------- --------- --------- -------
IDEC Pharmaceuticals Corporation(A)(D)*:
ML/MS Associates, L.P.*
34.4% Limited Partnership interest June 1989 3,960,000 3,045,412
MLMS Cancer Research, Inc.*
400,000 shares of Common Stock July 1989 46,957 30,761
------------------------------ --------- ------ ------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
March 31, 1995
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Inference Corporation
<C> <C> <C> <C>
702,427 shares of Preferred Stock Apr. 1993 $ 785,032 $ 785,032
Warrants to purchase 193,682 shares of Preferred Stock
at $1 per share, expiring on 4/19/99 22,777 22,777
Warrants to purchase 24,233 shares of Preferred Stock
at $1.05 per share, expiring on 12/16/97 6,531 6,531
Warrants to purchase 295,827 shares of Common Stock
at $1 per share, expiring on 6/10/98 79,725 79,725
------------------------------------ ------ ------
Ligand Pharmaceuticals Inc.*(A)
499,858 shares of Common Stock Apr. 1989 1,216,466 2,095,655
Warrants to purchase 5,584 shares of Common Stock at
$3.61 per share to $9.60 per share, expiring between
1/18/96 and 7/31/97 0 432
------------------- - ---
Micro Linear Corporation(A)
213,419 shares of Common Stock Aug. 1988 746,969 1,772,712
- ------------------------------ --------- ------- ---------
Mobile Telecommunications Technologies Corporation*(A)(E)
204,292 shares of Common Stock Apr. 1987 1,558,155 3,547,020
- ------------------------------ --------- --------- ---------
Neocrin Company(F)
447,418 shares of Preferred Stock June 1991 4,019,306 2,237,090
Warrants to purchase 13,005 shares of Preferred Stock
at $5.00 per share, expiring on 1/20/96 130 130
--------------------------------------- --- ---
OccuSystems, Inc.
504,830 shares of Preferred Stock June 1993 2,524,150 3,155,188
- --------------------------------- --------- --------- ---------
Photon Dynamics, Inc.*
1,222,828 shares of Preferred Stock Sept. 1988 2,452,226 1,435,181
- ----------------------------------- ---------- --------- ---------
Raytel Medical Corporation*
1,250,000 shares of Preferred Stock Feb. 1990 1,483,278 2,483,278
Options to purchase 55,938 shares of Preferred Stock
at $.71 per share, expiring on 10/31/01 0 72,160
--------------------------------------- - ------
Regeneron Pharmaceuticals, Inc.(A)(G)
857,895 shares of Common Stock Jan. 1988 1,006,607 4,340,949
- ------------------------------ --------- --------- ---------
Sanderling Biomedical, L.P.*(H)
80% Limited Partnership interest May 1988 2,000,000 1,984,185
- -------------------------------- -------- --------- ---------
SDL, Inc.*(A)(I)
419,155 shares of Common Stock July 1992 1,019,603 5,679,550
- ------------------------------ --------- --------- ---------
Target Vision, Inc.*(J)
395,000 shares of Preferred Stock Apr. 1987 250,000 250,000
- --------------------------------- --------- ------- -------
Viasoft, Inc.(A)(K)
227,295 shares of Preferred Stock Dec. 1987 724,183 1,019,986
- --------------------------------- --------- ------- ---------
Totals from Active Portfolio Investments $ 46,941,541 $ 73,180,728
- ---------- - ----------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
March 31, 1995
Supplemental Information: Liquidated Portfolio Investments(M)
<TABLE>
Realized
Cost Gain (Loss) Return
<S> <C> <C> <C>
Totals from Liquidated Portfolio Investments(L) $ 66,826,932 $ 17,537,622 $ 84,364,554
= ========== = ========== = ==========
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active & Liquidated Portfolio Investments $ 113,768,473 $ 43,776,809 $ 157,545,282
= =========== = ========== = ===========
</TABLE>
(A) Public company
(B) In connection with a recapitalization and equity financing of Clarus
Medical Systems, Inc. completed in March 1995, the Partnership invested an
additional $70,202 and converted its 507,458 preferred shares and its
$136,623 promissory note due from Clarus along with accrued interest of
$4,649 into 754,748 preferred shares of the company. The Partnership also
received warrants to purchase 23,401 common shares at $.01 per share and
14,127 preferred shares at $1.00 per share in connection with this
transaction.
(C) In March 1995, the Partnership sold 104,435 common shares of Corporate
Express, Inc. for $2.8 million, realizing a gain of $2.4 million.
(D) In March 1995, the joint venture between IDEC Pharmaceuticals Corporation
and ML/MS Associates, L.P. was terminated. In connection with the
termination and cancellation of all future rights to royalties from the
sale of commercialized products, ML/MS Associates received 1,000,000 shares
of unregistered IDEC common stock and 69,375 shares of 10% dividend
accumulating preferred stock of IDEC.
(E) On February 14, 1995, the Partnership exercised warrants to purchase 42,217
shares of United States Paging Corporation common stock for $78,750. On
February 17, 1995, Mobile Telecommunications Technologies Corporation
("MTEL") completed its merger with United States Paging Corporation. In
connection with the merger, the Partnership exchanged its U.S. Paging
holdings for 204,292 shares of MTEL common stock.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
March 31, 1995
(F) In January 1995, the Partnership invested $125 in cash and converted
promissory notes totaling $629,176 due from Neocrin Company and $21,089 of
accrued interest into 130,052 shares of preferred stock of the company.
Additionally, the Partnership received a warrant to purchase 13,005 shares
of Neocrin preferred stock at $5.00 per share in connection with
conversion.
(G) In January and February 1995, the Partnership sold 520,000 common shares of
Regeneron for $3.4 million, realizing a gain of $2.8 million.
(H) Indirectly, the Partnership has an additional investment in Regeneron
Pharmaceuticals, Inc. through its 80% limited partnership interest in
Sanderling Biomedical, L.P.
(I) In March 1995, SDL, Inc. completed its initial public offering. In
connection with the offering and a 3.4-for-1 split of the company's common
stock, the Partnership exchanged its 97,011 common shares and 26,270
preferred shares for 419,155 common shares of SDL. Additionally, the
Partnership's $2 million note was repaid with interest.
(J) Subsequent to the end of the quarter, in April 1995, the Partnership sold
its investment in TargetVision, Inc. for $100,000 in cash and a $150,000
non-interest bearing promissory note due on July 5, 1995. As a result, at
March 31, 1995, the Partnership wrote-off $145,000 of its $395,000
remaining investment in TargetVision.
(K) In March 1995, Viasoft, Inc. completed its initial public offering. In
connection with the offering and a 1-for-3 reverse split of the company's
common stock, the Partnership exchanged its 861,885 preferred shares of
Viasoft for 287,295 common shares of the company. Additionally, in
connection with the offering, the Partnership sold 60,000 common shares of
Viasoft for $446,400, realizing a gain of $255,235.
(L) In March 1995, the Partnership sold 115,267 common shares of Children's
Discovery Centers of America, Inc. for $1.8 million, realizing a loss of
$236,187 and sold 144,486 common shares of Komag, Incorporated for $4.2
million, realizing a gain of $2.9 million.
(M) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through March 31, 1995.
* Company may be deemed an affiliated person of the Partnership as such term is
defined in the Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended March 31,
<TABLE>
1995 1994
---- ----
INVESTMENT INCOME AND EXPENSES
<S> <C> <C>
Interest from short-term investments $ 175,029 $ 102,287
Interest and other income from portfolio investments 127,069 340,387
Dividend income 66,700 62,500
------ ------
Total investment income 368,798 505,174
------- -------
Expenses:
Management fee - Note 4 322,618 352,617
Professional fees 89,901 106,183
Mailing and printing 157,477 128,871
Independent General Partners' fees - Note 5 27,183 22,265
Custodial fees 3,428 3,864
Miscellaneous 585 1,175
--- -----
Total expenses 601,192 614,975
------- -------
NET INVESTMENT LOSS (232,394) (109,801)
Net realized gain from portfolio investments 7,945,512 14,345,072
--------- ----------
NET REALIZED GAIN FROM OPERATIONS
(allocable to Partners) - Note 3 7,713,118 14,235,271
Net change in unrealized appreciation of investments 3,775,345 (21,285,788)
--------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 11,488,463 $ (7,050,517)
= ========== = ==========
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31,
<TABLE>
1995 1994
---- ----
CASH FLOWS PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
<S> <C> <C>
Net investment loss $ (232,394) $ (109,801)
Adjustments to reconcile net investment loss to cash provided from (used for)
operating activities:
(Increase) decrease in interest and notes receivable 185,352 (132,011)
Increase in accrued interest on short-term investments (21,208) (64,882)
Increase in payables 164,135 204,299
------- -------
Total 95,885 (102,395)
Net purchase of short-term investments (11,195,820) (16,872,712)
Cost of portfolio investments purchased (658,093) (69,048)
Net proceeds from the sale of portfolio investments 9,831,338 16,679,625
Repayment of investments in notes 2,019,721 -
--------- -
Cash provided from (used for) operating activities 93,031 (364,530)
Cash and cash equivalents at beginning of period 638,868 1,412,882
------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 731,899 $ 1,048,352
= ======= = =========
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
For the Three Months Ended March 31,
<TABLE>
Unallocated
Managing Individual Net Unrealized
General General Limited Appreciation of
Partner Partners Partners Investments Total
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 2,191,479 $ 3,917 $ 58,743,241 $ 22,463,842 $ 83,402,479
Accrued cash distribution,
paid April 11, 1995 - Note 7 (2,231,929) (2,260) (9,000,000) - (11,234,189)
Net investment loss its Managing General Partner
By: Merrill Lynch Venture Capital Inc.
its General Partner
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer)
By: /s/ Joseph W. Sullivan
Joseph W. Sullivan
Treasurer
(Principal Financial and Accounting Officer)
Date: May 11, 1995
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML VENTURE
PARTNERS II, L.P.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 46,941,541
<INVESTMENTS-AT-VALUE> 73,180,728
<RECEIVABLES> 3,384,145
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 18,884,026
<TOTAL-ASSETS> 95,448,899
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,792,146
<TOTAL-LIABILITIES> 11,792,146
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26,239,187
<NET-ASSETS> 83,656,753
<DIVIDEND-INCOME> 66,700
<INTEREST-INCOME> 302,098
<OTHER-INCOME> 0
<EXPENSES-NET> 601,192
<NET-INVESTMENT-INCOME> (232,394)
<REALIZED-GAINS-CURRENT> 7,945,512
<APPREC-INCREASE-CURRENT> 3,775,345
<NET-CHANGE-FROM-OPS> 11,488,463
<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> 11,652,598
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 638
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 638
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
