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 June 30, 1998
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.
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(Exact name of registrant as specified in its charter)
Delaware 13-3324232
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center, North Tower
New York, New York 10281-1326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
Not applicable
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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 X No
<PAGE>
ML VENTURE PARTNERS II, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of June 30, 1998 (Unaudited) and December 31, 1997
Schedule of Portfolio Investments as of June 30, 1998 (Unaudited)
Statements of Operations for the Three and Six Months Ended June 30, 1998 and
1997 (Unaudited)
Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997
(Unaudited)
Statement of Changes in Partners' Capital for the Six Months Ended June 30,
1998 (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>
June 30, 1998 December 31,
(Unaudited) 1997
ASSETS
Portfolio investments, at fair value (cost $11,390,508 as of
<S> <C> <C> <C> <C> <C> <C> <C>
June 30, 1998 and $13,013,680 as of December 31, 1997) $ 17,344,202 $ 17,021,243
Short-term investments, at amortized cost 4,433,607 2,979,552
Cash and cash equivalents 464,569 1,918,335
----------------- ------------------
TOTAL ASSETS $ 22,242,378 $ 21,919,130
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 101,951 $ 144,890
Due to Management Company 58,651 41,349
Due to Independent General Partners 19,500 25,698
----------------- ------------------
Total liabilities 180,102 211,937
----------------- ------------------
Partners' Capital:
Managing General Partner 1,106,242 1,416,952
Individual General Partners 500 543
Limited Partners (120,000 Units) 15,001,840 16,282,135
Unallocated net unrealized appreciation of investments 5,953,694 4,007,563
----------------- ------------------
Total partners' capital 22,062,276 21,707,193
----------------- ------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 22,242,378 $ 21,919,130
================= ==================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
As of June 30, 1998
<TABLE>
Initial Investment
<S> <C> <C> <C> <C> <C> <C>
Company / Position Date Cost Fair Value
Borg-Warner Security Corporation* (A)
500,000 shares of Common Stock Sept. 1988 $ 2,500,000 $ 8,484,375
- -------------------------------------------------------------------------------------------------------------------------------
Brightware, Inc. (B)
171,650 shares of Common Stock May 1995 43,565 257,475
Warrants to purchase 38,737 shares of Common Stock
at $.40 per share, expiring on 4/19/99 1,138 42,611
- -------------------------------------------------------------------------------------------------------------------------------
Clarus Medical Systems, Inc.*
179,028 shares of Preferred Stock Jan. 1991 1,000,548 895,152
Warrants to purchase 14,043 shares of Common Stock
at $.05 per share, expiring between 3/7/00 and 7/3/00 0 0
Warrants to purchase 2,826 shares of Preferred Stock
at $5.00 per share, expiring on 3/7/00 0 0
- -------------------------------------------------------------------------------------------------------------------------------
CoCensys, Inc. (A)
152,507 shares of Common Stock Feb. 1989 192,504 247,824
- -------------------------------------------------------------------------------------------------------------------------------
Corporate Express, Inc. (A)
60,000 shares of Common Stock May 1992 12,000 609,000
- -------------------------------------------------------------------------------------------------------------------------------
Diatide, Inc.* (A)
809,704 shares of Common Stock Dec. 1991 2,986,023 4,605,192
- -------------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone Company, L.P.: (C)
SPTHOR Corporation
10% Promissory Note May 1992 5,073 5,073
5.67% Bridge Loan 9,271 9,271
34.5 shares of Common Stock 20,518 20,518
- -------------------------------------------------------------------------------------------------------------------------------
I.D.E. Corporation
113,322 shares of Common Stock Mar. 1988 227,000 0
- -------------------------------------------------------------------------------------------------------------------------------
Neocrin Company
48,429 shares of Preferred Stock June 1991 363,378 0
- -------------------------------------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.* (A)
425,236 shares of Common Stock Sept. 1988 2,452,226 1,190,658
Warrants to purchase 6,062 shares of Common Stock
at $5.40 per share, expiring on 6/30/00 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Raytel Medical Corporation(A)
62,500 shares of Common Stock Feb. 1990 241,639 275,000
Options to purchase 27,969 shares of Common Stock
at $1.42 per share, expiring on 10/31/01 0 83,348
- -------------------------------------------------------------------------------------------------------------------------------
Sanderling Biomedical, L.P.*
80% Limited Partnership interest May 1988 1,335,625 618,705
- -------------------------------------------------------------------------------------------------------------------------------
Total Portfolio Investments (D) $ 11,390,508 $ 17,344,202
---------------------------------
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited), continued
As of June 30, 1998
Supplemental Information: Liquidated Portfolio Investments(E)
Cost Realized Gain Return
Totals from Liquidated Portfolio Investments $ 105,142,488 $ 111,947,782 $ 217,090,270
=========================================================
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active & Liquidated Portfolio Investments $ 116,532,996 $ 117,901,476 $ 234,434,472
=========================================================
</TABLE>
(A) Public company
(B) In June 1998, in a non-cash transaction, the Partnership exchanged its
warrant to purchase 59,166 common shares of Brightware, Inc. at $.80 per
share for 27,611 shares of Brightware common stock.
(C) In April 1998, the Partnership received $125,793, plus interest of
$8,496, from the sale of options in connection with its
investment in HCTC/SPTHOR.
(D) On May 18, 1998, Biocircuits Corporation announced that it ceased all
ordinary business and began to liquidate its remaining assets. As a result,
the Partnership wrote-off the remaining $1,488,884 cost of its investment
in Biocircuits as of June 30, 1998.
(E) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through June 30, 1998.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------ ------------- ------------- --------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C> <C>
Interest from short-term investments $ 71,485 $ 319,820 $ 142,073 $ 453,185
Interest and other income from portfolio
investments 8,496 537 8,496 16,976
Dividend income from portfolio investments - - - 37,754
------------- -------------- ------------- --------------
Total investment income 79,981 320,357 150,569 507,915
------------- -------------- ------------- --------------
Expenses:
Management fee 50,000 59,095 100,000 197,484
Professional fees 24,646 37,461 54,714 81,436
Mailing and printing 13,371 29,065 40,523 101,764
Independent General Partners' fees 20,257 24,509 44,400 47,981
Custodial fees 853 - 952 3,500
Miscellaneous 3,603 - 3,649 296
------------- -------------- ------------- --------------
Total investment expenses 112,730 150,130 244,238 432,461
------------- -------------- ------------- --------------
NET INVESTMENT (LOSS) INCOME (32,749) 170,227 (93,669) 75,454
Net realized (loss) gain from portfolio
investments (1,497,379) (4,017,085) (1,497,379) 9,592,048
------------- -------------- ------------- --------------
NET REALIZED (LOSS) GAIN FROM
OPERATIONS (1,530,128) (3,846,858) (1,591,048) 9,667,502
Change in unrealized appreciation of investments 944,548 7,939,497 1,946,131 (2,098,699)
------------- -------------- ------------- --------------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (585,580) $ 4,092,639 $ 355,083 $ 7,568,803
============= ============== ============= ==============
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30,
<TABLE>
1998 1997
---------------- ----------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C>
Net investment (loss) income $ (93,669) $ 75,454
Adjustments to reconcile net investment (loss) income to cash used for operating
activities:
(Increase) decrease in accrued interest and accounts receivable - 44,693
Increase in accrued interest from short-term investments (282) (14,467)
Decrease in liabilities, net (31,835) (115,768)
---------------- ----------------
Cash used for operating activities (125,786) (10,088)
---------------- ----------------
CASH FLOWS (USED FOR) PROVIDED FROM
INVESTING ACTIVITIES
Net purchase of short-term investments (1,453,773) (17,968,729)
Cost of portfolio investments purchased - (335,176)
Net proceeds from the sale of portfolio investments 125,793 16,777,825
Repayment of investments in notes - 2,381,659
---------------- ----------------
Cash (used for) provided from investing activities (1,327,980) 855,579
---------------- ----------------
(Decrease) increase in cash and cash equivalents (1,453,766) 845,491
Cash and cash equivalents at beginning of period 1,918,335 346,129
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 464,569 $ 1,191,620
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
For the Six Months Ended June 30, 1998
<TABLE>
Unallocated
Managing Individual Net Unrealized
General General Limited Appreciation
Partner Partners Partners of Investments Total
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 1,416,952 $ 543 $ 16,282,135 $ 4,007,563 $ 21,707,193
Net investment loss 745 (3) (94,411) - (93,669)
Net realized loss from (311,455) (40) (1,185,884) - (1,497,379)
Change in unrealized
appreciation of investments - - - 1,946,131 1,946,131
------------- -------- -------------- -------------- ----------------
Balance at end of period $ 1,106,242 $ 500 $ 15,001,840(A) $ 5,953,694 $ 22,062,276
============= ======== ============== ============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized appreciation of investments, is $164
as of June 30, 1998. Cumulative cash distributions paid or accrued to
Limited Partners from inception to June 30, 1998 totaled $1,525 per Unit.
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization and Purpose
ML Venture Partners II, L.P. (the "Partnership") is a Delaware limited
partnership formed on February 4, 1986. MLVPII Co., L.P., the managing general
partner of the Partnership (the "Managing General Partner"), and four
individuals (the "Individual General Partners") are the general partners of the
Partnership. The general partner of MLVPII Co., L.P. is Merrill Lynch Venture
Capital Inc. (the "Management Company"), an indirect subsidiary of Merrill Lynch
& Co., Inc. DLJ Capital Management Corporation (the "Sub-Manager"), an indirect
subsidiary of Donaldson, Lufkin & Jenrette, Inc., is the sub-manager of the
Partnership, pursuant to a sub-management agreement among the Partnership, the
Management Company, the Managing General Partner and the Sub-Manager.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments in new and developing companies and
other special investment situations. The Partnership does not engage in any
other business or activity. In July 1997, the Individual General Partners voted
to extend the term of the Partnership for an additional two-year period. The
Partnership is now scheduled to terminate on December 31, 1999. In addition, the
Individual General Partners have the right to extend the term of the Partnership
for an additional two-year period if they determine that such extension is in
the best interest of the Partnership.
2. Significant Accounting Policies
Valuation of Investments - Short-term investments are carried at amortized cost
which approximates market. Portfolio investments are carried at fair value as
determined quarterly by the Sub-Manager under the supervision of the Individual
General Partners and the Managing General Partner. The fair value of
publicly-held portfolio securities is adjusted to the closing public market
price for the last trading day of the accounting period discounted by a factor
of 0% to 50% for sales restrictions. Factors considered in the determination of
an appropriate discount include, underwriter lock-up or Rule 144 trading
restrictions, insider status where the Partnership either has a representative
serving on the company's Board of Directors or is greater than a 10%
shareholder, and other liquidity factors such as the size of the Partnership's
position in a given company compared to the trading history of the public
security. Privately-held portfolio securities are carried at cost until
significant developments affecting the portfolio company provide a basis for
change in valuation. The fair value of private securities is adjusted 1) to
reflect meaningful third-party transactions in the private market or 2) to
reflect significant progress or slippage in the development of the company's
business such that cost is no longer reflective of fair value. As a venture
capital investment fund, the Partnership's portfolio investments involve a high
degree of business and financial risk that can result in substantial losses. The
Sub-Manager considers such risks in determining the fair value of the
Partnership's portfolio investments.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. ML VENTURE
PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
Investment Transactions - Investment transactions are recorded on the accrual
method. Portfolio investments are recorded on the trade date, the date the
Partnership obtains an enforceable right to demand the securities or payment
therefor. Realized gains and losses on investments sold are computed on a
specific identification basis.
Income Taxes - No provision for income taxes has been made since all income and
losses are allocable to the Partners for inclusion in their respective tax
returns. The Partnership's net assets for financial reporting purposes differ
from its net assets for tax purposes. Net unrealized appreciation of investments
of approximately $6 million as of June 30, 1998, which was recorded for
financial statement purposes, was not recognized for tax purposes. Additionally,
from inception to June 30, 1998, timing differences of approximately $6.8
million have been deducted on the Partnership's financial statements and
syndication costs relating to the selling of Units totaling $11.3 million were
charged to partners' capital on the financial statements. These amounts have not
been deducted or charged against partners' capital for tax purposes.
Statements of Cash Flows - The Partnership considers its interest-bearing cash
account to be cash equivalents.
3. Allocation of Partnership Profits and Losses
The Partnership Agreement provides that the Managing General Partner will be
allocated, on a cumulative basis over the life of the Partnership, 20% of the
Partnership's aggregate investment income and net realized gains and losses from
venture capital investments, provided that such amount is positive. All other
gains and losses of the Partnership are allocated among all the Partners
(including the Managing General Partner) in proportion to their respective
capital contributions to the Partnership. From its inception to June 30, 1998,
the Partnership had a $116.2 million net gain from its venture capital
investments, which includes interest and other income from portfolio investments
totaling $4.3 million.
4. Related Party Transactions
The Management Company performs, or arranges for others to perform, the
management and administrative services necessary for the operation of the
Partnership and receives a management fee at the annual rate of 2.5% of the
gross capital contributions to the Partnership, reduced by selling commissions,
organizational and offering expenses paid by the Partnership, capital
distributed and realized capital losses with a minimum annual fee of $200,000.
Such fee is determined and payable quarterly.
5. Independent General Partners' Fees
As compensation for services rendered to the Partnership, each of the three
Independent General Partners receives $20,000
annually in quarterly installments, $1,500 for each meeting of the
General Partners attended or for each other meeting,
conference or engagement in connection with Partnership activities at which
attendance by an Independent General Partner is
required and $1,500 for each audit committee meeting attended ($500 if an
audit committee meeting is held on the same day as a
meeting of the Independent General Partners).
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
6. Interim Financial Statements
In the opinion of MLVPII Co., L.P., the managing general partner of the
Partnership, the unaudited financial statements as of June 30, 1998, and for the
six month period then ended, reflect all adjustments necessary for the fair
presentation of the results of the interim period.
7. Classification of Portfolio Investments
As of June 30, 1998, the Partnership's investments in portfolio companies were
categorized as follows:
<TABLE>
% of
Type of Investments Cost Fair Value Net Assets*
- ------------------- -------------- --------------- -----------
<S> <C> <C> <C>
Common Stock and Warrants $ 8,676,613 $ 15,816,001 71.69%
Limited Partnerships 1,335,625 618,705 2.80%
Preferred Stock 1,363,926 895,152 4.06%
Debt Securities 14,344 14,344 0.07%
-------------- --------------- -------
Total $ 11,390,508 $ 17,344,202 78.62%
============== =============== ======
Country/Geographic Region
Midwestern U.S. $ 3,512,548 $ 9,988,527 45.28%
Western U.S. 4,630,075 2,715,621 12.31%
Eastern U.S. 3,247,885 4,640,054 21.03%
-------------- --------------- ------
Total $ 11,390,508 $ 17,344,202 78.62%
============== =============== ======
Industry
Business Services $ 2,512,000 $ 9,093,375 41.22%
Biotechnology 4,514,152 5,471,721 24.80%
Semiconductors/Electronics 2,452,226 1,190,658 5.40%
Medical Devices and Services 1,605,565 1,253,500 5.68%
Telecommunications 34,862 34,862 0.16%
Computer Hardware/Software 271,703 300,086 1.36%
-------------- --------------- -------
Total $ 11,390,508 $ 17,344,202 78.62%
============== =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
As of June 30, 1998, the Partnership held $4,898,176 in cash and cash
equivalents, consisting of $4,433,607 in short-term securities with maturities
of less than one year and $464,569 in an interest-bearing cash account. Interest
earned from such investments totaled $71,485 and $142,073 for the three and six
months ended June 30, 1998, respectively. Interest earned in future periods is
subject to fluctuations in short-term interest rates and changes in amounts
available for investment in such securities. Funds needed to cover future
operating expenses and follow-on investments will be obtained from the
Partnership's existing cash reserves, interest and other investment income and
proceeds from the sale of portfolio investments.
The Partnership has completed its investment phase and will not make investments
in any new portfolio companies. Therefore, net proceeds received from the sale
of portfolio investments will be distributed to Partners as soon as practicable,
after an adequate reserve for operating expenses and follow-on investments in
existing portfolio companies.
Results of Operations
For the three and six months ended June 30, 1998, the Partnership had a net
realized loss from operations of $1,530,128 and $1,591,048, respectively. For
the three and six months ended June 30, 1997, the Partnership had a net realized
loss from operations of $3,846,858 and a net realized gain from operations of
$9,667,502, respectively. Net realized gain or loss from operations is comprised
of 1) net realized gain or loss from portfolio investments and 2) net investment
income or loss (interest and dividend income less operating expenses).
Realized Gains and Losses from Portfolio Investments - For both the three and
six months ended June 30, 1998, the Partnership had a net realized loss from its
portfolio investments of $1,497,379. In June 1998, the Partnership realized a
loss of $1,488,884 resulting from the write-off of its remaining investment in
Biocircuits Corporation. Also during the quarter, the Partnership received
$125,793 from Horizon Cellular Telephone Company, L.P. relating to the previous
sale of certain options in connection with its investment in Horizon, resulting
in a realized loss of $8,495.
For the three and six months ended June 30, 1997, the Partnership had a net
realized loss from portfolio investments of $4,017,085 and a net realized gain
from portfolio investments of $9,592,048, respectively. In March 1997 and in May
1997, the Partnership received 347,826 and 129,407 common shares of IDEC
Pharmaceuticals Corporation, respectively, from ML/MS Associates, L.P. and MLMS
Cancer Research, Inc. (MLMS), representing the final liquidating distribution
from MLMS. The Partnership sold 197,562 shares of IDEC in March 1997 and sold an
additional 126,828 shares in June 1997. These transactions resulted in a net
realized gain of $2,267,482 and $5,807,909 for the three and six months ended
June 30, 1997, respectively. Also during the three and six months ended June 30,
1997, the Partnership recognized a realized gain of $109,350 and $1,796,646 from
the sale of options in connection with its investment in Horizon Cellular
Telephone Company. During the three months ended March 31, 1997, the Partnership
sold its remaining 251,694 common shares of Borg-Warner Automotive, Inc. for
$9,639,880, realizing a gain of $8,381,410. These gains were more than offset by
the partial write-off, as of June 30, 1997, of the Partnership's investments in
Biocircuits Corporation, Clarus Medical Systems, Inc. and Neocrin Company, Inc.,
which resulted in an aggregate realized loss of $6,393,917. These write-offs
were due to continued operating and financial difficulties at these companies.
Investment Income and Expenses - For the three months ended June 30, 1998 and
1997, the Partnership had a net investment loss of $32,749 and net investment
income of $170,227, respectively. A $240,376 decrease in investment income,
partially offset by a $37,400 decrease in operating expenses resulted in a net
investment loss for 1998 as compared to net investment income for the same
period in 1997. The decline in investment income was attributable to a $248,335
decrease in interest from short-term investments, partially offset by a $7,959
increase in interest and other income from portfolio investments. The decrease
in interest from short-term investments primarily was due to a decrease in funds
available for investment in such securities during the second quarter of 1998
compared to the same period in 1997. The decline in operating expenses primarily
resulted from decreased management fees, as discussed below, and a reduction in
professional fees and mailing and printing expenses incurred during the 1998
period. Such reduced operating expenses reflect the decreased level of activity
as the Partnership proceeds to liquidate its remaining investments.
For the six months ended June 30, 1998 and 1997, the Partnership had a net
investment loss of $93,669 and net investment income of $75,454, respectively. A
$357,346 decrease in investment income, partially offset by a $188,223 decrease
in operating expenses resulted in a net investment loss for 1998 as compared to
net investment income for the same period in 1997. The decline in investment
income was due to a $311,112 decrease in interest from short-term investments
and a $46,234 decrease in income from portfolio investments. The decrease in
interest from short-term investments primarily was due to a decrease in funds
available for investment in such securities during the six months ended June 30,
1998 compared to the same period in 1997. The decrease in income from portfolio
investments primarily resulted from a decrease in dividend income due to the
sale of the Partnership's investment in Borg-Warner Automotive, which was fully
liquidated during the first quarter of 1997. The decline in operating expenses
primarily resulted from decreased management fees, as discussed below, and a
reduction in professional fees and mailing and printing expenses incurred during
the 1998 period. Such reduced operating expenses reflect the decreased level of
activity as the Partnership proceeds to liquidate its remaining investments.
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. The Management Company
receives a management fee at an annual rate of 2.5% of the gross capital
contributions to the Partnership, reduced by selling commissions, organizational
and offering expenses paid by the Partnership, return of capital and realized
capital losses, with a minimum annual fee of $200,000. Such fee is determined
and payable quarterly. The management fee for the three months ended June 30,
1998 and 1997 was $50,000 and $59,095, respectively. The management fee for the
six months ended June 30, 1998 and 1997 was $100,000 and $197,484, respectively.
The decline in the management fee for the 1998 periods compared to the same
periods in 1997 reflects the continued liquidation of the Partnership's
remaining portfolio investments and subsequent distribution to Partners. The
management fee will remain at the annual minimum fee of $200,000 for 1998 and
will remain the same in future periods through the liquidation of the
Partnership. The management fee and other operating expenses are paid with funds
provided from operations and from existing cash reserves. Funds provided from
operations for the period were obtained from interest earned from short-term
investments and proceeds from the sale of certain portfolio investments.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Investments - For the six months ended June 30, 1998, the
Partnership had a $722,131 net unrealized gain from its portfolio investments,
primarily resulting from the net upward revaluation of its remaining publicly
traded securities. Additionally, during the six month period, unrealized
appreciation increased by $1,224,000 resulting from the transfer from unrealized
loss to realized loss relating to the write-off of the Partnership's remaining
investment in Biocircuits Corporation, as discussed above. The $722,131
unrealized gain and the $1,224,000 transfer from unrealized loss to realized
loss, resulted in a $1,946,131 increase to the Partnership's net unrealized
appreciation of investments for the six month period ended June 30, 1998.
For the six months ended June 30, 1997, the Partnership had a $950,471 net
unrealized gain from its portfolio investments, primarily resulting from the net
upward revaluation of its remaining publicly traded securities. Additionally,
during the six month period, unrealized appreciation declined $3,049,170
resulting from the net transfer from unrealized gain to realized gain related to
the portfolio investments sold and written-off during the period, as discussed
above. The $950,471 unrealized gain offset by the $3,049,170 transfer from
unrealized gain to realized gain, resulted in a $2,098,699 decrease to the
Partnership's net unrealized appreciation of investments for the six month
period ended June 30, 1997.
Net Assets - Changes to net assets resulting from operations are comprised of
1) net realized gain or loss from operations and
2) changes to net unrealized appreciation or depreciation of portfolio
investments.
As of June 30, 1998, the Partnership's net assets were $22,062,276, up $355,083
from $21,707,193 as of December 31, 1997. This increase was comprised of the
$1,946,131 increase in unrealized appreciation of investments, partially offset
by the $1,591,048 net realized loss from operations for the six month period
ended June 30, 1998.
As of June 30, 1997, the Partnership's net assets were $27,701,110, down
$14,221,926 from $41,923,036 as of December 31, 1996. This decrease was due to
the $21,790,729 accrued cash distribution paid to Partners in July 1997,
exceeding the $7,568,803 increase in net assets from operations. The increase in
net assets from operations was comprised of the $9,667,502 net realized gain
from operations partially offset by the $2,098,699 decrease in unrealized
appreciation of investments for the six month period ended June 30, 1997.
Gains and losses from investments are allocated to Partners' capital accounts
when realized, in accordance with the Partnership Agreement (see Note 3 of Notes
to Financial Statements). However, for purposes of calculating the net asset
value per unit of limited partnership interest, net unrealized appreciation of
investments has been included as if the net appreciation had been realized and
allocated to the Limited Partners in accordance with the Partnership Agreement.
Pursuant to such calculation, the net asset value per $1,000 Unit as of June 30,
1998 and December 31, 1997 was $164 and $162, respectively.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Partnership is not a party to any legal proceedings.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period in which
this report covers.
Item 5. Other Information.
Not applicable
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(3) (a) Amended and Restated Certificate of Limited
Partnership of the Partnership, dated as of January
12, 1987. (1)
(3) (b) Amended and Restated Certificate of Limited
Partnership of the Partnership, dated July 27, 1990.
(2)
(3) (c) Amended and Restated Certificate of Limited
Partnership of the Partnership, dated March 25,
1991. (3)
(3) (d) Amended and Restated Agreement of Limited
Partnership of the Partnership, dated as of May 4,
1987. (4)
(3) (e) Amendment No. 1 dated February 14, 1989 to
Amended and Restated Agreement of Limited Partnership
of the Partnership. (5)
(3) (f) Amendment No. 2 dated July 27, 1990 to Amended
and Restated Agreement of Limited Partnership of
the Partnership. (2)
(3) (g) Amendment No. 3 dated March 25, 1991 to Amended
and Restated Agreement of Limited Partnership of
the Partnership. (3)
(3) (h) Amendment No. 4 dated May 23, 1991 to Amended
and Restated Agreement of Limited Partnership of
the Partnership. (6)
(10) (a) Management Agreement dated as of May 23, 1991
among the Partnership, Management Company and the
Managing General Partner. (6)
(10) (b) Sub-Management Agreement dated as of May 23,
1991 among the Partnership, Management Company, the
Managing General Partner and the Sub-Manager. (8)
(27) Financial Data Schedule.
(28) Prospectus of the Partnership dated February 10,
1987 filed with the Securities and Exchange
Commission pursuant to Rule 424(b) under the
Securities Act of 1933, as supplemented by a
supplement thereto dated April 21, 1987 filed
pursuant to Rule 424(c) under the Securities Act
of 1933. (7)
(b) No reports on Form 8-K have been filed during
the quarter for which this report is filed.
<PAGE>
(1) Incorporated by reference to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1988 filed
with the Securities and Exchange Commission on March 27, 1989.
(2) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990
filed with the Securities and Exchange Commission on November 14, 1990.
(3) Incorporated by reference to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1990 filed
with the Securities and Exchange Commission on March 28, 1991.
(4) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1987 filed
with the Securities and Exchange Commission on August 14, 1987.
(5) Incorporated by reference to the Partnership's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1989
filed with the Securities and Exchange Commission on May 15, 1989.
(6) Incorporated by reference to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991 filed
with the Securities and Exchange Commission on August 14, 1991.
(7) Incorporated by reference to the Partnership's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1987
filed with the Securities and Exchange Commission on May 15, 1987.
(8) Incorporated by reference to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1992 filed
with the Securities and Exchange Commission on March 26, 1993.
<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.
ML VENTURE PARTNERS II, L.P.
By: /s/ Kevin K. Albert
Kevin K. Albert
General Partner
By: MLVPII Co., L.P.
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/ Robert Aufenanger
Robert Aufenanger
Executive Vice President and Director
By: /s/ Diane T. Herte
Diane T. Herte
Vice President and Treasurer
(Principal Financial and Accounting Officer)
Date: August 14, 1998
<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 JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 11,390,508
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