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, 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 0-14217
ML VENTURE PARTNERS II, L.P.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
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 10281-1326
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
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, 1999 (Unaudited) and December 31, 1998
Schedule of Portfolio Investments as of March 31, 1999 (Unaudited)
Statements of Operations for the Three Months Ended March 31, 1999 and 1998
(Unaudited)
Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998
(Unaudited)
Statement of Changes in Partners' Capital for the Three Months Ended March 31,
1999 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
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, 1999 December 31,
(Unaudited) 1998
ASSETS
<S> <C>
Portfolio investments, at fair value (cost $9,834,307 as of
March 31, 1999 and $10,197,685 as of December 31, 1998) $ 13,814,513 $ 14,970,273
Short-term investments, at amortized cost 496,249 4,488,454
Cash and cash equivalents 257,435 423,675
Receivable from liquidated securities - 475,435
Accrued interest receivable - 1,291
---------------- ----------------
TOTAL ASSETS $ 14,568,197 $ 20,359,128
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ - $ 4,514,772
Accounts payable and accrued expenses 115,545 85,874
Due to Management Company 50,000 100,410
Due to Independent General Partners 24,000 19,870
---------------- ----------------
Total liabilities 189,545 4,720,926
---------------- ----------------
Partners' Capital:
Managing General Partner 576,261 652,777
Individual General Partners 327 341
Limited Partners (120,000 Units) 9,821,858 10,212,496
Unallocated net unrealized appreciation of portfolio investments 3,980,206 4,772,588
---------------- ----------------
Total partners' capital 14,378,652 15,638,202
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 14,568,197 $ 20,359,128
================ ================
</TABLE>
See notes to financial statements
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
As of March 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Initial Investment
Company / Position Date Cost Fair Value
Borg-Warner Security Corporation* (A)
<C> <C> <C> <C>
500,000 shares of Common Stock Sept. 1988 $ 2,500,000 $ 6,281,250
- -------------------------------------------------------------------------------------------------------------------------------
Brightware, Inc. (B)
200,057 shares of Common Stock May 1995 44,703 300,086
- -------------------------------------------------------------------------------------------------------------------------------
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 24,782
- -------------------------------------------------------------------------------------------------------------------------------
Corporate Express, Inc. (A)
60,000 shares of Common Stock May 1992 12,000 249,000
- -------------------------------------------------------------------------------------------------------------------------------
Diatide, Inc.* (A)
809,704 shares of Common Stock Dec. 1991 2,986,023 2,171,019
- -------------------------------------------------------------------------------------------------------------------------------
I.D.E. Corporation
113,322 shares of Common Stock Mar. 1988 227,000 0
- -------------------------------------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.* (A)
425,236 shares of Common Stock Sept. 1988 2,452,226 3,027,062
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 241,639 206,250
Options to purchase 27,969 shares of Common Stock
at $1.42 per share, expiring on 10/31/01 0 52,582
- -------------------------------------------------------------------------------------------------------------------------------
ReGen Biologics, Inc.
72,800 shares of Common Stock Apr. 1991 364 263,900
62,400 shares of Preferred Stock 114,400 226,200
- -------------------------------------------------------------------------------------------------------------------------------
Stereotaxis, Inc.
21,632 shares of Common Stock Apr. 1990 216 16,224
134,674 shares of Preferred Stock 62,684 101,006
- -------------------------------------------------------------------------------------------------------------------------------
Total Portfolio Investments $ 9,834,307 $ 13,814,513
---------------------------------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited), continued
March 31, 1999
<TABLE>
Supplemental Information: Liquidated Portfolio Investments(C) (D)
Net
Cost Realized Gain Return
<S> <C> <C> <C>
Totals from Liquidated Portfolio Investments $ 106,698,689 $ 110,915,427 $ 217,614,116
=========================================================
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active & Liquidated Portfolio Investments $ 116,532,996 $ 114,895,633 $ 231,428,629
=========================================================
</TABLE>
(A) Public company
(B) In March 1999, in a non-cash transaction, the Partnership exchanged its
warrant to purchase 38,737 common shares of Brightware, Inc. at $.40 per
share for 28,407 shares of Brightware common stock.
(C) In March 1999, the Partnership wrote-off its remaining investment in Neocrin
Company, realizing a loss of $363,378.
(D) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through March 31, 1999.
* 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)
For the Three Months Ended March 31,
<TABLE>
1999 1998
--------------- --------------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C>
Interest from short-term investments $ 22,972 $ 70,588
Interest and other income from portfolio investments 530 -
---------------- -------------
Total investment income 23,502 70,588
---------------- -------------
Expenses:
Management fee 50,000 50,000
Professional fees 26,340 30,068
Mailing and printing 25,467 27,152
Independent General Partners' fees 24,000 24,000
Custodial fees 1,011 99
Miscellaneous 474 189
---------------- -------------
Total investment expenses 127,292 131,508
---------------- -------------
NET INVESTMENT LOSS (103,790) (60,920)
Net realized loss from portfolio investments (363,378) -
---------------- -------------
NET REALIZED LOSS FROM OPERATIONS (467,168) (60,920)
Change in net unrealized appreciation of portfolio investments (792,382) 1,001,583
---------------- -------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (1,259,550) $ 940,663
================ =============
</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>
1999 1998
---------------- ---------------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C>
Net investment loss $ (103,790) $ (60,920)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Decrease (increase) in accrued interest and accounts receivable 1,291 (4,399)
Decrease in accrued interest from short-term investments 31,428 3,343
(Decrease) increase in payables (16,609) 6,518
---------------- ---------------
Cash used for operating activities (87,680) (55,458)
---------------- ---------------
CASH FLOWS PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES
Net return (purchase) of short-term investments 3,960,777 (1,485,862)
Net proceeds from the sale of portfolio investments 475,435 -
---------------- ---------------
Cash provided from (used for) investing activities 4,436,212 (1,485,862)
---------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITES
Cash distribution paid to partners (4,514,772) -
---------------- ---------------
Decrease in cash and cash equivalents (166,240) (1,541,320)
Cash and cash equivalents at beginning of period 423,675 1,918,335
---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 257,435 $ 377,015
================ ===============
</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, 1999
<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 $ 652,777 $ 341 $ 10,212,496 $ 4,772,588 $ 15,638,202
Net investment loss (933) (4) (102,853) - (103,790)
Net realized loss from portfolio
investments (75,583) (10) (287,785) - (363,378)
Change in unrealized
appreciation of investments - - - (792,382) (792,382)
------------- -------- -------------- -------------- ----------------
Balance at end of period $ 576,261 $ 327 $ 9,821,858 (A) $ 3,980,206 $ 14,378,652
============= ======== =============== ============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized appreciation of investments, was $108
as of March 31, 1999. Additionally, cumulative cash distributions paid to
limited partners from inception to March 31, 1999 totaled $1,560 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. The Managing General Partner is working toward the
ultimate termination of the Partnership, with an emphasis on liquidating the
remaining assets as soon as practical with the goal of maximizing returns to
Partners. 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 no later than 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.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
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.
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 $4.0 million as of March 31, 1999, which was recorded for
financial statement purposes, was not recognized for tax purposes. Additionally,
from inception to March 31, 1999, timing differences of approximately $6.4
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.
Reclassifications - Certain reclassifications have been made to the prior period
financial statements to conform with the current period presentation.
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 March 31, 1999,
the Partnership had a $115.2 million net realized 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.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
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).
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 March 31, 1999, and for
the three month period then ended, reflect all adjustments necessary for the
fair presentation of the results of the interim period.
7. Subsequent Event
Subsequent to the end of the quarter through April 26, 1999, the Partnership
sold 221,000 common shares of Photon Dynamics, Inc. for $2,225,850, realizing a
gain of $951,400.
8. Classification of Portfolio Investments
As of March 31, 1999, 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 $ 8,656,675 $ 12,592,155 87.58%
Preferred Stock 1,177,632 1,222,358 8.50%
-------------- --------------- -------
Total $ 9,834,307 $ 13,814,513 96.08%
============== =============== ======
Country/Geographic Region
Midwestern U.S. $ 3,575,448 $ 7,542,632 52.46%
Western U.S. 3,045,836 4,100,862 28.52%
Eastern U.S. 3,213,023 2,171,019 15.10%
-------------- --------------- ------
Total $ 9,834,307 $ 13,814,513 96.08%
============== =============== ======
Industry
Business Services $ 2,512,000 $ 6,530,250 45.41%
Biotechnology 3,356,191 2,803,131 19.50%
Semiconductors/Electronics 2,452,226 3,027,062 21.05%
Medical Devices and Services 1,242,187 1,153,984 8.03%
Computer Hardware/Software 271,703 300,086 2.09%
-------------- --------------- -------
Total $ 9,834,307 $ 13,814,513 96.08%
============== =============== ======
</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 March 31, 1999, the Partnership held $496,249 in short-term investments
with maturities of less than one year and $257,435 in an interest-bearing cash
account. Interest earned from such investments totaled $22,972 for the three
months ended March 31, 1999. 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 the Partnership's future
operating expenses and follow-on investments will be obtained from the
Partnership's existing cash reserves, from interest and other investment income
received and from proceeds received from the sale of portfolio investments.
The Managing General Partner is working toward the termination of the
Partnership as soon as practical, with the goal of maximizing returns to
partners. 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 no later than 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.
The Partnership will not make additional investments in any new portfolio
companies. Generally, net proceeds received from the sale of portfolio
investments are distributed to Partners as soon as practicable, after an
adequate reserve for operating expenses and follow-on investments in the
remaining portfolio companies.
Subsequent to the end of the quarter through April 26, 1999, the Partnership
sold 221,000 common shares of Photon Dynamics, Inc. for $2,225,850. See
Note 7 of Notes to Financial Statements.
Results of Operations
For the three months ended March 31, 1999 and 1998, the Partnership had a net
realized loss from operations of $467,168 and $60,920, 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,
dividend and other portfolio income less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the three months
ended March 31, 1999, the Partnership had a $363,378 net realized loss resulting
from the write-off of its remaining investment in Neocrin Company due to
continued operating and financial difficulties at the company.
The Partnership had no realized gains or losses from portfolio investments for
the three months ended March 31, 1998.
Investment Income and Expenses - For the three months ended March 31, 1999 and
1998, the Partnership had a net investment loss of $103,790 and $60,920,
respectively. The increase in net investment loss for the 1999 period compared
to the same period in 1998, was primarily attributable to a $47,086 decrease in
investment income for the 1999 period compared to the same period in 1998. The
decline in investment income primarily resulted from a decrease in interest from
short-term investments, primarily due to a decrease in funds available for
investment in such securities during the first quarter of 1999 compared to the
same period in 1998. Operating expenses of $127,292 for the three months ended
March 31, 1999 were slightly lower than operating expenses of $131,508 for the
three months ended March 31, 1998.
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 March 31,
1999 and 1998, was $50,000. 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 received
from short-term investments.
Unrealized Gains and Losses and Changes in Unrealized Appreciation of Portfolio
Investments - For the three months ended March 31, 1999, the Partnership reduced
the fair value of its remaining portfolio investments on a net basis by
$1,155,760. Additionally, during the quarter, $363,378 of unrealized loss was
transferred to realized loss relating to the write-off of Neocrin Company during
the quarter, as discussed above. As a result, the Partnership had a $792,382
unfavorable change in net unrealized appreciation of investments for the three
months ended March 31, 1999.
For the three months ended March 31, 1998, the Partnership increased the fair
value of its remaining portfolio investments on a net basis by $1,001,583,
increasing net unrealized appreciation of investments for the three month period
ended March 31, 1998.
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 of portfolio investments.
As of March 31, 1999, the Partnership's net assets were $14,378,652, down
$1,259,550 from $15,638,202 as of December 31, 1998. This decrease was comprised
of the $467,168 net realized loss from operations and the $792,382 decrease in
net unrealized appreciation of investments for the three months ended March 31,
1999.
As of March 31, 1998, the Partnership's net assets were $22,647,856, up $940,663
from $21,707,193 as of December 31, 1997. This increase was comprised of the
$1,001,583 increase in net unrealized appreciation of investments offset by the
$60,920 net realized loss from operations for the three months ended March 31,
1998.
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 such net unrealized 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 March 31, 1999 and December 31, 1998 was $108 and $117,
respectively.
Year 2000 Issue - The Year 2000 ("Y2K") concern arose because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize a year that begins with "20"
instead of "19". If not corrected, many computer applications could fail or
create erroneous results. The impact of the Y2K concern on the Partnership's
operations is currently being assessed.
The Management Company is responsible to provide or arrange for the provision of
administrative services necessary to support the Partnership's operations. The
Management Company has arranged for Palmeri Fund Administrators, Inc. (the
"Administrator") to provide certain administrative and accounting services for
the Partnership, including maintenance of the books and records of the
Partnership, maintenance of the limited partner database, issuance of financial
reports and tax information to limited partners and processing distribution
payments to limited partners. Fees charged by the Administrator are paid
directly by the Management Company.
The Administrator has assessed its computer hardware and software systems,
specifically as they relate to the operations of the Partnership. As part of
this investigation of potential Y2K concerns, the Administrator contracted with
an outside computer service provider to examine all of the Administrator's
computer hardware and software applications. This review and evaluation has been
completed. The Administrator currently is in the process of purchasing,
installing, and testing the necessary software patches and new computer hardware
required to ensure that all of its computer systems are Y2K compliant. This
correction phase is expected to be completed by September 1999.
Additionally, the Administrator has contacted the outside service providers used
to assist the Administrator or the Management Company with the administration of
the Partnership's operations to ascertain whether these entities are addressing
the Y2K issue within their own operation. There can be no guarantee that the
Administrator's systems or that systems of other companies providing services to
the Partnership will be corrected in a timely manner.
Since the Partnership does not own any equipment and all of its administrative
needs are provided by the Management Company, any costs relating to the
investigation and correction of potential Y2K concerns affecting the
Partnership's operations will be incurred by the Administrator, the Management
Company or the outside service providers. Therefore, the Management Company and
the Managing General Partner do not expect the Partnership to incur any costs
relating to the investigation or correction of Y2K concerns.
Finally the Y2K issue is a global concern that my affect all business entities,
including the Partnership's portfolio companies. The General Partner is
continuing to assess the impact of Y2K concerns affecting its portfolio
companies. However, the extent to which any potential Y2K problems could affect
the valuations of these companies is presently unknown. At the time that
specific Y2K problems are identified, if any, the Managing General Partner will
take such issues into consideration in adjusting the fair value of the
Partnership's portfolio investments.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is subject to market risk arising from changes in the value of
its portfolio investments, short-term investments and interest-bearing cash
equivalents, which may result from fluctuations in interest rates and equity
prices. The Partnership has calculated its market risk related to its holdings
of these investments based on changes in interest rates and equity prices
utilizing a sensitivity analysis. The sensitivity analysis estimates the
hypothetical change in fair values, cash flows and earnings based on an assumed
10% change (increase or decrease) in interest rates and equity prices. To
perform the sensitivity analysis, the assumed 10% change is applied to market
rates and prices on investments held by the Partnership at the end of the
accounting period.
The Partnership's portfolio investments had an aggregate fair value of
$13,814,513 as of March 31, 1999. An assumed 10% decline from this fair value,
including an assumed 10% decline of the per share market prices of the
Partnership's publicly-traded securities, would result in a reduction to the
fair value of such investments and an unrealized loss of $1,381,451.
As of March 31, 1999, the Partnership held discounted commercial paper with a
remaining maturity of 55 days. This short-term investment was carried at an
aggregate amortized cost of $496,249 as of March 31, 1999. An assumed 10%
increase in the market interest rates of such short-term investments held by the
Partnership as of March 31, 1999, would result in a reduction to the fair value
of such investments and an unrealized loss which is also considered to be
immaterial.
Market risk relating to the Partnership's interest-bearing cash equivalents
held as of March 31, 1999 is also considered to be immaterial.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
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 covered
by this report.
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: 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/ David G. Cohen
David G. Cohen
Vice President
By: /s/ Diane T. Herte
Diane T. Herte
Vice President and Treasurer
(Principal Financial and Accounting Officer)
Date: May 14, 1999
<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,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 9,834,307
<INVESTMENTS-AT-VALUE> 13,814,513
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 753,684
<TOTAL-ASSETS> 14,568,197
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 189,545
<TOTAL-LIABILITIES> 189,545
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 120,000
<SHARES-COMMON-PRIOR> 120,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,980,206
<NET-ASSETS> 14,378,652
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,502
<OTHER-INCOME> 0
<EXPENSES-NET> 127,292
<NET-INVESTMENT-INCOME> (103,790)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (792,382)
<NET-CHANGE-FROM-OPS> (1,259,550)
<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> (1,259,550)
<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> 15,008,427
<PER-SHARE-NAV-BEGIN> 117
<PER-SHARE-NII> (1)
<PER-SHARE-GAIN-APPREC> (8)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 108
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
