<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1997
[ ] 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: 038593
RENAISSANCE CAPITAL PARTNERS II, LTD.
_____________________________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 75-2407159
_____________________________________________________________________________
(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
8080 North Central Expressway, Dallas, Texas 75206-1857
_____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
214/891-8294
_____________________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RENAISSANCE CAPITAL PARTNERS II, LTD.
Statement of Assets, Liabilities and
Partners' Equity
(Unaudited)
[CAPTION]
<TABLE>
Assets December 31, 1996 March 31, 1997
------ ----------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 2,673,170 $ 3,840,393
Investments at market value, cost
of $23,363,737 and $22,908,583 24,042,843 20,909,922
Interest receivable 114,157 135,442
Other assets 103,252 67,681
----------- -----------
$26,933,422 $24,953,438
=========== ===========
Liabilities and Partners' Equity
--------------------------------
Accounts payable $ 57,217 $ -
Accounts payable - related parties 203,362 179,619
---------- ----------
Total liabilities 260,579 179,619
---------- ----------
Partners' equity (deficit):
General partner (56,010) (74,206)
Limited partners (43,304.01 units) 26,728,853 24,848,025
----------- -----------
Total partners' equity 26,672,843 24,773,819
----------- -----------
$26,933,422 $24,953,438
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENT OF INCOME
(Unaudited)
[CAPTION]
<TABLE>
Three Months ended March 31,
1996 1997
-------- --------
<S> <C> <C>
Income:
Interest $ 195,449 $ 68,946
Dividends 4,407 22,450
Other income 9,607 -
----------- ------------
209,463 91,396
----------- ------------
Expenses:
Legal fees 19,281 6,021
Accounting and professional 58,964 13,149
Marketing and promotional 36 -
Independent general partner fees 16,427 16,427
Other general and administrative 2,336 10,464
Management fees 133,254 121,849
----------- ------------
230,298 167,910
----------- ------------
Net income (loss) from operations (20,835) (76,514)
Net realized and unrealized loss
on investments (3,134,582) (1,743,134)
----------- ------------
Decrease in assets from
operations ($ 3,155,417) ($ 1,819,648)
=========== ============
Loss per weighted average
limited partnership unit $ (71.90) $ (41.60)
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
Three Months Ended March 31, 1997
(Unaudited)
[CAPTION]
<TABLE>
General Limited
Partner Partners Total
--------- ---------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996 ($ 56,010) $26,728,853 $26,672,843
Liquidation of Partners Interests - ( 79,376) ( 79,376)
-------- ----------- -----------
Net loss ( 18,196) ( 1,801,452) ( 1,819,648)
-------- ----------- -----------
Balance at March 31, 1997 ($ 74,206) $24,848,025 $24,773,819
======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENT OF CASH FLOWS
(Unaudited)
[CAPTION]
<TABLE>
Three Months ended March 31,
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 3,155,417) ($ 1,819,648)
------------ -----------
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Net realized and unrealized
loss on investments 3,134,582 1,743,134
(Increase) decrease in interest receivable 30,910 (21,285)
Decrease in accounts payable (85,100) (80,960)
------------ -----------
Total adjustments 3,080,392 1,640,889
------------ -----------
Net cash used by operating activities (75,025) (178,759)
------------ -----------
Cash flows from investing activities:
Investments in securities - (16,000)
Investments in convertible debentures and notes receivable (184,933) -
Principal payments of notes receivable 638,655 -
Reduction of other assets 7,225 35,571
Proceeds from sale of securities - 1,405,787
------------ -----------
Net cash provided (used) by investing activities 460,947 1,425,358
------------ -----------
Cash flows from financing activities:
Limited partner withdrawal - (79,376)
Cash distributions to limited partners (138) -
------------ -----------
Net cash used by financing activities (138) (79,376)
------------ -----------
Net increase (decrease) in cash 385,784 1,167,223
Cash and cash equivalents at the beginning of the period 467,916 2,673,170
------------ -----------
Cash and cash equivalents at the end of the period $ 853,700 $ 3,840,393
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements
March 31, 1997
(Unaudited)
1. ORGANIZATION AND BUSINESS PURPOSE
Renaissance Capital Partners II, Ltd. (the "Partnership"), a Texas
limited partnership, was formed on January 14, 1991. The Partnership
Agreement required minimum aggregate capital contributions by limited
partners of not less than $2,500,000 and allowed for maximum limited
partnership contributions of $50,000,000. The final closing occurred on
March 31, 1993, with total subscriptions for limited partnership interests of
$42,873,900. The Partnership seeks to achieve current income and capital
appreciation principally by making direct investments primarily in private
placement convertible debt securities of small to medium size public
companies.
The Partnership elected to be treated as a business development company
under the Investment Company Act of 1940, as amended. The Partnership will
terminate upon liquidation of all of its investments, but no later than eight
years from the final closing of the sale of units, subject to the right of
the Independent General Partners to extend the term for up to two additional
one-year periods if they determine that such extension is in the best
interest of the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Cash and Cash Equivalents - for purposes of the statement of cash
flows, cash and cash equivalents include cash in checking and savings
accounts and all instruments on hand with original maturities of three months
or less. The Partnership paid no interest for the period ended March 31,
1997.
B. Federal Income Taxes - no provision has been made for federal income
taxes as any liability for such taxes is that of the partners rather than the
Partnership.
C. Income Per Limited Partnership Unit - income per limited partnership
unit is based on the weighted average of the limited partnership units
outstanding during the period and net income allocated to the limited
partners.
D. Organization expenses - all organizational expenses will be paid by
the Managing General Partner and the Partnership will not include those
amounts on its financial statements - see Note 4.
<PAGE> 7
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements
March 31, 1997
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
E. Management estimates - the financial statements have been prepared
in conformity with generally accepted accounting principles. The preparation
of the accompanying financial statements requires estimates and assumptions
made by management of the Partnership that affect the reported amounts of
assets and liabilities as of the date of the statements of assets,
liabilities and partners' equity and income and expenses for the period.
Actual results could differ significantly from those estimates.
F. Interest income - interest income is accrued on all debt securities
owned by the partnership on a quarterly basis. When it is determined that
the interest accrued will not be collected, the income for that quarter is
reduced to reflect the net interest earned during the period. Interest
accrued for the current quarter was $152,871, and the amount determined to be
uncollectible and charged against the income was $83,925.
3. BASIS OF PRESENTATION
The accompanying financial statements have been prepared without audit,
in accordance with the rules and regulations of the Securities and Exchange
Commission and do not include all disclosures normally required by generally
accepted accounting principles or those normally made in annual reports on
Form 10-K. All material adjustments, consisting only of those of a normal
recurring nature, which, in the opinion of management, were necessary for a
fair presentation of the results for the interim periods have been made.
4. MANAGEMENT AGREEMENT AND FEES
The Partnership has one general partner, Renaissance Capital Group,
Inc., a Texas Corporation (the "Managing General Partner"), and two
independent, individual general partners (the "Independent General
Partners"). The Independent General Partners receive a quarterly fee as
defined in the Partnership Agreement and reimbursement for certain out-of-
pocket expenses relating to performance of duties as Independent General
Partners.
The Partnership has entered into a management agreement with the
Managing General Partner. Pursuant to such agreement, the Managing General
Partner performs certain services, including certain management and
administrative services necessary for the operation of the Partnership. The
Managing General Partner is entitled to receive a management fee equal to
2.0% of the Partnership's net assets (.5% quarterly), payable in arrears.
<PAGE> 8
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements
March 31, 1997
(Unaudited)
4. MANAGEMENT AGREEMENT AND FEES (continued)
On April 21, 1994, at the Annual Meeting of Limited Partners, a proposal to
amend the Advisory Agreement was ratified by the Limited Partners. The
agreement now dictates that to the extent any portion of such fee is based on
an increase in net assets value attributable to non-realized appreciation of
securities or other assets that exceed capital contributions, such portion of
the fee shall be deferred and not earned or payable until such time as
appreciation or any portion thereof is in fact realized and then such
deferred fees shall be earned and paid in proportion to the gains in fact
realized. Fees paid to the Managing General Partner during the three months
ended March 31, 1997 were $121,849.
In addition, the Managing General Partner is entitled to an incentive
fee equal to 20% of the amount of distributions in excess of distributions
representing returns of capital, subject to payment of the "Priority Return"
of the limited partners as defined. The Managing General Partner will also
receive compensation for providing certain administrative services to the
Partnership on terms determined by the Independent General Partners to be no
less favorable to the Partnership than those obtainable from competent
unaffiliated parties.
5. RELATED PARTY TRANSACTIONS
Pursuant to the Partnership Agreement, an initial partnership
contribution of $10,000 was made by the Initial Limited Partner. Upon
admission of additional limited partners at the closings, the Initial Limited
Partner withdrew from the Partnership.
Pursuant to the Management Agreement as described in Note 4 above, the
Partnership owed the Managing General Partner $163,192 at March 31, 1997,
which includes the first quarter management fee.
At March 31, 1997, the Partnership owed the two Independent General
Partners $16,427 for the first quarter Independent General Partner fees as
defined in the Partnership Agreement.
6. INVESTMENTS
The Partnership realized net capital gains from the sales of securities
of $934,633. The basis of these assets, $471,154, was composed of $111,154
for shares of common stock of Coded Communications Corporation and $360,000
for converted quantities of Industrial Holdings, Inc.
The Partnership also invested $16,000 in 35,555 shares in the common
stock of Tricom Corporation.
<PAGE> 9
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements
March 31, 1997
(Unaudited)
6. INVESTMENTS (continued)
[CAPTION]
<TABLE>
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
<S> <C> <C> <C>
AMERISHOP CORP.
12.50% Convertible Debenture,
Conversion price $.56, maturity 7/1/99 $ 2,000,000 $ 2,000,000 $ 2,000,000
Promissory Notes 1,728,448 1,728,448 728,448
BIODYNAMICS INTERNATIONAL, INC.
Preferred stock 4,164,826 4,164,826 4,164,826
Promissory Notes 374,064 374,064 374,064
CODED COMMUNICATIONS, INC.
Preferred Stock 4,654,588 4,710,970 4,682,967
Common Stock 611,503 414,605 389,729
Promissory Note 311,060 435,484 359,355
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
Preferred Stock 1,695,984 896,485 842,696
Common Stock 2,500,000 1,128,531 1,010,819
Promissory Notes 265,000 265,000 265,000
INDUSTRIAL HOLDINGS, INC.
12% Convertible Debentures, Conversion
price $3.26, maturity 10/1/99 700,000 2,335,123 2,311,771
SCIENTIFIC SOFTWARE, INC.
Convertible Debentures,
Conversion price $3.33, maturity 10/1/99 1,500,000 1,500,000 1,500,000
Common Stock 305,610 250,247 250,247
STARCOM COMMUNICATIONS
Common Stock 30,000 30,000 30,000
<PAGE> 10
6. INVESTMENTS (continued)
INVESTMENT VALUATION SUMMARY (continued)
CONVERSION FAIR
COST OR FACE VALUE VALUE
<S> <C> <C> <C>
TRICOM CORPORATION
12% Convertible Debenture,
Conversion price $.50, maturity 11/1/99 1,500,000 1,500,000 1,500,000
Promissory Notes 484,000 484,000 484,000
Common Stock 16,000 16,000 16,000
PROTECH, INC.
Promissory Notes 67,500 67,500 -
---------- ----------- -----------
$22,908,583 $22,301,283 $20,909,922
=========== =========== ===========
</TABLE>
The fair value of debt securities convertible into common stock is the sum of
(a) the value of such securities without regard to the conversion feature,
and (b) the value, if any, of the conversion feature. The fair value of debt
securities without regard to conversion features is determined on the basis
of the terms of the debt security, the interest yield and the financial
condition of the issuer. The fair value of the conversion features of a
security, if any, are based on fair values as of this date less an allowance,
as appropriate, for costs of registration, if any, and selling expenses.
Publicly traded securities, or securities that are convertible into publicly
traded securities, are valued at the last sale price, or at the average
closing bid and asked price, as of the valuation date. While these
valuations are believed to represent fair value, these values do not
necessarily reflect amounts which may be ultimately realized upon disposition
of such securities.
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(1) Material Changes in Financial Condition
Discuss material changes from end of preceding fiscal year to date of
most recent interim balance sheet provided. If necessary for an
understanding, discuss seasonal fluctuations.
The following Portfolio transactions are noted for the quarter
(portfolio companies are herein referred to as the "Company"):
BIODYNAMICS INTERNATIONAL, INC. On April 29, 1997, the Partnership
advanced $500,000 to the Company on a 60 day promissory note.
CODED COMMUNICATIONS CORPORATION. During the quarter ended March 31,
1997, the Partnership sold 200,006 shares of the Company's stock for $76,177,
recording a loss of $34,907 on the transactions. As of May 23, 1997, the
Fund has sold an additional 100,000 shares for $30,989, a loss of $24,586.
CONSOLIDATED HEATLH CARE ASSOCIATES, INC. Effective May 1, 1997, the
Partnership and the Company entered into a new loan agreement which canceled
the $265,000 multiple advance Promissory Note due on April 17,1999 and
replaced it with a new installment note. The new 10%, $264,000 Installment
Promissory Note and Security Agreement which was executed, calls for 23
monthly principal and interest installments of $5,609.22 beginning on June
15, 1997 and a final installment of $173,836.63 on June 15, 1999.
INDUSTRIAL HOLDINGS, INC. On January 10, 1997, the Partnership
converted $360,000 of the Company's Debentures into 110,429 shares of the
Company's common stock, which were subsequently sold during the quarter for
$1,329,607, resulting in a gain of $969,607. On April 3, 1997, the
Partnership converted $200,000 of Debentures into 61,350 shares of common
stock. At March 31, 1997, the Partnership had $500,000 in debentures and
61,350 shares of the Company's common stock remaining in this investment. As
of 5/27/97, 86,850 shares of these two conversions have been sold for
$880,886, a net gain to the Partnership of $597,756.
TRICOM CORP. The Partnership, other bridge loan holders, new investors
and the Company entered into a tentative agreement to recapitalize the
Company. The plan calls for the Partnership to exchange its 12% $1,000,000
Debenture dated November 19, 1992, its $500,000 Debenture dated March 26,
1993, its $200,000 12.5% promissory note dated July 1, 1994, its 12.5%
$50,000 promissory note dated December 29, 1994 and the unpaid interest on
all of its debt totaling $403,600 for 21,536 shares of Tricom preferred
stock, par value $100 ($2,153,600). The Partnership is to also exchange its
$54,000 and $30,000 Notes for 186,667 shares of Tricom common stock. The
<PAGE> 12
Bridge loan of $150,000 is to be exchanged for 333,333 of Tricom common stock
and earlier issued warrants canceled. The Partnership waives its anti-
dilution provision with the execution of the Agreement. For this, Tricom
will issue a three year warrant to purchase 250,000 shares of common stock at
$2.00 per share. If Tricom does not raise at least $2,000,000 in new equity
capital by December 31, 1998, the warrant shall be exercisable by tendering
5,000 shares of preferred stock on that date.
The preferred stock, at the option of the holder, is convertible into
common stock at $4.00 per share. A one time conversion price adjustment to
$2.00 per share will be made if Tricom has not raised $2,000,000 of new
equity capital by December 31, 1998. The Partnership purchased 35,555
shares of common stock for $16,000 during the quarter.
(2) Material Changes in Operations
Discuss material changes with respect to the most recent year-to-date
period and corresponding period for prior year. If most recent quarter
included also cover changes for quarterly period.
The Partnership currently is not actively considering additional
Portfolio Investments. Therefore no significant further amount of income
from closing fees and commitment fees is anticipated.
During the past twelve months, interest income has declined
substantially as the result of not accruing certain past due payments from
portfolio companies because the likelihood of receiving such payments appears
to be in question. In addition, income has declined as a result of payment
defaults and as the Partnership has converted debentures into common and
preferred stock that traditionally have lower current yields as compared to
debentures.
Portfolio investments still held as debentures require interest payments
generally on either a monthly or quarterly basis. As of March 31, 1997, all
companies are current on interest payments with the following exceptions. At
March 31, 1997, AmeriShop Corp. is in arrears ten quarters in interest
payments to the Partnership in the aggregate amount of $859,905.86 and
principal payments of $247,500.00, of which all of the interest has been
reserved. Biodynamics International, Inc. is in arrears six quarters in
interest payments to the Partnership in the aggregate amount of $44,234.70.
Consolidated Health Care Associates, Inc. is in arrears two quarters in
interest payments to the Partnership in teh aggregate amount of $13,064.34.
Tricom Corporation is in arrears eleven quarters in interest payments to the
Partnership in the aggregate amount of $784,130.11 and principal payments of
$255,000.00, of which all the interest has been reserved.
Subsequent to the quarter ended March 31, 1997 and prior to this filing,
the Partnership made a distribution of income to partners of $1,000,000.00 on
April 15, 1997.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENAISSANCE CAPITAL PARTNERS II, LTD.
May 29, 1997 /S/ Russell Cleveland
--------------------------------------
Renaissance Capital Group, Inc., Managing General Partner
Russell Cleveland, President
May 29, 1997 /S/ Barbe Butschek
--------------------------------------
Renaissance Capital Group, Inc., Managing General Partner
Barbe Butschek, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 22,908,583
<INVESTMENTS-AT-VALUE> 20,909,922
<RECEIVABLES> 135,442
<ASSETS-OTHER> 67,681
<OTHER-ITEMS-ASSETS> 3,840,393
<TOTAL-ASSETS> 24,953,432
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 179,619
<TOTAL-LIABILITIES> 179,619
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,983,804
<SHARES-COMMON-STOCK> 43,304
<SHARES-COMMON-PRIOR> 43,434
<ACCUMULATED-NII-CURRENT> (76,514)
<OVERDISTRIBUTION-NII> 1,725,157
<ACCUMULATED-NET-GAINS> (10,409,653)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,998,661)
<NET-ASSETS> 24,773,819
<DIVIDEND-INCOME> 22,450
<INTEREST-INCOME> 68,946
<OTHER-INCOME> 0
<EXPENSES-NET> 167,910
<NET-INVESTMENT-INCOME> (76,514)
<REALIZED-GAINS-CURRENT> 934,633
<APPREC-INCREASE-CURRENT> (2,677,767)
<NET-CHANGE-FROM-OPS> (1,819,648)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 79,376
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,899,024)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11,344,286)
<OVERDISTRIB-NII-PRIOR> 1,725,157
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 121,849
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 167,910
<AVERAGE-NET-ASSETS> 25,723,331
<PER-SHARE-NAV-BEGIN> 683.77
<PER-SHARE-NII> (1.77)
<PER-SHARE-GAIN-APPREC> (4,615)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 573.80
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
