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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, 1998
[ ] 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()
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENT OF ASSETS, LIABILITIES,
AND PARTNERS' EQUITY
(Unaudited)
Assets December 31, 1997 March 31, 1998
<S> <C> <C>
Cash and cash equivalents $ 755,755 $ 94,750
Short term investments 992,400 994,700
Investments at market value, cost
of $22,780,273 and $23,430,021 12,829,070 21,953,783
Interest receivable 54,140 116,839
$14,631,365 $23,160,072
Liabilities and Partners' Equity
Accounts payable $ 23,943 $ -
Accounts payable - related
parties 120,554 284,834
Total liabilities 144,497 284,834
Partners' equity (deficit):
General partner (197,969) (114,085)
Limited partners (43,304.01 units) 14,684,837 22,989,323
Total partners' equity 14,486,868 22,875,238
$14,631,365 $23,160,072
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
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RENAISSANCE CAPITAL PARTNERS, II, LTD.
STATEMENT OF OPERATIONS
(Unaudited)
Three Months ended March 31,
1997 1998
<S> <C> <C>
Income:
Interest $ 68,946 $ 102,350
Dividends 22,450 6,732
91,396 109,082
Expenses:
Legal fees 6,021 29,399
Accounting and professional 13,149 20,442
Independent general partner fees 16,427 16,428
Other general and administrative 10,464 14,458
Management fees 121,849 114,951
167,910 195,678
Net income (loss) from operations (76,514) (86,596)
Net realized and unrealized gain (loss)
on investments (1,743,134) 8,474,966
Increase (Decrease) in assets from
operations $ (1,819,648) $ 8,388,370
income (Loss) per weighted average
limited partnership unit $(41.60) $191.77
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
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RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at December 31, 1997 $(197,969) $14,684,837 $14,486,868
Net income 83,884 8,304,486 8,388,370
Balance at March 31, 1998 $(114,085) $22,989,323 $22,875,238
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
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RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months ended March 31,
1997 1998
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,819,648) $8,388,370
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Net realized and unrealized
(gain) loss on investments 1,743,134 (8,474,966)
Increase in short term investments - (2,299)
(Increase) decrease in interest receivable (21,285) (62,699)
Increase (Decrease) in accounts payable (80,960) 140,337
Total adjustments 1, 640,889 (8,399,627)
Net cash used by operating activities (178,759) (11,257)
Cash flows from investing activities:
Investments in securities (16,000) -
Investments in convertible debentures
and notes receivable - (649,748)
Reduction of other assets 35,571 -
Proceeds from sale of securities 1,405,787 -
Net cash provided (used) by
investing activities 1,425,358 (649,748)
Cash flows from financing activities:
Limited partner withdrawal (79,376) -
Net cash used by financing activities (79,376) -
Net increase (decrease) in cash 1,167,223 (661,005)
Cash and cash equivalents at the
beginning of the period 2,673,170 755,755
Cash and cash equivalents at the
end of the period $ 3,840,393 $ 94,750
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
</TABLE>
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RENAISSANCE CAPITAL PARTNERS II, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
1. Organization and Business Purpose
Renaissance Capital Partners II, Ltd. (the "Partnership"), a Texas limited
partnership, was formed on January 14, 1991. 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, 1998.
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.
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
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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 $129,905 and the amount determined to be
uncollectible and charged against the income was $27,555.
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. 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 asset 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,
1998 were $114,951.
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
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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 $268,406 at March 31, 1998,
which includes the first quarter management fee.
At March 31, 1998, the Partnership owed the two Independent General
Partners $16,428 for the first quarter Independent General Partner fee as
defined in the Partnership Agreement.
6. Federal Income Taxes
No provision has been made for Federal income taxes as the liability for
such taxes is that of the partners rather than the Partnership.
7. Litigation
The Partnership is involved in a lawsuit involving a portfolio investment
which was fully charged off in prior periods. The Partnership has denied any
and all liability relating to this suit and intends to vigorously defend
this action. See Part II - Other Information, Item 1 - Legal Proceedings
for further information concerning this lawsuit.
8. Partnership Agreement
Pursuant to the terms of the Partnership Agreement, all items of income,
gain, loss and deduction of the Partnership, other than any Capital
Transaction, as defined, will be allocated 1% to Renaissance and 99% to
the Limited Partners. All items of gain of the Partnership resulting from
Capital Transactions shall be allocated such that the Limited Partners
receive a cumulative simple annual return of 10% on their capital
contributions and any remaining gains shall be allocated 20% to Renaissance
and 80% to the Limited Partners. All items of loss resulting from Capital
Transactions shall be allocated 1% to Renaissance and 99% to the Limited
Partners.
9. Investments
Investments of the Partnership are carried in the statements of assets,
liabilities and partners' equity at quoted market or fair value, as
determined in good faith by the Managing General Partner and approved by the
Independent General Partners.
For securities that are publicly traded and for which quotations are
available, the Partnership will value the investments based on the closing
sale as of the last day of the fiscal quarter, or in the event of an interim
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valuation, as of the date of the valuation. If no sale is reported on such
date, the securities will be valued at the average of the closing bid and
asked prices.
Generally, debt securities will be valued at their face value. However, if
the debt is impaired, an appropriate valuation reserve will be established or
the investment discounted to estimated realizable value. Conversely, if
the underlying stock has appreciated in value and the conversion feature
justifies a premium value, such premium will of necessity be recognized.
The Managing General Partner, subject to the approval and supervision of
the Independent General Partners, will be responsible for determining fair
value.
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INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
<S> <C> <C> <C>
Biodynamics, International, Inc.
Common Stock $4,654,272 $1,538,644 $1,446,325
Convertible Debentures 2,574,081 13,441,097 12,584,632
Warrants -0- 339,087 318,741
Coded Communications Corporation
Preferred Stock 4,654,588 4,654,588 3,258,502
Common Stock 517,025 182,625 -0-
Promissory Note 311,060 311,060 311,060
Consolidated Health Care Associates, Inc.
Preferred Stock 1,695,984 1,695,984 -0-
Common Stock 2,500,000 625,000 -0-
Promissory Notes 1,246,301 1,246,301 1,246,301
Scientific Software, Inc.
Promissory Note 1,500,000 1,500,000 1,300,000
Common Stock 305,610 184,287 184,287
Total Choice, Inc.
Preferred Stock 300,000 300,000 300,000
Common Stock 700,000 700,000 503,935
Tricom Corporation
Preferred Stock 2,153,600 2,153,600 500,000
Common Stock 250,000 250,000 -0-
Protech, Inc.
Promissory Notes 67,500 67,500 -0-
$23,430,021 $29,189,773 $21,953,783
</TABLE>
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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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(1) MATERIAL CHANGES IN FINANCIAL CONDITION
For the first quarter ended March 31,1998, total partner's equity
increased $8,502,455 due to a net increase in investment valuations
reflecting a net increase in the value of the Partnership's portfolio assets.
The largest single gain in the Partnership's portfolio for the quarter
is attributable to Biodynamics International, Inc. The market value of the
Partnership's total investment in Biodynamics rose over $9.6 million in
value during the quarter, due to the Company's increased common stock price.
The following portfolio transactions are noted for the quarter:
BIODYNAMICS INTERNATIONAL, INC. In March 1998, the Partnership
advanced Biodynamics International Inc. ("Biodynamics") $500,000 pursuant to
a 9% Convertible Debenture secured by substantially all of the assets of
Biodynamics. The Debenture is convertible into shares of Biodynamics common
stock at $1.35 per share. The Debenture was executed under the same terms
and conditions as the November 11, 1997 Debenture. Interest for
the first 90 days of the Debenture will be payable by Biodynamics either in
cash or shares of Biodynamics common stock at $1.35 per share, at the option
of Biodynamics.
Subsequent to March 31, 1998, Biodynamics changed its name to Tutogen
Medical, Inc., and changed its trading symbol to "TTGN". The Company is
traded on the OTC Bulletin Board.
CONSOLIDATED HEALTH CARE ASSOCIATES, INC. On January 6,1998, the
Partnership and Consolidated Health Care Associates, Inc. ("Consolidated")
agreed to modify, renew, extend, and consolidate the October 28,
1997 Promissory Note for $831,553.05, the $75,000 Promissory Note dated
November 11, 1997, the $150,000 Promissory Note dated November 14, 1997, and
the $40,000 Promissory Note dated December 17, 1997, together with accrued
interest thereon of $15,283.34, into a new secured Promissory Note of
$1,111,836.39. On January 23, 1998, the Partnership advanced Consolidated
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$65,000 under the terms of an 8% Promissory Note. On February 1, 1998, the
Partnership and Consolidated agreed to modify, renew, extend, and consolidate
the January 6, 1998 Promissory Note for $1,111,836.39 and the $65,000
Promissory Note dated January 23, 1998, together with accrued interest
thereon of $6,464.16, into a new secured Promissory Note of $1,183,300.55.
The February 1, 1998 Promissory Note bears interest at 8% per annum with the
principal and accrued interest on the outstanding balance due under the note
to be paid in full on the earlier of May 31, 1998 or the closing of the sale
of all or substantially all of the Company's assets.
On March 6, 1998 the Partnership and Duncan-Smith Co. ("DSC") agreed to
loan Consolidated $150,000 pursuant to a Promissory Note secured by all the
assets of the Company and its remaining subsidiaries. The Note is guaranteed
by PTS Rehab, Inc. ("PTS"), Consolidated's wholly owned subsidiary, and the
guarantee is secured by all the receivables at the PTS level. The note
accrues interest at 15% per annum, with all principal and interest being due
in full on or before June 1, 1998. Pursuant to a Participation Agreement
between the Partnership and DSC, the advances made under the March 6, 1998
Note were to be split 50/50 between the Partnership and DSC. On March 6,
1998, DSC advanced Consolidated $65,000 pursuant to the terms of the
March 6, 1998 Note. On March 17, 1998, the Partnership advanced $63,000 to
Consolidated under the terms of the March 6, 1998 Note.
Subsequent to March 31, 1998, Consolidated remitted $129,057 to the
Partnership for repayment of debts outstanding. Pursuant to its
Participation Agreement with DSC, the Partnership remitted $65,694.52 to DSC
constituting repayment of the $65,000 principal amount advanced to
Consolidated by DSC pursuant to the March 6, 1998 Note, together with
interest thereon of $694.52. The Partnership applied the remaining
$63,362.48 to the balance of the February 1, 1998 Note.
(2) MATERIAL CHANGES IN OPERATIONS
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.
In the quarter ended March 31, 1998, the Partnership recorded a loss of
$76,514, which loss resulted primarily from a decrease in the interest income
received by the Partnership from portfolio investments. Interest
income continued to decline 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 in
the past 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, 1998, the
following companies are in arrears on interest payments: Consolidated
Health Care Associates, Inc. is in arrears in interest payments owed to the
Partnership in the aggregate amount of $7,261.90, and Biodynamics
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International Inc. is in arrears in interest payments owed to the Partnership
in the aggregate amount of $56,255.88.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership filed suit for collection of a $100,000 Note from U.S.
Fax, Inc., ActionFax International, Inc. and Facsimile Science Corporation
("U.S. Fax Defendants"). The Partnership had an investment in U.S. Fax,
Inc. which was previously charged off. The U.S. Fax Defendants filed
counterclaims against the Partnership for unspecified actual and punitive
damages from certain business claims including breach of contract, fraud,
negligent misrepresentation, conversion and a request for declaratory relief.
The Partnership has denied any and all liability relating to this suit and
intends to vigorously defend all counterclaims.
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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 20, 1998 ___________________\S\_______________________________
Renaissance Capital Group, Inc., Managing General Partner
Russell Cleveland, President
May 20, 1998 ____________________\S\________________________________
Renaissance Capital Group, Inc., Managing General Partner
Barbe Butschek, Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 23,430,021
<INVESTMENTS-AT-VALUE> 21,953,783
<RECEIVABLES> 116,839
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,089,450
<TOTAL-ASSETS> 23,160,072
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 284,834
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 284,834
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,983,804
<SHARES-COMMON-STOCK> 43,304
<SHARES-COMMON-PRIOR> 43,304
<ACCUMULATED-NII-CURRENT> 82,659
<OVERDISTRIBUTION-NII> 2,819,743
<ACCUMULATED-NET-GAINS> (11,895,245)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,476,237)
<NET-ASSETS> 22,875,238
<DIVIDEND-INCOME> 6,732
<INTEREST-INCOME> 102,350
<OTHER-INCOME> 0
<EXPENSES-NET> 195,678
<NET-INVESTMENT-INCOME> (86,596)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 8,474,966
<NET-CHANGE-FROM-OPS> 8,388,370
<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> 8,388,370
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11,895,235)
<OVERDISTRIB-NII-PRIOR> 2,650,498
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 114,951
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 195,678
<AVERAGE-NET-ASSETS> 18,681,053
<PER-SHARE-NAV-BEGIN> 334.54
<PER-SHARE-NII> (2.00)
<PER-SHARE-GAIN-APPREC> 195.71
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 528.25
<EXPENSE-RATIO> .010
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
