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 June 30, 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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENTS OF ASSETS, LIABILITIES,
AND PARTNERS' EQUITY
ASSETS
(Unaudited)
December 31, June 30,
1997 1998
Cash and cash equivalents $ 755,755 $ 151,022
Short term investments 992,400 749,550
Investments at market value,
cost of $22,780,273 and $23,307,044 12,829,070 15,238,811
at December 31, 1997 and June 30, 1998,
respectively
Interest receivable 54,140 192,042
------------ ----------
$14,631,365 $16,331,425
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable $ 23,943 $ -
Accounts payable - related parties 120,554 119,458
--------- ----------
Total liabilities 144,497 119,458
--------- ----------
Partners' equity (deficit):
General partner (197,969) (180,454)
Limited partners (43,304.01 units at
December 31, 1997 and 43,254.01
units at June 30, 1998) 14,684,837 16,392,421
---------- ----------
Total partners' equity 14,486,868 16,211,967
---------- ----------
$14,631,365 $16,331,425
========== ==========
Limited Partners' Equity
per limited partnership unit $339 $379
===== =====
[FN]
See accompanying notes to financial statements.
</FN>
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Income:
Interest $ 484,555 $ 98,820 $ 553,501 $ 201,170
Dividends 6,460 - 28,910 6,732
--------- --------- ---------- ---------
Total income 491,015 98,820 582,411 207,902
Expenses:
Operating expenses 66,412 82,185 112,473 162,912
Management fees 109,247 81,467 231,096 196,418
--------- --------- -------- --------
Total Expenses 175,659 163,652 343,569 359,330
--------- --------- -------- --------
Net income(loss) from operations 315,356 (64,832) 238,842 (151,428)
Net realized gain (loss) on investments (1,996,109) 20,000 (1,061,476) 20,000
Net unrealized gain(loss) on investments (352,929) (6,591,996) (3,030,696) 1,882,970
---------- ---------- --------- ---------
Net income(loss) $(2,033,682) $(6,636,828) $(3,853,330) $ 1,751,542
========= ========= ========= =========
Net income(loss) per limited
partnership unit $ (46.49) $ (151.90) $ (88.09) $ 40.07
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
Six Months Ended June 30, 1997 and June 30, 1998
General Limited
Partner Partners Total
Balance at December 31, 1996 $ (56,010) $26,728,853 $26,672,843
Net income(loss) (38,533) (3,814,797) (3,853,330)
Distributions to limited partners - (1,000,000) (1,000,000)
Limited partner withdrawal - (79,376) (79,376)
--------- ---------- ----------
Balance at June 30, 1997 $ (94,543) $21,834,680 $21,740,137
========= ========== ==========
Balance at December 31, 1997 $ (197,969) $ 14,684,837 $14,486,868
Net income (unaudited) 17,515 1,734,027 1,751,542
Limited partner withdrawal (unaudited) - (26,443) (26,443)
--------- ---------- ----------
Balance at June 30, 1998 (unaudited) $ (180,454) $16,392,421 $16,211,967
========= ========== ==========
See accompanying notes to financial statements.
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
(CAPTION>
Six Months Ended June 30,
1997 1998
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ (3,853,330) $ 1,751,542
Adjustments to reconcile net income(loss) to net
cash flows from operating activities:
Net realized and unrealized (gain) loss on investments 4,092,172 (1,902,970)
(Increase) decrease in accounts receivable 14,204 (137,902)
(Decrease) increase in accounts payable (99,542) (25,039)
--------- -----------
Net cash provided by (used in) operating activities 153,504 (314,369)
--------- -----------
Cash flows provided by (used in) investing activities:
Principal payments of notes receivable 1,000 -
Proceeds from sale of investments 3,025,464 388,144
Purchase of investments (1,422,487) (652,065)
(Increase) decrease in other assets 18,602 -
---------- -----------
Net cash provided by (used in) investing activities 1,622,579 (263,921)
Cash flows provided by (used in) financing activities:
Limited partner withdrawal (79,376) (26,443)
Cash distributions to limited partners (1,000,000) -
--------- ------------
Net cash provided by (used in) financing activities (1,079,376) (26,443)
----------- ------------
Net increase (decrease) in cash 696,707 (604,733)
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 $ 3,369,877 $ 151,022
========== ==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements
June 30, 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 Partnership seeks to
achieve current income and capital appreciation principally by making
direct investments primarily in private placement convertible debt secur-
ities 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 statements 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 periods ended June 30, 1998 and 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. Net Income(Loss) Per Limited Partnership Unit - net income(loss) per
limited partnership unit is based on the weighted average of the lim-
ited partnership units outstanding during the period and net income(loss)
allocated to the limited partners.
D. 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
periods presented. Actual results could differ significantly from those
estimates.
E. 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 period is reduced to reflect the estimated
interest expected to be collected during the period.
F. Financial Instruments - In accordance with the reporting requirements of
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," the Company calculates the fair
value of its financial instruments and includes this additional infor-
mation in the notes to the financial statements when the fair value is
different than the carrying value of those financial instruments. When
the fair value reasonably approximates the carrying value, no additional
disclosure is made.
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.
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements (Continued)
June 30, 1998
(Unaudited)
4. Management Agreement and Fees
The Partnership has entered into a management agreement with the Managing
General Partner. The Managing General Partner is entitled to receive a
management fee and incentive fee as defined in the Investment Advisory
Agreement amended and ratified on 4/21/94. Fees paid to the Managing
General Partner during the three months ended June 30, 1998, were $81,467.
Pursuant to the Management Agreement, the Partnership owed the Managing
General Partner $103,031 at June 30, 1998, which includes the second
quarter management fee.
At June 30, 1998, the Partnership owed the two Independent General Partners
$16,428 for the Independent General Partner fee as defined in the Partner-
ship Agreement.
5. 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 Trans-
action, as defined, will be allocated 1% to Renaissance and 99% to the
Limited Partners. All items of gain of the Partnership resulting from a
Capital Transaction shall be allocated such that the Limited Partners
receive a cumulative simple annual return of 10% on their capital contri-
butions 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.
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements (Continued)
June 30, 1998
(Unaudited)
6. 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 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.
The financial statements include securities of publicly-held companies valued
at $12,829,070 (88% of total assets) and $15,238,811 (93% of total assets)
as of December 31, 1997, and June 30, 1998, respectively, whose values have
been estimated by the Managing General Partner and approved by the Independ-
ent General Partners in the absence of readily ascertainable market values.
Because of the inherent uncertainty of valuation, those estimated values
may differ significantly from the values that would have been used had a
ready market for the investments existed and the difference could be material.
<PAGE>
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements (Continued)
June 30, 1998
(Unaudited)
6. Investments (continued)
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
Coded Communications Corporation
Preferred Stock $ 4,654,588 $ 4,654,588 $ 360,000
Common Stock 517,025 45,656 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 1,182,938 1,182,938 763,000
Protech, Inc.
Promissory Notes 67,500 67,500 0
Scientific Software, Inc.
Promissory Note 1,500,000 1,500,000 1,300,000
Common Stock 305,610 174,776 174,776
Total Choice, Inc.
Preferred Stock 300,000 300,000 200,000
Common Stock 700,000 700,000 0
Tricom Corporation
Promissory Note 50,000 50,000 50,000
Common Stock 2,203,600 2,203,600 100,000
Tutogen Medical, Inc. (Biodynamics International, Inc.)
Convertible Debentures 2,574,081 11,336,441 10,606,254
Common stock 4,744,658 1,461,027 1,373,721
Warrants 0 0 0
---------- ---------- ----------
$23,307,044 $26,308,570 $15,238,811
========== ========== ==========
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 condi-
tion 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 appro-
priate, 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 be-
lieved to represent fair value, these values do not necessarily reflect
amounts which may be ultimately realized upon disposition of such securities.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(1) Material Changes in Financial Condition
For the second quarter ended June 30, 1998, total Partners' Equity
decreased $6,663,272 due to lowered valuations of the Partnership's portfolio
assets as discussed below.
The following portfolio transactions are noted for the quarter ended
June 30, 1998 (portfolio companies are herein referred to as the "Company"):
Coded Communications, Inc. The Partnership has provided valuation reserves
totalling $4,340,244 on this investment, due to the Company's continuing
struggles in obtaining working capital.
Consolidated Healthcare Associates, Inc. In April 1998, the Company
remitted $129,057 to the Partnership for repayment of debts outstanding.
Pursuant to the Partnership's Participation Agreement with Duncan Smith
Company ("DSC"), the Partnership remitted $65,694.52 to DSC constituting
repayment of the $65,000 principal amount advanced to the Partnership by DSC,
together with interest thereon of $694.52. The Partnership applied the
remaining $63,362.48 to the principal balance of the February 1, 1998
Promissory Note. At June 30, 1998, the Company owed $1,119,938 on the 8%
Promissory Note dated February 1, 1998, and also owed the Partnership $63,000
on the 15% Promissory Note dated March 6, 1998. The Partnership has provided
a valuation reserve of $419,938 on the February note and a $2,320,984
valuation reserve on its investment in the Company's preferred and common
stock.
Scientific Software, Inc. The Company has entered into a Definitive
Agreement to sell all of its outstanding shares to Baker Hughes, Inc. for $.44
per share. As part of this agreement, the Partnership has agreed to exchange
its $1,500,000 Promissory Note owed by the Company for a $1,300,000 6%
Promissory Note from Baker Hughes due June, 1999. The Definitive Agreement
has been announced, and is subject to approval by a majority of the Company's
shareholders at their annual meeting on July 30, 1998.
Total Choice, Inc. The Partnership has provided a valuation reserve of
$800,000, or 80%, on this investment.
Tricom Corporation. Effective May 28, 1998, the Partnership entered into
an agreement with the Company whereby the Partnership converted its Preferred
Stock having a cost basis of $2,153,600 into 538,400 shares of the Company's
common stock, bringing the Partnership's total ownership interest to 26.7%,
and the Company agreed to pay the Partnership $150,000 plus a non-interest-
bearing Promissory Note for $50,000 due December 31, 1999. In addition, the
Company agreed to expand its Board to allow for a Partnership representative
and to reduce the salary of Art Truckenbrodt, the Company's President and
Chief Officer, to $70,000. By June 30, 1998, $75,000 had been received from
the Company, and subsequent to June 30, 1998 an additional $50,000 was
received from the Company. The Partnership has provided a valuation reserve
of $2,103,600 on its investment in the Company's common stock.
Tutogen Medical, Inc. Through June 30, 1998, the Company paid its interest
obligation on the $2,074,081 Debenture by issuing 57,688 shares of common
stock at $1.25 per share, and paid its interest obligation on the $500,000
Debenture by issuing 8,219 shares of common stock at $1.35 per share. On June
30, 1998, the Partnership purchased 3,000 shares of the Company's common stock
in the open market for $7,180.
(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.
For the quarter ended June 30, 1998, the Partnership recorded a loss of
$6,636,828, which loss resulted primarily from lowered valuations of the
Partnership's portfolio assets. Interest income continued to decline as a
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 in comparison to
debentures.
Portfolio Investments still held as Debentures require interest payments
generally on either a monthly or quarterly basis. At June 30, 1998, the
following Companies are in arrears on interest payments: Consolidated
HealthCare Associates, Inc. is in arrears on interest payments owed to the
Partnership in the aggregate amount of $48,162; Scientific Software, Inc.
is in arrears on interest payments owed to the Partnership in the aggregate
amount of $122,548; and Tutogen Medical, Inc. is in arrears on interest
payments owed to the Partnership in the aggregate amount of $47,772.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None other than what has been previously reported.
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.
By RENAISSANCE CAPITAL GROUP, INC.,
Managing General Partner
August 20, 1998 By /s/ Russell Cleveland
__________________________________________
Russell Cleveland, President
August 20, 1998 By /s/ Barbe Butschek
__________________________________________
Barbe Butschek, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 23,307,044
<INVESTMENTS-AT-VALUE> 15,238,811
<RECEIVABLES> 192,042
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 900,572
<TOTAL-ASSETS> 16,331,425
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119,458
<TOTAL-LIABILITIES> 119,458
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,957,373
<SHARES-COMMON-STOCK> 43,254
<SHARES-COMMON-PRIOR> 43,304
<ACCUMULATED-NII-CURRENT> 17,827
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,875,245)
<OVERDISTRIBUTION-GAINS> 2,819,755
<ACCUM-APPREC-OR-DEPREC> (8,068,233)
<NET-ASSETS> 16,211,967
<DIVIDEND-INCOME> 6,732
<INTEREST-INCOME> 201,170
<OTHER-INCOME> 0
<EXPENSES-NET> 359,330
<NET-INVESTMENT-INCOME> (151,428)
<REALIZED-GAINS-CURRENT> 20,000
<APPREC-INCREASE-CURRENT> 1,882,970
<NET-CHANGE-FROM-OPS> 1,751,542
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 26,443
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 50
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,725,099
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11,895,235)
<OVERDISTRIB-NII-PRIOR> 2,650,498
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196,418
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 359,330
<AVERAGE-NET-ASSETS> 15,349,418
<PER-SHARE-NAV-BEGIN> 334.54
<PER-SHARE-NII> (3.50)
<PER-SHARE-GAIN-APPREC> 44.38
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.61
<PER-SHARE-NAV-END> 374.81
<EXPENSE-RATIO> 0.023
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
