________________________________________________________
Securities and Exchange Commission
Washington, DC 20549
________________________________________________________
FORM 10-K
MARK ONE:
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the Fiscal Year Ended December 31, 1998; or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File No. 0-38593
RENAISSANCE CAPITAL PARTNERS II, LTD.
_____________________________________________________________________________
(Exact name of registrant as specified in its charter)
TEXAS 75-2407159
_____________________________________________________________________________
(State of incorporation or organization) (I.R.S. Employer Identification No.)
10751 Mapleridge Drive
Dallas, Texas 75238
_____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 341-5033
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
________________ ________________
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Limited Partnership Interests
Subscription Units of $1000
____________________________________
(Title of class)
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 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 [ ]
Indicate by check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K: [X]
State the aggregate market value of the voting stock held by non affiliates of
the registrant:
As of December 31, 1998, there were 43,254 Units of Limited Partnership
Interest outstanding. A Unit is an initial offering Subscription of $1,000.
There is no market in the Units. Based on Unit values as reflected in the
Registrant's Financial Statements, the aggregate value of the Partnership
Interests held by non-affiliates as of December 31, 1998, was $7,811,294.
Aggregate value of the Partnership Interests held by affiliates as of December
31, 1998, was $26,938.
PART I
The discussion set forth herein contains certain forward looking statements
with respect to the financial condition, results of operations and business of
the Partnership. These forward looking statements are subject to certain
risks and uncertainties, not all of which can be predicted or anticipated.
Factors that may cause actual results to differ materially from those
contemplated by the forward looking statements herein include, but are not
limited to, changes in economic conditions; competitive conditions in the
markets in which portfolio companies conduct their operations, including
competition from companies with substantially greater resources than those of
the portfolio companies; and the results of litigation, which cannot be
predicted with certainty. Readers of this Discussion should not place undue
reliance on forward looking statements.
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Renaissance Capital Partners II, Ltd. (sometimes referred to as the
"Registrant" or the "Partnership") is a Texas limited partnership, (organized
as of January 14, 1991 with commencement of operations on January 6, 1992),
that has elected to operate as a business development company (sometimes
referred to herein as a "Business Development Company" or a "BDC") under the
Investment Company Act of 1940, as amended (the "1940 Act"). On January 23,
1991, the Partnership filed a registration statement on Form N-2 for the sale
of up to 50,000 Limited Partnership Units at an offering price of $1,000 per
Unit. The Partnership continued the offering until March 31, 1993 at which
time the offering was closed.
The investment objective of the Partnership was to provide investors with
current income and long-term capital appreciation by investing primarily in
private placement convertible debt securities (the "Debentures") of small and
medium size public companies ("Portfolio Companies"). The Partnership's
stated goal was to achieve a 10% annual current return to the holders of
limited partnership interests (the "Interests"); provided, however, that such
current return was to be increased or decreased from time to time, dependent
upon the actual operating results of the Partnership. The Partnership is not
currently paying an annual return to the Partners and does not anticipate
doing so prior to the final liquidation of the Partnership.
Renaissance Capital Group, Inc. ("Renaissance Group"), a Texas corporation,
served as the managing general partner (the "Managing General Partner") and as
investment adviser to the Partnership until September 30, 1998. In those
capacities, Renaissance Group was primarily responsible for the selection,
evaluation, structure, and administration of the Partnership's investment
portfolio. Renaissance Group is a registered investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") and the Texas
Securities Act. However, those activities were subject to the supervision of
two Independent General Partners of the Partnership who provided guidance with
respect to the operations of the Partnership (the "Independent General
Partners") (See Item 10. Directors and Executive Officers of the Registrant).
Generally, investments were made in companies that have their common stock
registered for public trading under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or that have made arrangements, satisfactory to
the Partnership, for commencement of such registration in conjunction with the
financing. The terms of the documents evidencing the Partnership's investment
("Portfolio Investments") in Portfolio Companies generally provide that the
Partnership will have the right to convert its Debentures into or otherwise
acquire common stock in exchange for its Debentures. Each was a direct
placement with the Portfolio Company.
Accordingly, while such common stock of the Portfolio Company may be publicly
traded, the common stock to be acquired by the Partnership is generally
unregistered. Therefore, such securities are restricted from distribution or
sale to the public except in compliance with certain holding periods and
exemptions under the Securities Act of 1933, as amended (the "Securities
Act"), or after registration pursuant to the Securities Act.
On January 6, 1992 the minimum offering requirements had been met and the
first closing of sale of Units occurred in the amount of $2,808,000.
Following the initial closing, the Partnership commenced carrying forward its
plan of business operations. The Partnership directed its investment efforts
to small and medium sized Portfolio Companies.
Effective October 1, 1998, Renaissance Group withdrew as Managing General
Partner of the Partnership as part of an agreement to begin to wind down and
liquidate the Partnership. Mr. Thomas W. Pauken, who had served as an
Independent General Partner agreed to become the Liquidation Trustee (the
"Trustee") pursuant to the Liquidation Trustee's Agreement which was filed as
an Exhibit to Form 10-Q for the period ending September 30, 1998, and is
incorporated for all purposes herein. The Trustee assumed all
responsibilities, and has the authority, of the Managing General Partner.
Pursuant to the provisions of the Partnership Agreement, the Trustee commenced
to wind up the affairs of the Partnership and to liquidate its assets. The
Trustee has full right and unlimited discretion to determine the time required
and used for liquidation, including sale of assets, distribution of assets in
kind, and exchange of assets for other assets for the purpose of obtaining, in
its opinion, fair value for such assets, having due regard to the activity and
condition of the relevant matters of general financial and economic
conditions. To the extent that such assets cannot be liquidated, the Trustee,
subject to the Securities Act and the 1940 Act, may effectuate an in-kind
distribution if it would be in the best interests of the Partners and if in
accordance with the Prospectus. To the extent permitted by the Advisers Act,
for all purposes of this Agreement, assets distributed in kind shall be deemed
to have been sold for their fair market, and the proceeds of such sale shall
be deemed to have been distributed as of the date of the in-kind distribution.
It is the Trustee's objective to wind up the Partnership by the year 2000 and
distribute the assets, other than the monies necessary to conclude any pending
litigation (see Item 3. Legal Proceedings); however, factors outside the
control of the Trustee could cause delays in the distribution of some or all
of the assets.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
While the Partnership originally had a diversified portfolio in a variety of
industries, it is concentrated now in the biotech/medical products industry
due to the fact that Tutogen Medical, Inc., the one remaining active company
in the Portfolio, is a biotech/medical products company.
NARRATIVE DESCRIPTION OF THE BUSINESS
The Partnership, as a Business Development Company under the 1940 Act,
primarily made investments in convertible debentures of small and medium sized
public companies.
Under the provisions of the 1940 Act, a Business Development Company must
invest at least 70% of its funds in "eligible portfolio investments", such
being generally defined as direct placements to eligible companies and
temporary investments in "cash items" pending other investments. However,
under the provisions of the 1940 Act, a Business Development Company may
invest up to 30% of its funds in "Other Investments" that is, investments that
do not qualify as "eligible portfolio investments", such as open market
purchases or participation in public offerings. The Trustee does not intend to
make any new investments in additional companies.
At December 31, 1998, the Partnership's investment assets were classified by
amount as follows:
<TABLE>
Percentage of
Classification Cost Investments (at cost)
<S> <C> <C>
Eligible Portfolio Companies $21,607,598 100%
Other Portfolio Companies None 0%
</TABLE>
INVESTMENT OBJECTIVE
The investment objective of the Partnership was to provide its Limited
Partners with both current income and long-term capital appreciation.
LIQUIDATION POLICY
The investment objective of the Trustee is to wind up the Partnership in an
expeditious manner while seeking to maximize the value of the remaining assets
and reduce the administrative and managerial costs to the Partnership.
In 1998, $1,000,000 was distributed to the Limited Partners. It is the
present intention of the Trustee to distribute the shares of Tutogen Medical,
Inc. ("Tutogen") to the Limited Partners in year 2000 or sooner if Tutogen
merges with, or is acquired by, another company. The Trustee has joined the
Board of Directors of Tutogen and intends to take an active role in the
affairs of that Company since the Partnership is the majority shareholder of
that Company.
REGULATION UNDER THE INVESTMENT COMPANY ACT OF 1940
The 1940 Act was enacted to regulate investment companies. In 1980, the 1940
Act was amended by the adoption of the Small Business Investment Incentive
Act. The purpose of the amendment was to remove regulatory burdens on
professionally managed investment companies engaged in providing capital to
smaller companies. The Small Business Investment Incentive Act established a
new type of investment company specifically identified as a Business
Development Company as a way to encourage financial institutions and other
major investments to provide a new source of capital for small developing
businesses.
BUSINESS DEVELOPMENT COMPANY
A Business Development Company ("BDC")
(1) is a closed-end management company making 70% of its investments only in
certain companies (identified as "Eligible Portfolio Companies"), and in "cash
items" pending other investments. Under the regulations established by the
SEC under the 1940 Act only certain companies may qualify as "Eligible
Portfolio Companies". Qualifications to be met for a company to be an
"Eligible Portfolio Company" are:
(a) it must be organized under the laws of a state or states of the United
States, (b) it may not be an investment company (except for a wholly owned
Small Business Investment Company), and (c) it must generally fall into one or
the three following categories:
1. Companies that do not have a class of securities registered on a national
securities exchange or are the Federal Reserve OTC margin list,
2. Companies that are actively controlled by the BDC either alone or as part
of a group (for this purpose, control is presumed to exist if the BDC or group
in which the BDC is a member owns 25% or more of the voting securities), or
3. It meets such other criteria as established by the SEC.
(2) must be prepared to provide "Significant Managerial Assistance" to such
Portfolio Companies. Significant Managerial Assistance means, as to the
Partnership:
(a) any arrangement whereby the Partnership, through its officers, employees
or General Partners, seeks to provide significant guidance concerning
management, operations, objectives or policies of the Portfolio Company, or
(b) the exercise of a controlling influence over the Portfolio Company.
Further, the regulations generally provide that the securities must be
obtained in direct transactions with the Portfolio Company and as such are
generally restricted from transferability in the public markets.
1940 Act Requirements
The BDC election exempts the Partnership from some provisions of the 1940 Act.
However, except for those specific provisions, the Partnership will continue
to be subject to all provisions of the 1940 Act not exempted, including the
following:
(1) restrictions on the Partnership from changing the nature of business so
as to cease to be, or to withdraw its election as, a BDC without the majority
vote of the Interests;
(2) restrictions against certain transactions between the Partnership and
affiliated persons;
(3) restrictions on issuance of senior securities, such not being prohibited
by the 1940 Act but being restricted as a percentage of capital;
(4) compliance with accounting rules and conditions as established by the
SEC, including annual audits by independent accountants;
(5) compliance with fiduciary obligations imposed under the 1940 Act;
(6) requirement that the Limited Partners ratify the selection of the
Partnership's independent public accountants and the approval of the
investment advisory or similar contracts and amendments thereto; and
(7) restrictions on purchases of Units by the Partnership.
PARTNERSHIP TERM
The Partnership Agreement provides for a term of eight (8) years from the
final closing of the initial offering which was March 31, 1993. As of October
1, 1998, Thomas W. Pauken was appointed the Liquidation Trustee to wind up the
affairs of the Partnership and liquidate its assets.
PARTNERSHIP PORTFOLIO INVESTMENTS
As of December 31, 1998, the Partnership had six (6) Portfolio investments of
which one (1) was active.
TOTAL CHOICE, INC.(FORMERLY AMERISHOP, CORP. (PRIVATELY HELD))
Total Choice, Inc. provides incentive merchandising and membership buying
programs. The Partnership originally made an investment in July 20, 1992 in
Amerishop, Inc. ("Amerishop") of Grand Rapids, Michigan.
Effective June 18, 1997, the Partnership and AmeriShop entered into a
"Surrender Agreement" and "Bill of Sale and Omnibus Agreement" whereby the
Partnership foreclosed on all the assets of the business of AmeriShop, except
for receivable pledged on senior debt and any proceeds thereof, in exchange
for cancellation of all Convertible Debentures and Notes held by the
Partnership.
The Partnership valued the surrendered assets at $700,000 and transferred them
into Total Choice, Inc. ("Total Choice"), a newly formed Texas corporation, in
exchange for a 60% common equity interest in the new entity. The Partnership
recognized a $3,028,448 loss on the foreclosure transaction. In July 1997,
the Partnership made a $300,000 follow-on investment to Total Choice in the
form of Preferred Stock.
A valuation reserve of $196,065 was placed on this investment representing the
Partnership's 60% share of the Company's $326,775 loss for 1997.
In 1998, the Partnership has received no revenues from the new business, now
known as Total Choice, Inc. The Partnership has completely written down this
investment, and the Trustee believes that it will take major operational
changes and the infusion of additional capital by the other investors in the
existing business in order to realize any value for the Partners in this
investment.
TUTOGEN MEDICAL, INC. (FORMERLY KNOWN AS BIODYNAMICS INTERNATIONAL, INC.)
Formerly known as Biodynamics International, Inc., the Company processes bio
implants for neurosurgical, orthopedic, urological, reconstructive and general
surgical indications, utilizing its patented Tutoplast process of tissue
preservation and viral inactivation. Tutogen's products are distributed
worldwide through operating subsidiaries in the U.S. and Germany and through
strategic alliances with such companies as Mentor and I.O.P., Inc. Tutogen
stock trades on the NASDAQ stock market under the symbol TTGN.
On March 29, 1993, the Partnership invested $2,500,000 in a 11% convertible
debenture issued by Biodynamics International, Inc. ("Biodynamics") or Tutogen
Medical, Inc. ("Tutogen"). Subsequently, the Partnership made follow-on
investments in Tutogen.
On March 18, 1998, the Partnership advanced Tutogen $500,000 pursuant to a 9%
Promissory Note secured by substantially all of Tutogen's assets. Tutogen
agreed to immediately roll the Note into a 9% convertible debenture with the
Debenture being convertible into shares of common stock at $1.35 per share.
The Debenture will be executed under the same terms and conditions as the
November 11, 1997 Debenture. Interest for the first 90 days of the Note and
Debenture was payable by the Company in cash or shares of common stock at
$1.35 per share.
Through June 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. The Partnership also purchased 3,000
shares of the Company's common stock on the open market for $7,180.
In the fourth quarter, the Company paid its interest obligations on the
$2,074,081 Debenture by issuing 69,327 share of common stock at $1.35 per
share, and additionally paid its interest obligation on the $500,000 Debenture
by issuing 9,316 shares of common stock at $1.35 per share. The Company's
interest obligations on both Debentures were brought current through September
30, 1998 by issuing the Partnership the 144,550 shares of Tutogen common
stock. As of December 31, 1998, the Company owed the Partnership interest in
the amount of $47,050 on Debenture 1 and interest in the amount of $11,342 on
Debenture 2.
Subsequent to December 31, 1998, the Partnership became the majority
shareholder of Tutogen pursuant to a series of transactions involving the
recapitalization of Tutogen These transactions included the conversion of a
Tutogen debenture, the amendment of stock purchase warrants held by the
Partnership and the issuance of additional common stock of Tutogen to the
Partnership in exchange for assets of the Partnership. Effective January 31,
1999, the Partnership and Tutogen entered into several inter-related
transactions, as follows:
(i) the Partnership exercised its right to convert the ouststanding
principal, accrued interest and accrued expenses on a convertible debenture in
the principal amount of $2,074,081.06 in accordance with the terms of the
debenture, resulting in the issuance to the Partnership of 4,600,507 shares
and, as additional consideration for the agreement to convert the debenture,
the Company issued to the Partnership an additional 149,334 shares;
(ii) warrants held by the Partnership to purchase 1,353,957 shares were
amended. These warrants previously were subject to exercise prices of $2.50
and $2.60 per share; as amended, the exercise prices of the warrants are $1.25
per share if the warrants are exercised prior to June 30, 2000. If not so
exercised, the exercise prices will revert to the original exercise prices of
the warrants; and
(iii) the Partnership acquired 300,000 shares, together with warrants to
purchase additional 300,000 shares at an exercise price of $1.50 per share, in
exchange for $300,000 cash.
As of February 1, 1999, the Partnership is the beneficial owner of 7,769,278
shares, representing approximately 61.26% of the outstanding shares of the
Company (including, for this purpose shares issued in transactions described
above and shares issuable upon exercise of warrants and upon conversion of a
debenture owned by the Partnership; all of the warrants and the debenture are
presently convertible or exercisable.
Revenues for fiscal year 1998 was approximately $9 million, and overall, it
was a break-even year for Tutogen.
CODED COMMUNICATIONS CORPORATION
Coded Communications Corporation ("Coded") was a manufacturer of digital
transmission systems for mobile fleet operations. On October 9, 1992, the
Partnership invested $2,500,000 in a 12% convertible debenture issued by Coded
Communications Corporation of Carlsbad, California. Subsequently, the
Partnership made follow-on investments in Coded.
During the first quarter of 1998, Coded announced that Gary Luick had resigned
as President and Chief Executive Officer, and Director of Coded. The Company
also announced that Hugo Camou, Chairman of the Board, would be assuming
responsibilities as Chief Executive Officer, and that John Wiggins, Chief
Operating Officer, would become President and take Mr. Luick's place on the
board. Coded also announced that it had completed a two-year financial
restructuring of its unsecured debt by making a final payment of $613,000
under the San Diego Credit Settlement Plan. Overall, the Plan settled $1.65
million dollars and was carried out over a 27-month period, during which time
Coded made all payments as scheduled. On January 14, 1998, Coded announced
that it had established a revolving line of credit with Comerica Bank for up
to $1.75 million, including a capital equipment credit line for up to
$250,000.
By the second quarter of 1998, the Company was in a working capital crisis and
in the third quarter the Partnership fully reserved its investment in the
preferred and common stock of the Company.
In the fourth quarter of 1998, Coded filed for bankruptcy in Chapter 11
proceedings in Delaware. That was converted to Chapter 7 status in the first
quarter of 1999. The Trustee has taken legal action to try to protect the
Partnership's secured position on the $311,060 Promissory Note and recover
from the assets of the Estate.
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
Consolidated Health Care Associates, Inc. ("CHCA") operated physical therapy
rehabilitation centers until it was liquidated in 1998. On December 29, 1992,
the Partnership invested $2,500,000 in an 11% debenture issued by CHCA of
Franklin, Massachusetts. Subsequently, the Partnership made follow-on
investments in CHCA.
On December 17,1997, the Partnership advanced to CHCA $40,000 under the terms
of an 8% Promissory Note to be paid in full on January 15, 1999. On January
6, 1998, the Partnership and CHCA agreed to modify, renew, extend, and
consolidate the October 28, 1997 Promissory Note for $831,553, 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 on the outstanding balance due under the note
to be paid in full on the earlier of January 31, 1998 or the closing of the
sale of CHCA's assets.
On January 9, 1998, CHCA announced the completion of an Asset Purchase
Agreement with HealthSouth Holdings, Inc. ("Healthsouth"). Under that
agreement, Healthsouth acquired all of the operating assets and assumed
certain liabilities of PTS Rehab Philadelphia, Inc. (consisting of one
outpatient clinic located in Pennsylvania) and Physical Therapy Associates,
Inc. (consisting of three outpatient clinics in Delaware), both wholly owned
subsidiaries of CHCA, in exchange for $800,000 cash.
On January 23, 1998, the Partnership advanced CHCA $65,000 under the terms of
an 8% Promissory Note. On February 1, 1998, the Partnership and CHCA agreed
to modify, renew, extend, and consolidate the January 6th Promissory Note for
$1,111,836 and the $65,000 Note dated January 23, together with accrued
interest thereon of $6,464 into a new Secured Promissory Note of $1,183,301.
The January 23, 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 assets.
On March 6, 1998, the Partnership and Duncan Smith Co. agreed to loan CHCA
$150,000 pursuant to a Promissory Note secured by all the assets of CHCA and
its remaining subsidiaries. The Note is guaranteed by the PTS Rehab, Inc.
subsidiary of CHCA, and the guaranty is secured by all the receivables at the
PTS Rehab, Inc. level. Under the Note, interest accrued at 15% per annum, and
all principal and interest is due in full on or before June 1, 1998. The
advances made under the Note will be split 50/50 between the Duncan-Smith Co.
and the Partnership. Goodhue W. Smith, III, Chairman of the Board of CHCA, is
a founding partner of Duncan-Smith. On March 6, 1998, Duncan-Smith advanced
CHCA $65,000 pursuant to the Note. On March 17, 1998, the Partnership
advanced $63,000 to CHCA pursuant to the Note. On April 14, 1998, the
Partnership received a principal payment in the amount of $63,362 from PTS
Rehab reducing the principal balance on the 8% Promissory Note to $1,119,938.
In March 1998, CHCA assigned remaining payments of two notes owed to CHCA to
the Partnership.
As of December 31, 1998, the Company owed Renaissance $1,119,938 plus unpaid
interest in the amount of $58,861 on the 8% Promissory Note dated February 1,
1998, and also owed the Partnership $63,000 plus unpaid interest in the amount
of $7,482 on the 15% Promissory Note dated March 6, 1998.
The Trustee did collect $24,138 in payments in the fourth quarter on one Note
owed to CHCA whose payments were assigned to the Partnership. The principal
balance of this assigned Note remains at $100,096.
Payments under the second Note assigned to the Partnership of $5,641 were
still due as of December 31, 1998, but was collected by the Trustee in the
first quarter of 1999. Renaissance's security position on the $1,119,938 and
$63,000 Notes is currently inferior to the position of the factoring company
which is collecting on the accounts receivable of the liquidated entity. At
this time it is unlikely that Renaissance will be able to collect anything on
those Notes in light of the priority claims of the factoring company.
SCIENTIFIC SOFTWARE/INTERCOMP. INC.
Scientific Software/Intercomp. Inc. ("SSI") provides data processing software
for the petroleum industry. On October 30, 1992, the Partnership invested
$2,500,000 in an 11% convertible debenture, Series #A issued by SSI of Denver,
Colorado. Subsequently, the Partnership made follow-on investments in SSI.
In 1998 the SSI entered into a Definitive Agreement to sell all of its
outstanding shares to Baker Hughes, Inc. for $0.44 per share. As part of that
agreement, the Partnership agreed to exchange its $1,500,000 Promissory Note
owed by the Company for $1,300,000 6% Promissory Note from Baker Hughes.
On November 6, 1998, Baker Hughes paid off its $1,300,000 Promissory Note due
the Partnership as part of its acquisition of SSI. The Partnership received
$24,932 for interest owed from July 30, 1998 through November 6, 1998.
The Partnership distributed $1,000,000 to the Limited Partners in December
1998, and held back $300,000 as a financial reserve for the Tutogen
investment. The Partnership has fully closed out its investment in SSI as of
December 31, 1998.
TRICOM CORPORATION
Tricom Corporation ("Tricom") was engaged in LAN construction, telephone line
construction auditing, parking meter auditing and the provision of coin box
services for the pay telephone and parking meter industries. On November 11,
1992, the Partnership invested $1,000,000 in a 12% convertible debenture
issued by Tricom of Santa Monica, California as the first disbursement under a
$2,000,000 loan agreement. Subsequently, the Partnership made follow-on
investments in Tricom.
In the first quarter of 1998, Tricom sold Office Communications Systems, Inc.
("OCS"), its wholly owned subsidiary to AIDCO, Inc. The stock purchase
agreement called for Tricom to receive $1,350,000 for its ownership interest
in OCS. Of the $1,350,000 sale price, $1,150,000 was paid to Tricom, while
the remaining $200,000 balance was deposited into an escrow account to be held
for a period of 12 months from closing as security for the indemnification
obligations of Tricom pursuant to the stock purchase agreement.
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 having a
cost basis of $2,203,600, 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 in the third quarter of 1998 an additional
$75,000 was received from the Company.
The Partnership fully reserved its investment in the Company as of September
30, 1998, and the Company is now out of business. It is doubtful at this time
as to whether the Partnership will be able to collect on the $50,000
Promissory Note due from the Company.
PERSONNEL
The Partnership has no direct employees but instead has contracted with the
Trustee pursuant to the Partnership Agreement to provide all management and
operation activities. The Trustee currently employs one additional person to
assist him in performing the duties and functions required by the Partnership.
Outside personnel are retained by the Trustee on an as needed basis. At the
present time, a substantial portion of the Trustee's staff time is devoted to
activities of the Partnership.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
A substantial amount of business of Tutogen Medical, Inc., arises out of the
operations of its German subsidiary. Since there are no additional
investments planned by the Partnership, there will be no additional
investments in foreign operations.
ITEM 2. PROPERTIES
The Partnership's business activities are conducted from the leased offices of
the Trustee in a one-story general office building in Dallas. Certain office
expenses relating to the Partnership's activities are charged to the
Partnership by the Trustee pursuant to the Liquidation Trustee Agreement made
effective on October 1, 1998, and as an Exhibit in Form 10-Q for the period
ending September 30, 1998.
ITEM 3. LEGAL PROCEEDINGS
The Trustee has filed a lawsuit on behalf of the Partnership against the
former Directors of Coded Communications Corporation and others alleging
securities fraud, fraud, negligent misrepresentation and other claims to the
detriment of the Partnership. That lawsuit is pending in the United States
District Court for the Northern District of Texas, Dallas Division and is
styled "Thomas W. Pauken, Liquidation Trustee for Renaissance Capital Partners
II, Ltd. v. Hugo Camou, et al.; Civil Action No. 3-98-CV-2758-G". The Trustee
also has filed certain actions on behalf of the Partnership in the Coded
Communications Chapter 7 bankruptcy styled "IN RE Coded Communications
Corporation, et al., Debtor; Bk. Case No. 98-2741 (MFW) through 98-2743
(MFW)". The lawsuit and the actions filed in the bankruptcy proceeding seek
various forms of relief against Coded and the defendants, including the actual
and exemplary damages, the rescission of the conversion of a debenture of
Coded, and other forms of relief. The defendants are contesting the claims in
both proceedings.
The Partnership also appealed a decision of a Pennsylvania court in a
adversial action against the controlling shareholder of U.S. Fax in a case
styled "Renaissance Capital Partners II, Ltd v. US Fax, Inc. et al." That
appeal was successful in the first quarter of 1999. The outcome of that
litigation should have no material effect on the Partnership. There are no
other legal proceedings currently pending with regard to the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of Limited Partners, through the
solicitation of proxies or otherwise, during the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES
TRADING
There is no trading in the Interests and no established market exists.
Interests are restricted from transfer except in the event of death or by
action of law or except with the prior approval of the Liquidation Trustee.
NUMBER OF HOLDERS
As of December 31, 1998, there were approximately 1,800 beneficial holders of
Limited Partner Interests.
DIVIDEND POLICY
The Partnership Agreement provided for an initial distribution to be made to
the Limited Partners within 30 days after the end of the first quarter
following closing of the offering, and thereafter, within 30 days of the end
of each subsequent quarter, with the amount of the distributions to be
determined at the discretion of the General Partners. It was generally the
intention of the General Partners to distribute investment income net of
expenses on a quarterly basis. Further, distributions of capital gains were
to be made as realized.
As the result of decreasing cash resources in 1995 and 1996, the distributions
to the limited partners were discontinued. In 1997, $1,000,000 was
distributed to the Limited Partners. In the fourth quarter of 1998, a $1
million distribution was made to the Partners. As the Partnership's
investments are liquidated, the Trustee expects to distribute to the Partners
cash and/or shares of stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five year period ended December
31, 1998, should be read in conjunction with the Partnership's Financial
Statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Item 7 of this
Annual Report on Form 10-K for the five years ended December 31, 1998.
<TABLE>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Gross Income (Loss)
(including
realized losses) 66,373 243,921 (3,098,478) (3,349,784) 47,215
Net Unrealized
appreciation
(depreciation)
on investments (5,087,413) (10,630,309) 1,049,091 ,443,065 (12,650,369)
Net Income
(loss) (5,622,192) (11,106,609) (3,000,121) (2,825,200) (13,814,4448)
Income (loss) per
Ltd Partnership
Unit (130) (253) (68) (64) (315)
Total Assets 7,917,415 14,631,365 26,933,422 29,92,591 33,772,316
Distributions to
Partners 1,000,000 1,000,000 -0- 600,000 3,100,000
Distributions per Ltd
Partnership unit 23 23 -0- 14 71
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The purpose of the Partnership was to provide growth capital to small and
medium size public companies whose ability to service debt is sufficient to
provide a quarterly return to the Limited Partners and whose growth potential
is sufficient to provide opportunity for above average capital appreciation.
SOURCES OF OPERATING INCOME
Generally, the major source of operating income for the Partnership is
investment income, either in the form of interest on debentures or dividends
on stock. However, the majority of income is derived from interest and
capital gains. The Partnership generally sought to structure investments to
obtain an interest return competitive with current long-term financing rates
available from other sources.
Further, the Partnership, in some cases, received payments fees, drawn-down
fees and similar types of income.
While it was the general principle that the Managing General Partner and its
officers and directors occupy a fiduciary relationship to the Partnership and
not receive outside compensation or advantage in conflict with that
relationship, neither the Managing General Partner nor its officers and
directors were prohibited from receiving other income from non-conflicting
sources. Neither is the Trustee prohibited from receiving other income that
is not in conflict with his fiduciary responsibilities to the Partnership.
The former Managing General Partner has formed other investment funds to make
investments in similar Portfolio Companies and may, in the future, form
additional similar investment funds. Specifically, Renaissance Group formed
Renaissance Capital Partners, Ltd. ("Renaissance I"), a limited partnership,
and raised net capital contributions of approximately $12,886,000 in a private
placement offering for the purposes of making primarily convertible debenture
investments in small and medium size public companies. Renaissance I is
currently fully invested. The former Managing General Partner has also formed
Renaissance Capital Growth & Income Fund III, Inc. ("Renaissance III"), which
is also a BDC with investment objectives similar to those of the Partnership
and completed an offering in 1994 that raised approximately $41,489,500
available for investment. As of December 31, 1998, Renaissance III had
completed investments in twenty companies having an aggregate cost value of
$46,242,647 of which eighteen are still active. The Fund is actively seeking
additional investment opportunities. In the Spring of 1996, Renaissance Group
formed Renaissance US Growth & Income Trust PLC ("RUSGIT") a public limited
company registered in England and Wales, listed on the London Stock Exchange,
which invests in privately placed convertible debentures issued by companies
similar to the investments of the Partnership. RUSGIT invests primarily on a
pari-passu basis with Renaissance III. In 1996, RUSGIT raised investment
capital of approximately $30,789,000. As of December 31, 1998, RUSGIT had
made investments in seventeen (17) portfolio companies having an aggregate
cost of value of $28,301,665, of which sixteen (16) are still active. RUSGIT,
like Renaissance III, continues to actively seek investment opportunities. In
addition, Renaissance Group and its subsidiaries may, from time to time,
provide investment advisory services, management consulting services and
investment banking services to other clients.
As of October 1, 1998, Renaissance Group ceased serving as the Managing
General Partner and the Investment Advisor of the Partnership.
REGULAR QUARTERLY PAYMENTS TO PARTNERS/PRIORITY DISTRIBUTIONS
QUARTERLY PAYMENTS TO LIMITED PARTNERS
It was intended that cash payments from operations be made to all Limited
Partners each quarter to provide them a cash return. Generally, this cash
distribution was to be made from profits and investment income. However, in
the event that net profits were not adequate from time to time, the quarterly
distributions may be made from capital, so long as capital was sufficient to
assure repayment of all obligations of the Partnership and such capital
distributions were permitted by applicable partnership law and the 1940 Act.
Such distributions are currently permitted under the Revised Texas Limited
Partnership Act and under the 1940 Act, provided that, under the Revised Texas
Limited Partnership Act, distributions cannot be made if Partnership assets
are not sufficient to pay Partnership obligations and Limited Partners may be
liable for the repayment of distributions, if any received in contravention of
this restriction.
Further, quarterly distributions may be increased or decreased from time to
time to reflect increases or decreases in current rates of investment income.
As the result of decreasing cash resources in 1995 and 1996, the distributions
to the Limited Partners were discontinued. In 1997, $1,000,000 in
distributions were made to the Limited Partners. In 1998, $1,000,000 in
distributions were made to the Limited Partners. In light of the current
financial condition of the Partnership and the decision to proceed forward
final liquidation of the Partnership, it is unlikely that the Trustee will re-
establish the quarterly distribution to the Limited Partners.
OPTIONAL DISTRIBUTIONS OF OPERATING PROFITS AND CAPITAL GAINS
In addition to the regular quarterly distributions, it is intended that, as
the Partnership achieves operating profits and net capital gains or realizes
increased portfolio values such as through stock distributions or exchanges,
such increased values, profits and gains may become available for distribution
to the Partners in cash or assets.
The Performance Distributions cannot be adjusted without the consent of all
the Limited Partners, except if required by order of a regulatory agency.
During 1997, the Partnership made no additional portfolio investments but made
follow-on investments to existing portfolio companies of $3,131,000 and
investments in short term government securities of $992,400. Cash
distribution of $1,000,000 were made to the Limited Partners and operations
for the year resulted in a cash deficit of $488,770. Cash was provided from
the sale of stock and from the repayment of principal on investments of
$3,773,121 and $1,000 respectively.
During 1998, the Partnership made no additional Portfolio Investments but made
follow-on investments to existing Portfolio Companies of approximately
$718,000. Cash distributions of $1,000,000 were made to the Limited Partners
and operations for the year resulted in a cash deficit of $472,448. Since
the Partnership is in the process of being liquidated, it is anticipated by
the Trustee that the cash on hand should be sufficient for liquidation
purposes. It is the objective of the Trustee to distribute the stock in the
Portfolio Investments to the Partners in year 2000.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
During 1998, the Partnership made no additional portfolio investments but made
follow-on investments to existing Portfolio Companies of approximately
$718,000. As a result of prior investments and these follow-on investments,
the Partnership incurred a net loss of $5,622,192 in 1998, consisting of the
following: (i) interest income of $354,888; (ii) dividend income of $16,217;
(iii) total expenses of $601,152; (iv) realized losses on investments of
$310,834 and (v) unrealized depreciation on investments of $5,087,413. As a
result of the liquidation of portfolio companies, conversion of debentures to
equity investments, and the necessity of reserving interest accruals, interest
income seriously declined in 1998. Dividends are down as they are dependent
on the availability of Portfolio Companies earnings for distribution. The
estimated value of Portfolio Investments, as determined by the Trustee,
indicates a decrease of $5,087,413 in fair value during 1998. Because of the
inherent uncertainty of valuations, the estimated Fair Value as determined by
the Trustee may vary significantly from the values that would have been used
had a ready market for the securities existed, and the differences could be
material. (See Item 1. Business - Narrative Description of Business, and
Partnership Portfolio Investments; and Item 13. Certain Relationships and
Related Transactions).
The Partnership incurred obligations in 1998 for the quarterly management fees
through September 30, 1998, to the Partnership's then Managing General Partner
of $251,199, and the Independent General Partners of $49,283. The Partnership
reimbursed the Managing General Partner $99,055 for expenses in accordance
with the Investment Advisory Agreement. The Partnership incurred obligations
to the Trustee of $18,000 for the fourth quarter of 1998.
Distributions in the amount of $1,000,000 were paid to Limited Partners in
1998.
1997 COMPARED TO 1996
During 1997, the Partnership made no additional portfolio investments but made
follow-on investments $3,131,000. As a result of prior investments and these
follow-on investments, the Fund's 1997 total income was a loss of $11,106,609
consisting of the following: (i) interest income of $745,190; (ii) dividend
income of $49,690; (iii) total expenses of $720,221; (iv) realized losses on
investments of $550,959; and (v) unrealized depreciation on investments of
$10,630,309. As a result of converting debentures to equity investments, and
the necessity of reserving interest accruals, interest income continued to
decline. Dividends were down as they are dependent on the availability of
portfolio companies earnings for distribution. The estimated value of
portfolio investments, as determined by the Managing General Partner,
indicated a decrease of $10,630,309 in fair value during 1997. The
Partnership realized a loss of $3,028,448 and $30,000 on the charge of its
investments in AmeriShop, Inc. and StarComm Products, Inc. respectively.
These combined losses were reduced to $550,959 after considering losses on the
sale of Coded Communications, Inc. stock of $75,822 and gains on the sale of
Industrial Holdings, Inc. stock of $2,583,309. Because of the inherent
uncertainty of valuations, the Estimated Fair Value as determined by the
Managing General Partner may vary significantly from the values that would
have been used had a ready market for the securities existed, and the
differences could be material (See Item 1. Business - Narrative Description of
Business, and Partnership Portfolio Investments and Item 13. Certain
Relationships and Related Transactions.)
The Partnership incurred obligations in 1997 for the quarterly management fees
to the Partnership's investment advisor, the Managing General Partner, of
$411,179 and the Independent General Partners of $65,710. The Partnership
reimbursed the Managing General Partner $90,476 for expenses in accordance
with the Investment Advisory Agreement.
Distributions in the amount of $1,000,000 were paid to the Limited Partners in
1997.
YEAR 2000
Many computer software systems in use today cannot process date-related
information from and after January 1, 2000. The Partnership's Liquidation
Trustee has taken steps to review and modify their computer systems as
necessary and are prepared for the Year 2000. In addition, the Partnership
has inquired of its major service providers as well as its portfolio companies
to determine if they are in the process of reviewing their systems with the
same goals. The majority of all providers and portfolio companies have
represented that they are either taking the necessary steps to be prepared or
are currently prepared for the Year 2000. Should any of the computer systems
employed by the major service providers, or companies in which the Partnership
has an investment, fail to process this type of information properly, that
could have a negative impact on the Partnership's operations and the services
provided to the Limited Partners. It is anticipated that the Partnership will
incur no material expenses related to the Year 2000 issues.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Partnership is subject to financial market risks such as changes in
marketable equity security prices. The Partnership does not use derivative
financial instruments to mitigate any of these risks. The return on the
Partnership's investments is generally not affected by foreign currency
fluctuations.
A portion of the Partnership's portfolio consists of debt and equity
investments in a private company. The Partnership would anticipate no impact
on this investment from modest changes in public market equity prices.
However, should significant changes in market prices occur, there could be a
longer-term effect on valuations of private companies which could affect the
carrying value and the amount and timing of proceeds realized on this
investment.
A significant portion of the Partnership's investment portfolio consists of
common stocks, and in one case warrants to purchase common stock, in publicly
traded companies. These investments are directly exposed to equity price
risk, in that a percentage change in the prices of these equities would result
in a similar percentage change in the fair value of the Partnership's
investment in those securities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the Index to Financial Statements; see "Index to Financial Statements" on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(1) Background and Experience of Director and Officers of Renaissance Group.
Renaissance Group served as Managing General Partner of the Partnership
through September 30, 1998. The following table sets forth certain information
regarding the directors and officers of Renaissance Group.
<TABLE>
Name: Position:
<S> <C>
Russell Cleveland Chairman, President, Chief Executive Officer, and
Director
Barbe Butschek Senior Vice President, Treasurer and Secretary
Robert C. Pearson Senior Vice President - Corporate Finance
Mardon M. Navalta Vice President - Corporate Finance
John A. Schmit Vice President - Portfolio Monitoring
</TABLE>
Russell Cleveland, age 60, is the principal founder and the majority
shareholder of Renaissance Group. He is a Chartered Financial Analyst with
over thirty years experience as a specialistin investments for smaller
capitalization companies. Mr. Cleveland currently serves as a director of
Greiner Engineering, Inc. (NYSE), a former portfolio investment of a prior
Renaissance Group investment partnership. A graduate of the Wharton School of
Business, Russell Cleveland has served as President of the Dallas Association
of Investment Analysts. Mr. Cleveland also serves on the board of Directors
of the following companies: Biopharmaceutics, Inc., Global Environmental,
Inc., International Movie Group, Inc. and Tutogen Medical, Inc.
Barbe Butschek, age 44, has been associated with Renaissance Group and its
predecessor companies since 1977. As Senior Vice President, Secretary and
Treasurer, she has been responsible for office management, accounting
management and records management of the series of investor limited
partnerships. Ms. Butschek supervises investor records and information with
respect to Renaissance Group and its funds. She also prepares and maintains
investor tax and information reports. Barbe Butschek serves as Secretary for
the Partnership and Renaissance Capital Partners, Ltd. and as Secretary and
Treasurer of Renaissance Capital Growth & Income Fund III, Inc. She also
serves as Secretary of RenCap Securities, Inc., a wholly-owned subsidiary of
Renaissance Group and registered Broker-Dealer.
Robert C. Pearson, age 63, joined Renaissance Capital in April 1997. Mr.
Pearson brings over thirty years of experience to Renaissance Capital's
corporate finance function. From May 1994 to May 1997, Mr. Pearson was an
independent financial management consultant. From May 1990 to May 1994, he
served as Chief Financial Officer and Executive Vice President of Thomas
Group, Inc., a management consulting firm, where he was instrumental in moving
a small privately held company from a start-up to a public company with over
$40 million in revenues. Prior to 1990, Mr. Pearson was responsible for all
administrative activities for the Superconducting Super Collider Laboratory.
In addition, from 1960 to 1985, Mr. Pearson served in a variety of positions
at Texas Instruments in financial planning and analysis, holding such
positions as Vice President-Controller and Vice President-Finance. Mr.
Pearson holds a BS in Business from the University of Maryland and was a W.A.
Paton scholar with an MBA from the University of Michigan.
Mardon M. Navalta, age 38, joined Renaissance Group in June 1993. His
responsibilities include investment research and due diligence analysis on
prospective new investments. Mr. Navalta's prior experience includes
employment with Dallas Research & Trading, Inc. from 1991 to 1993, where he
served as a registered representative and analyst managing clients'
investments. Before 1991, he spent five years as an analyst for Dallas
Securities Investment Corporation, where he specialized in research,
quantitative analysis and due diligence investigations. He also serves as
President and Principal of RenCap Securities, Inc. Mr. Navalta holds a degree
in Finance from North Texas State University.
John A. Schmit, age 31, joined Renaissance Capital initially as an independent
contractor in May 1997 and, in October 1997, he was appointed as Vice
President - Portfolio Monitoring. Prior to joining Renaissance Capital, Mr.
Schmit worked as an independent contractor handling investments and monitoring
investment portfolios from February 1996 to May 1997. From October 1994 to
February 1996, he attended The Georgetown University Law Center and, from
September 1992 to September 1994, he practiced law at the law firm of Gibson,
Ochsner & Adkins. He holds a BBA in Finance from Texas Christian University,
a JD from the University of Oklahoma College of Law and an LLM in
International and Comparative Law from The Georgetown University Law Center.
(2) INFORMATION REGARDING LIQUIDATION TRUSTEE
Thomas W. Pauken, age 55, has experience both as a corporate executive officer
and as the head of an independent federal agency. Professionally qualified as
an attorney, he currently is the President of TWP, Inc. From 1985 to 1991,
Mr. Pauken was Vice President and Corporate Counsel of Garvon, Inc., a Dallas-
based venture capital company. Mr. Pauken served on President Reagan's
transition team and on the White House legal counsel's staff. Later, he was
appointed by President Reagan as Director of ACTION, an independent federal
agency that encourages volunteerism, where he served from 1981 to 1985. He
also served as a White House staff assistant and as Associate Director of the
White House Fellowship program from 1970 to 1971. Mr. Pauken served from 1986
to 1991 as Director of 50-off Stores, Inc. He became a member of the Board of
Tutogen Medical, Inc. in January 1999. He holds a BA in political science
from Georgetown University and a JD degree from Southern Methodist University
School of Law.
(3) INFORMATION REGARDING GENERAL PARTNERS
Mr. Ernest C. Hill and Mr. Thomas W. Pauken served as the Independent General
Partners of the Partnership until September 30, 1998 when Mr. Hill resigned
and Mr. Pauken agreed to become the Trustee of the Partnership. Under the
provisions of the 1940 Act, a majority of the general partners of the
Partnership must be "disinterested" or "non-affiliated" general partners.
Generally, any party that is involved in the daily activities of the
Partnership's business, including the Managing General Partner, as well as its
officers, directors and other affiliated persons, any investment adviser, any
accountant for the Partnership and any legal adviser, is considered an
"interested" party. The Independent General Partners provided overall
guidance and supervision with respect to the operations of the Partnership and
perform various duties imposed on them under the 1940 Act. Renaissance Group
was the Managing General Partner of the Partnership and also served as the
investment adviser to the Partnership until September 30, 1998, pursuant to
the Investment Advisory Agreement effective May 30, 1990, as subsequently
amended and restated, between the Partnership and Renaissance Group (the
"Advisory Agreement"). Renaissance Group is a registered investment adviser
under the Investment Advisers Act of 1940, as amended, and is subject to the
reporting and other requirements thereof. As Managing General Partner,
Renaissance Group managed the day-to-day business and operations of the
Partnership until September 30, 1998. The Partnership has no officers or
directors. Renaissance Group and its officers and employees devoted such time
to the Partnership's business as was necessary for the conduct of the
Partnership's operations. Since October 1, 1998, the Trustee has managed
the day-to-day business and operations of the Partnership.
Neither Renaissance Group nor its affiliates are prohibited from engaging in
activities outside the Partnership's business. Renaissance Group serves as
Managing General Partner and Investment Advisor for Renaissance Capital
Partners, Ltd. ("Renaissance I"), a business development company with goals
and operations comparable to those of the Partnership. Renaissance Group also
serves as investment advisor to Renaissance Capital Growth & Income Fund III,
Inc. ("Renaissance III"), a closed-end business development company listed on
the Nasdaq National Market with goals and operations comparable to those of
the Partnership. Renaissance Group is also the Manager of Renaissance U.S.
Growth and Income Trust, PLC, an investment trust listed on the London Stock
Exchange, which invests primarily in privately placed convertible debentures
in U.S. public corporations.
Background And Experience Of Independent General Partners
Mr. Ernest C. Hill, age 59, has a broad background in convertible securities
analysis with major NYSE brokerage firms and institutional investors. He
specializes in computer-aided investment analysis and administrative
procedures. Mr. Hill was awarded a Ford Fellowship to Stanford School of
Business where he received an MBA, with honors, in Investment and Finance.
Mr. Hill's prior experience includes service as Assistant Professor of
Finance, Southern Methodist University, and Associate Director of the
Southwestern Graduate School of Banking.
Biographical information regarding Mr. Pauken appears above under the caption
"Information Regarding Liquidation Trustee".
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to the Advisory Agreement, Renaissance Group was entitled to receive
a quarterly management fee of 0.5% of Partnership assets and an annual
incentive fee equal to 20% of the Partnership's net realized capital gains
after allowance for unrealized depreciation and after the Limited Partners
have received a 10% annual return on their capital contributions (less
brokerage fees and commissions incurred by the Partnership on behalf of such
Limited Partner or Limited Partners). In addition, the Partnership was
obligated to pay any direct costs, such as fees of any legal, accounting or
other professional advisors, and any travel, phone and other allocated
expenses incurred on behalf of the Partnership. Neither the management fee
nor the incentive fee can be increased except with the affirmative vote of the
holders of a majority of the outstanding Units. Renaissance Group agreed to
reduce its fees, if and to the extent necessary on a yearly basis, to limit
the total annual expense of the Partnership to an amount not greater than
2.75% of assets.
Renaissance Group withdrew as Managing General Partner of the Partnership as
of September 30, 1998, and no longer serves as Investment Advisor to the
Partnership. From January 1, 1998 to September 30, 1998, the Partnership paid
Renaissance Group $251,199 in management fees charged to the Partnership by
Renaissance Group for the first nine months of 1998.
During the first nine months of 1998, the Independent General Partners, Ernest
C. Hill and Thomas W. Pauken, were compensated for their services pursuant to
the Partnership Agreement in an amount of $24,641 each. Those payments ceased
as of October 31, 1998. Thereafter, the Trustee was entitled to be
compensated at an amount of $6,000 per month for a total of $18,000 for his
services through December 31, 1998. The Trustee also is entitled to full
reimbursement of all reasonable expenses relative to his service on behalf of
the Partnership; and he may be entitled to additional compensation for his
services subject to the improvement in the value of the assets of the
Partnership during the liquidation period. Mr. Pauken is a director of
Tutogen Medical, Inc. and, in that capacity, he is compensated by Tutogen
along with other directors through the payment of director's fees and the
grant of stock options.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1998, Renaissance Group and Thomas W. Pauken, Trustee, did
not own any Units of the Partnership. The following table sets forth
information concerning the number of Units of the Partnership beneficially
owned as of December 31, 1998, by (i) the persons who, to the knowledge of the
Trustee, beneficially owned more than 5% of the outstanding Units, (ii) each
director or executive officer of Renaissance Group, and (iii) the directors
and executive officers as a group:
<TABLE>
Name and Address of Units Beneficially Percent of Total Units
Beneficial Owner Owned Outstanding
________________________________________________________________________
<S> <C> <C>
HEB Investment and 3,160 7.34%
Retirement Plan Trust
P.O. Box 839999
San Antonio, Texas 78212
Russell Cleveland 153 *
8080 N. Central Expressway
Dallas, Texas 75206
Barbe Butschek 0 *
8080 N. Central Expressway
Dallas, Texas 75206
Robert C. Pearson 0 *
8080 N. Central Expressway
Dallas, Texas 75206
Mardon M. Navalta 0 *
8080 N. Central Expressway
Dallas, Texas 75206
John A. Schmit 0 *
8080 N. Central Expressway
Dallas, Texas 75206
*All directors and
executive officers 153
as a group (5 persons).
Thomas W. Pauken 0 *
Liquidation Trustee
10751 Mapleridge Dr.
Dallas, Texas 75238
<FN>
* Less than 1%. To the Trustee's knowledge, no other person beneficially
owned 5% or more of the outstanding Units.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Advisory Agreement, Renaissance Group served as managing
general partner and as investment adviser to the Partnership, subject to the
supervision of the Independent General Partners until September 30, 1998.
Services provided to the Partnership included the valuation of assets of the
Partnership, upon which the management fee paid to Renaissance Group is based
in part. Renaissance Group believes that the valuations of portfolio
securities were performed in accordance with generally accepted accounting
principles and financial reporting policies of the Securities and Exchange
Commission.
Renaissance Group also provided services to Portfolio Companies from time to
time, pursuant to the Advisory Agreement. Generally, the management fees
received by Renaissance Group for services to a Portfolio Company were paid to
the account of the Partnership, however, occasionally Renaissance Group
provided unusual services for a Portfolio Company that are unrelated to and
not required under the terms of the investment by the Partnership in such
Portfolio Company. Fees for such services were paid directly to Renaissance
Group, subject to the limitations and requirements imposed by the 1940 Act.
Renaissance Group has formed, and may form in the future, other investment
funds to make investments in companies similar to those in which the
Partnership invests, including Renaissance Capital Partners, Ltd., a limited
partnership, Renaissance Capital Growth & Income Fund III, Inc., a business
development company, and Renaissance U.S. Growth & Income Trust PLC, a public
limited company registered in England and Wales whose shares are listed on the
London Stock Exchange. Renaissance Group, and certain of its affiliates and
subsidiaries, also provide investment advisory services, management consulting
services and investment banking services to these entities.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
Documents filed as part of this Form 10-K
Financial Statements:
The financial statements filed as part of this report are listed in "Index to
Financial Statements" on page F-1 hereof.
Financial Statement Schedules:
Not applicable.
Reports on Form 8-K:
Registrant did not file a report on Form 8-K during the fourth quarter of
1998.
Exhibits:
A. Liquidation Trustee Agreement - Agreement for Engaging the Services of
Thomas W. Pauken as Liquidation Trustee of Renaissance Capital Partners II,
Ltd. (1)
B. Renaissance Capital Partners II, Ltd. Amended and Restated Agreement and
Articles of Limited Partnership dated as of September 30, 1991. (2)
C. Investment Advisory Agreement as of May 30, 1990, as amended and restated
on September 30, 1991 and March 7, 1994. (2) (3)
_________________
(1) Incorporated by reference from Exhibit 6.1 to Form 10-Q for quarterly
period ended September 30, 1998.
(2) Incorporated by reference from Form N-2 as filed with the Securities and
Exchange Commission on October 21, 1991 (Registration No. 33-38593).
(3) Incorporated by reference from Registrant's 1998 proxy filed with the
Securities and Exchange Commission on or around April 20, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, there unto duly authorized.
Date: April 14, 1999
RENAISSANCE CAPITAL PARTNERS II, LTD.
(Registrant)
By: __________/s/_______________
Thomas W. Pauken
Liquidation Trustee
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditor's Report F-2
Statements of Assets, Liabilities
and Partners' Equity December 31, 1998 and 1997 F-3
Statements of Investments -
December 31, 1998 and 1997 F-4 through F-7
Statements of Operations -
Years ended December 31, 1998, 1997 and 1996 F-8
Statements of Partners' Equity -
Years ended December 31, 1998, 1997 and 1996 F-9
Statements of Cash Flows -
Years ended December 31, 1998, 1997 and 1996 F-10
Notes to Financial Statements F-11 through F-16
<PAGE>
Independent Auditors' Report
The Partners
Renaissance Capital Partners II, Ltd.:
We have audited the accompanying statements of assets, liabilities and
partners' equity of Renaissance Capital Partners II, Ltd. (a Texas Limited
Partnership), including the statements of investments, as of December 31, 1998
and 1997, and the related statements of operations, partners' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included verification and confirmation of investments owned as of
December 31, 1998 and 1997, by examination of securities held in safekeeping
for the Partnership and correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Renaissance Capital Partners
II, Ltd. as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
February 12, 1999
<PAGE>
<TABLE>
STATEMENTS OF ASSETS, LIABILITIES, AND PARTNER'S EQUITY
DECEMBER 31, 1998 AND 1997
<S> <C> <C>
Assets 1998 1997
___________ ___________
Cash and cash equivalents $ 1,239,015 755,755
Short term investments - 992,400
Investments at fair value, cost of $21,607,598
in 1998 and $22,780,273 in 1997 (note 4) 6,568,982 12,829,070
Interest receivable 103,022 54,140
Other assets 6,396 -
___________ ___________
$ 7,917,415 14,631,365
=========== ===========
Liabilities and Partners' Equity
Liabilities:
Accounts payable $ 41,587 23,943
Accounts payable - affiliate (note 3) 37,596 120,554
___________ ___________
Total liabilities 79,183 144,497
___________ ___________
Partners' equity (note 5):
General partner - (197,969)
Limited partners (outstanding units of
43,254.01 in 1998 and 7,838,232 14,684,837
43,304.01 in 1997)
___________ ___________
Total partners' equity 7,838,232 14,486,868
Commitments and contingencies (notes 3 and 4)
___________ ___________
$ 7,917,415 14,631,365
=========== ===========
Limited partners' equity per limited
partnership unit $ 181 339
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF INVESTMENTS
DECEMBER 31, 1998 AND 1997
<TABLE>
1998
_________________________________________
Interest Due Fair
Rate date Cost Value
_________________________________________
<S> <C> <C> <C> <C>
Eligible Portfolio Investments -
Convertible Debentures and
Notes Receivable (2)
Coded Communications, Corporation -
digital data transmission
equipment manufacturers:
Note receivable (1) 6.00 % 03/01/99 $ 311,060 311,060
Consolidated Health Care
Associates, Inc. - physical
therapy rehabilitation
centers: (1)
Notes receivable 8.00-15.00 Varies 1,182,938 105,736
Protech, Inc. -
telecommunications:
Convertible debenture (1) 10.00 09/30/99 67,500 -
Tricom Corporation -
telecommunications network
construction:
Promissory note (1) - 12/31/99 50,000 -
Tutogen Medical, Inc.
(formerly Biodynamics
International, Inc.) -
specialty surgical products:
Convertible debentures (1) 9.00 11/11/02 2,574,081 5,326,743
_________ _________
4,185,579 5,743,539
_________ _________
</TABLE>
<PAGE>
STATEMENTS OF INVESTMENTS
DECEMBER 31, 1998 AND 1997
<TABLE>
1998
_________________________________________
Fair
Shares Cost Value
_________________________________________
<S> <C> <C> <C>
Eligible Portfolio Investments -
Common and Preferred Stock and
Warrants (2)
Coded Communications, Corporation -
digital data transmission
equipment
Series A convertible preferred 4,445 $ 410,343 -
Series B convertible preferred 46,775 4,244,245 -
Common 1,014,585 517,025 -
Consolidated Health Care Associates,
Inc. - physical therapy
Rehabilitation centers: (1)
Series A preferred 1,195,984 1,195,984 -
Series B preferred 500,000 500,000 -
Common 5,000,000 2,500,000 -
Total Choice, Inc. - premium incentive
fulfillment company:
Preferred 3,000 300,000 -
Common 500 700,000 -
Tricom Corp. -
Telecommunications
network construction:
Common 1,093,955 2,203,600 -
Tutogen Medical, Inc.
(formerly Biodynamics International, Inc.) -
specialty surgical products:
Common 695,110 4,850,822 825,443
Warrants to purchase 547,560 shares
of Tutogen Medical, Inc. 547,560 - -
Warrants to purchase 806,396 shares
of Tutogen Medical, Inc. 806,396 - -
Warrants to purchase 400,000 shares
of Tutogen Medical, Inc. 400,000 - -
__________ __________
17,422,019 825,443
__________ __________
$ 21,607,598 6,568,982
========== ==========
<FN>
(1) Interest or dividend payments under the terms of the convertible
debenture, note receivable or preferred stock were delinquent as of December
31, 1998.
(2) Valued fair value as determined by the Trustee (note 4).
</FN>
</TABLE>
<PAGE>
STATEMENTS OF INVESTMENTS
DECEMBER 31, 1998 AND 1997
<TABLE>
1997
_________________________________________
Interest Due Fair
Rate date Cost Value
_________________________________________
<S> <C> <C> <C> <C>
Eligible Portfolio Investments -
Convertible Debentures and
Notes Receivable (2)
Biodynamics International, Inc. -
specialty surgical products:
Convertible debentures 9.00 % 11/11/02 $ 2,074,081 5,135,547
Coded Communications, Corporation -
digital data transmission
equipment manufacturers:
Note receivable 6.00 03/01/99 311,060 311,060
Consolidated Health Care
Associates, Inc. - physical
therapy rehabilitation
centers: (1)
Notes receivable 8.00 Varies 1,096,553 1,096,553
Scientific Software, Inc. - software
and pipeline monitoring: (1)
Note receivable 7.00 04/30/01 1,500,000 1,000,000
Protech, Inc. -
telecommunications:
Convertible debenture: (1) 10.00 09/30/99 67,500 -
_________ _________
5,049,194 7,543,160
_________ _________
</TABLE>
<PAGE>
STATEMENTS OF INVESTMENTS
DECEMBER 31, 1998 AND 1997
<TABLE>
1997
_________________________________________
Fair
Shares Cost Value
_________________________________________
<S> <C> <C> <C>
Eligible Portfolio Investments -
Common and Preferred Stock and
Warrants (2)
Biodynamics International, Inc. -
specialty surgical products:
Common 547,560 $ 4,654,272 643,383
Warrants to purchase 547,560 shares
of Biodynamics International, Inc. 547,560 - -
Warrants to purchase 806,396
of Biodynamics International, Inc. 806,396 - -
Coded Communications, Corporation -
digital data transmission equipment
manufacturers:
Series A convertible preferred 4,445 410,343 289,949
Series B convertible preferred 46,775 4,244,245 2,998,991
Common 1,014,585 517,025 -
Consolidated Health Care Associates,
Inc. - physical therapy
Rehabilitation centers: (1)
Series A preferred 1,195,984 1,195,984 -
Series B preferred 500,000 500,000 -
Common 5,159,000 2,500,000 -
Scientific Software, Inc. -
Software and pipeline monitoring:
Common 397,218 305,610 49,652
Total Choice, Inc. - premium
Incentive fulfillment company:
Preferred 3,000 300,000 300,000
Common 500 700,000 503,935
Tricom Corp. - telecommunications
network construction: (1)
Series A convertible preferred 21,536 2,153,600 500,000
Common 555,555 250,000 -
__________ __________
17,731,079 5,285,910
__________ __________
$ 22,780,273 12,829,070
========== ==========
<FN>
(1) Interest or dividend payments under the terms of the convertible
debenture, note receivable or preferred stock were delinquent as of December
31, 1997.
(2) Valued at fair value as determined by the General Partners (note 4).
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
1998 1997 1996
__________ _________ _________
<S> <C> <C> <C>
Income:
Interest $ 354,888 745,190 902,771
Dividends 16,217 49,690 34,983
Commitment, closing and management fees 6,102 - 18,000
__________ _________ _________
377,207 794,880 955,754
__________ _________ _________
Expenses (note 3):
General and administrative 349,953 309,042 391,163
Management fees 251,199 411,179 559,571
__________ _________ _________
601,152 720,221 950,734
__________ _________ _________
Operating (loss) income (223,945) 74,659 5,020
__________ _________ _________
Investment loss:
Net unrealized appreciation
(depreciation) on
investments (note 4) (5,087,413) (10,630,309) 1,049,091
Net realized loss on investments (310,834) (550,959) (4,054,232)
__________ _________ _________
Investment loss (5,398,247) (11,181,268) (3,005,141)
__________ _________ _________
Net loss $(5,622,192) (11,106,609) (3,000,121)
========== ========= =========
Limited Partners' share of net loss
$(129.94), $(253.01) and $(68.38)
per unit for 1998, 1997 and
1996, respectively $ (5,622,192) (10,964,650) (2,970,120)
General Partner's share of net loss - (141,959) (30,001)
__________ _________ _________
Net loss $ (5,622,192) (11,106,609) (3,000,121)
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
General Limited
Partner Partner Total
__________ __________ __________
<S> <C> <C> <C>
Balance, December 31, 1995 $ (26,009) 29,698,973 29,672,964
Net loss (30,001) (2,970,120) (3,000,121)
__________ __________ __________
Balance, December 31, 1996 (56,010) 26,728,853 26,672,843
Redemption of 130 limited partnership
units - (79,366) (79,366)
Net loss (141,959) (10,964,650) (11,106,609)
Distributions (note 5) - (1,000,000) (1,000,000)
__________ __________ __________
Balance, December 31, 1997 (197,969) 14,684,837 14,486,868
Redemption of 50 limited partnership
units - (26,444) (26,444)
Net loss - (5,622,192) (5,622,192)
Distributions (note 5) - (1,000,000) (1,000,000)
Dissolution adjustment (note 5) 197,969 (197,969) -
__________ __________ __________
Balance, December 31, 1998 $ - 7,838,232 7,838,232
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF Cash Flows
YEARS ENDED 1998, 1997 AND 1996
<TABLE>
1998 1997 1996
___________ ____________ ____________
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(5,622,192) (11,106,609) (3,000,121)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Net unrealized (appreciation)
depreciation on investments 5,087,413 10,630,309 (1,049,091)
Net realized loss on investments 310,834 550,959 4,054,232
(Increase) decrease in other
assets (6,396) 103,252 197,538
Increase in interest receivable (176,793) (550,599) (351,538)
Increase (decrease) in
accounts payable 17,644 (33,274) 57,217
Decrease in accounts payable -
Affiliate (82,958) (82,808) (16,127)
___________ ____________ ____________
Net cash used in operating
activities (472,448) (488,770) (107,890)
___________ ____________ ____________
Cash flows from investing activities:
Purchase of investments (718,386) (3,131,000) (605,543)
Proceeds from sale of investments 1,708,138 3,773,121 2,267,284
Repayment of principal on
investments - 1,000 651,541
Investments in short term
investments, net 992,400 (992,400) -
___________ ____________ ____________
Net cash provided by (used in)
investing activities 1,982,152 (349,279) 2,313,282
___________ ____________ ____________
Cash flows from financing activities:
Redemption of limited
partnership units (26,444) (79,366) -
Distributions to limited partners (1,000,000) (1,000,000) (138)
___________ ____________ ____________
Net cash used in financing
Activities (1,026,444) (1,079,366) (138)
___________ ____________ ____________
Net increase (decrease) in cash and
cash equivalents 483,260 (1,917,415) 2,205,254
Cash and cash equivalents at
beginning of the year 755,755 2,673,170 467,916
___________ ____________ ____________
Cash and cash equivalents at
end of the year $ 1,239,015 755,755 2,673,170
=========== ============ ============
</TABLE>
Noncash investing transactions:
During 1998, 1997, and 1996, $127,911, $610,616, and $932,746, respectively,
of interest receivable was to convertible debentures, notes receivable or
common stock.
During 1996, the Partnership received 8,333 shares of StarComm Products,
Inc. common stock (value of $30,000) as settlement of foreclosed assets
(included in other assets) with a book value of $66,068.The Partnership
realized a loss of $35,477, net of transaction costs in the accompanying
financial statements on such settlement.
During 1996, the Partnership wrote off its investment in Prism Group,
Inc.The Partnership acquired $200,000 of foreclosed assets in settlement.
The 1995 fourth quarter partnership distributions of $138 were accrued as of
December 31, 1995.
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Business Purpose
Renaissance Capital Partners II, Ltd. (the "Partnership"), a Texas
limited partnership, was formed in 1991. The Partnership offered to sell
units of limited partners' interest ("Units") in the Partnership. Net
contributions of $39,064,847 from sale of Units had been received upon
final closing of the Partnership on March 31, 1993. The Partnership
seeks to achieve current income and capital appreciation potential by
investing primarily in private placement convertible debt investments of
small and medium size companies which are in need of capital and which
the Managing General Partner believes offer the opportunity for growth.
The Partnership has elected to be treated as a business development
company under the Investment Company Act of 1940, ("1940 Act"), as
amended.
On October 1, 1998 the Managing General Partner and the Independent
General Partners agreed to commence liquidation of the Partnership. The
Managing General Partner withdrew from the Partnership and the
Partnership appointed an independent general partner as Liquidation
Trustee (the "Trustee"). The Trustee, pursuant to a Liquidation Trustee
Agreement, assumed all responsibilities and has the authority of the
Managing General Partner. The Partnership will terminate upon
liquidation of all of its investments which is anticipated to occur by
April 2000.
(2) Summary of Significant Accounting Policies
(a) Valuation of Investments
Portfolio investments are stated at quoted market or fair value as
determined by the Trustee in 1998 and by the Managing General Partner
and approved by the Independent General Partners, in 1997 and 1996
(note 4). Most securities held by the Partnership are unregistered
and their value does not necessarily represent the amounts that may
be realized from their immediate sale or disposition.
(b) Statements of Cash Flows
The Partnership considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
(c) Net Income (Loss) per Limited Partnership Unit
Net income (loss) per limited partnership unit is based on the
weighted average number of limited partnership Units outstanding
during the year. The weighted average limited partnership Units
outstanding were 43,266.5 during 1998, 43,336.5 during 1997, and
43,434.01 during 1996.
(d) Federal Income Taxes
In accordance with Federal income tax regulations, no income taxes
are levied in a partnership, but rather on the individual partners.
Consequently, no Federal income taxes have been reflected in the
accompanying financial statements.
(e) Short Term Investments
Short term investments represents a government agency security with a
maturity of less than one year. Such investment was valued at quoted
market value which approximates amortized cost.
(f) Commitment, Closing and Management Fees
Commitment, closing and management fees represent amounts charged to
Eligible Portfolio Companies for commitments to fund additional
amounts under convertible debenture agreements, closing of
convertible debenture agreements and management services provided by
the Managing General Partner to Eligible Portfolio Companies. Such
fees are recognized as income based on the terms of the underlying
convertible debenture agreements and management agreements.
(g) Management Estimates
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial settlements in conformity with generally accepted
accounting principles. Actual results could differ from these
estimates.
(3) Management and Organization Fees
Renaissance Capital Group, Inc. (the "Managing General Partner"), served
as the investment adviser for the Partnership. The Managing General
Partner is registered as an investment adviser under the Investment
Advisers Act of 1940. Pursuant to an Investment Advisory Agreement, the
Managing General Partner performed certain services, including certain
management, investment advisory and administrative services necessary for
the operation of the Partnership. In addition, under this agreement, the
Managing General Partner was reimbursed by the Partnership for certain
administrative expenses. A summary of fees and reimbursements paid by
the Partnership under the Investment Advisory Agreement and the original
offering document are as follows:
* The Managing General Partner received a fee equal to one-half of one
percent (0.5%) of the Net Assets after the initial closing date of the
Partnership and was entitled to receive quarterly fees thereafter
equal to 0.5% of Net Assets, as defined in the Partnership Agreement.
The Partnership incurred, during the years ended December 31, 1998,
1997, and 1996, $251,199, $411,179 and $559,571, respectively, for
such management fees. For the years ended December 31, 1998, 1997,
and 1996, the Managing General Partner elected to calculate the
quarterly fee based on the lesser of contributed capital or Net
Assets. If the Managing General Partner had elected to calculate the
quarterly fee solely based on Net Assets, the fee would have been
approximately $153,000 greater than the cumulative fee charged.
* The Managing General Partner was reimbursed by the Partnership for
administrative expenses incurred by the Managing General Partner on
behalf of the Partnership. Such reimbursements were $99,055, $90,476,
and $176,256 for the years ended December 31, 1998, 1997, and 1996,
respectively, and are included in general and administrative expenses
in the accompanying statements of operations.
Each of the Independent General Partners received a quarterly fee of $.24
per unit for the first 25,000 units and $.12 per unit for all units in
excess of 25,000 and reimbursement of expenses incurred on behalf of the
Partnership. Such amounts totaled $49,283 in 1998 and $65,710 in 1997
and 1996 and are included in general and administrative expenses in the
accompanying statements of operations.
The Trustee receives a monthly fee of $6,000 for services performed in
connection with the liquidation of the Partnership. Such fees totaled
$18,000 in 1998 and are included in general and administrative expenses
in the accompanying statements of operations. Additionally, the Trustee
receives $4,000 monthly as reimbursement for administrative personnel.
All other expenses incurred by the Trustee shall be charged to the
Partnership as they occur.
(4) Investments
The Partnership invests in convertible debentures and other securities of
companies that qualify as Eligible Portfolio Companies as defined in
Section 2(a)(46) of the 1940 Act or in securities that otherwise qualify
for investment as permitted in Section 55(a)(1) through (5) of the 1940
Act. Under the provisions of the 1940 Act, as a business development
company, at least 70% of the Partnership's funds, as defined under the
1940 Act, must be invested in Eligible Portfolio Companies. 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 Trustee at December 31, 1998 and the Managing General
Partner and approved by the Independent General Partners at December 31,
1997.
The debentures and preferred stock held by the Partnership are
convertible, at any time, into the common stock of the issuer at a set
conversion price. The common stock acquired upon exercise of the
conversion feature is generally unregistered and is thinly to moderately
traded, but is not otherwise restricted. The Partnership generally may
register and sell such securities at any time with the Partnership paying
the costs of registration. Interest is generally payable monthly, and
all debentures have sinking fund provisions beginning three to four years
from issue date. The debentures generally have call options, usually
commencing three years subsequent to issuance, at prices specified in the
debenture agreements.
The Partnership Agreement and the original offering document specify that
securities held by the Partnership shall be valued as follows:
* The Managing General Partner will, on a quarterly basis, prepare a
valuation of the Partnership assets, including the investment
portfolio and any other investments.
* 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.
* Initially the investments will be primarily in nonpublicly-traded
convertible debentures, and in other instances the Partnership will
hold restricted securities. Therefore, market quotations will not
always be available for investment valuation. In such cases, the
securities will be valued by the Managing General Partner at estimated
fair value pursuant to the following standards:
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. For securities that are in a class of publicly
traded securities that are restricted from free trading (such as Rule
144 securities), valuation will be established by appropriately
discounting the closing sales or bid price to reflect the illiquidity
caused by such restriction.
Conversely, if the underlying stock has appreciated in value and the
conversion feature justifies a premium value, such premium will of
necessity be recognized. Further, if the known market value of a
stock holding indicates that an appreciated value may be realized on
sale of a restricted stock, such investment may be valued at such
appreciated value regardless of the fact that certain open-market sale
restrictions apply.
* The Managing General Partner, subject to the approval and supervision
of the Independent General Partners, will be responsible for
determining fair value. In the event that the Independent General
Partners do not agree with the valuations established by the Managing
General Partner, they may retain independent firms to review the
Managing General Partner's methodology of valuation or to conduct a
valuation, and such appraisal shall be binding on the Partnership.
Upon commencement of liquidation, the Trustee is responsible for
determining fair value in a manner similar to the process detailed above.
As of December 31, 1998 and 1997, the Partnership held Eligible Portfolio
Investments with a market or fair value, as determined in good faith by
the Trustee at December 31, 1998 and the Managing General Partner and
approved by the Independent General Partners at December 31, 1997, of
$6,568,982 and $12,829,070, respectively. Such values were determined
using the methodology noted above. The valuation methods specifically
include the following.
* Original cost
* Quoted market value
* The quoted market value of the underlying class of common stock that
the convertible debt or preferred stock may be converted into, less
estimated costs to sell and register the common stock
* Original cost less a valuation reserve for collectibility concerns
The financial statements include investments valued at $6,568,982 (83% of
total assets) and $12,829,070 (88% of total assets) as of December 31,
1998 and 1997, respectively, whose values have been estimated by the
Trustee at December 31, 1998 and by the Managing General Partner and
approved by the Independent General Partners at December 31, 1997, 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
securities existed, and the differences could be material.
As of December 31, 1998 and 1997, the net unrealized depreciation
associated with investments held by the Partnership was ($15,038,616) and
($9,951,203), respectively.
(5) Partners' Equity
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 in the Partnership Agreement, are allocated 1% to
the Managing General Partner and 99% to the Limited Partners, except
prior to the initial closing date when all items were allocated 99% to
the Managing General Partner and 1% to the Initial Limited Partner.
All items of net gain of the Partnership resulting from a Capital
Transaction, defined in the Partnership Agreement as a sale or
disposition of any portfolio investment (defined under the 1940 Act), are
allocated such that first the Limited Partners receive a cumulative
simple annual return of 10% on their gross capital contributions and any
remaining capital gains (net of capital losses and unrealized
depreciation) are allocated 20% to the Managing General Partner and 80%
to the Limited Partners. All items of net capital loss resulting from
Capital Transactions are allocated 1% to the Managing General Partner and
99% to the Limited Partners. As of December 31, 1997, and 1996, the net
unrealized appreciation or depreciation was allocated 99% to the Limited
Partners. If the investments in convertible debentures had been disposed
of at their estimated fair values, as determined by the Managing General
Partner and approved by the Independent General Partners, there would
have been no additional allocation to the Managing General Partner under
the terms of the Partnership Agreement and Investment Advisory Agreement.
In 1998 upon commencement of liquidation and withdrawal of the Managing
General Partner, the General Partner's deficit balance was reallocated to
the Limited Partners pursuant to the terms of the Partnership Agreement.
Distributions to the Limited Partners were made at the discretion of the
Managing General Partner, in accordance with the Partnership Agreement.
As a result of decreasing cash resources in 1996, the distributions to
the limited partners were discontinued. As the Partnership's investments
were liquidated or other cash resources were obtained, the Partnership
reinstated such payments in whole or in part during 1997 and 1998 based
upon Capital Transactions and the cash resources available. In addition,
the Managing General Partner had the discretion to discontinue payment of
the management fees or expense reimbursements if cash resources were
further limited.
Upon commencement of liquidation, distributions are made at the
discretion of the Trustee.
41
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 21607598
<INVESTMENTS-AT-VALUE> 6568982
<RECEIVABLES> 103022
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1245411
<TOTAL-ASSETS> 7917415
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79183
<TOTAL-LIABILITIES> 79183
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38899583
<SHARES-COMMON-STOCK> 43254
<SHARES-COMMON-PRIOR> 43304
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3925834
<ACCUMULATED-NET-GAINS> (12206079)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (15038616)
<NET-ASSETS> 7838232
<DIVIDEND-INCOME> 16217
<INTEREST-INCOME> 354888
<OTHER-INCOME> 0
<EXPENSES-NET> 601152
<NET-INVESTMENT-INCOME> (223945)
<REALIZED-GAINS-CURRENT> (310834)
<APPREC-INCREASE-CURRENT> (5087413)
<NET-CHANGE-FROM-OPS> (5622192)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1000000
<NUMBER-OF-SHARES-SOLD> 0
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</TABLE>
