<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999 Commission file number 0-18042
COMMUNITY INVESTMENT PARTNERS II, L.P.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1609351
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12555 Manchester Road
St. Louis, Missouri 63131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 515-2000
-------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports, and (2)
has been subject to such filing requirements for the past 90
days. YES X NO
--- ---
1
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COMMUNITY INVESTMENT PARTNERS II, L.P.
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Schedule of Portfolio Investments 3
Statement of Financial Condition 7
Statement of Income 8
Statement of Cash Flows 9
Statement of Changes in Partnership Capital 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. OTHER INFORMATION <F*>
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 17
[FN]
<F*>Items 2,3,4 and 5 are omitted as they are not applicable
2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
COMMUNITY INVESTMENT PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
AS OF JUNE 30, 1999
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Company Nature of Business
Initial Investment Date Investment Cost Fair Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HAWK CORPORATION Designs, engineers, manufactures,
(Houghton Acquisition and markets friction products and precision
Corporation) engineered components
8% Contingent EBITDA
Promissory Note, due 4/30/00 - -
GLOBAL SURGICAL Formed to acquire the Urban Microscope
CORPORATION Division and the Surgical Mechanical
Research subsidiary of Storz Medical
January 31, 1994 3,000 shares of Common Stock 300,000 300,000
June 30, 1995 7% Promissory Note, due 6/29/00 45,000 45,000
January 26, 1996 7% Promissory Note, due 1/25/01 67,500 67,500
COMPUTER MOTION, INC. Develops and supplies medical robotics
(RBOT)
September 6, 1996 40,948 warrants to purchase
common stock, exercisable at
$4.569 per warrant through 5/2/03 8 8
September 6, 1996 16,208 shares of Common Stock 124,993 165,119
16,209 warrants to purchase
common stock, exercisable at
$7.712 per warrant, through 12/31/03 250 250
FCOA ACQUISITION A chain of greeting card/
CORPORATION party stores which offer
(d/b/a Factory Card a full line of products at
Outlet) (FCPY) everyday value prices
July 30, 1996 26,063 Common Shares 249,865 -
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
3
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<CAPTION>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY INVESTMENT PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONT'D.)
AS OF JUNE 30, 1999
- ------------------------------------------------------------------------------------------------------
Company Nature of Business
Initial Investment Date Investment Cost Fair Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PERMALOK CORPORATION Develops and sells steel pipe joining
system to the domestic underground utility
construction industry
September 24, 1996 25,000 shares of Convertible
Preferred Stock $200,000 $200,000
Warrant to purchase 25,000 shares
of Convertible Preferred Stock,
exercisable at $9.60 per share,
through 7/31/03
STEREOTAXIS, INC. Develops and markets a system by which
surgery can be conducted remotely using
computer controlled magnets
December 30, 1996 138,889 shares of Series B
Preferred Stock 100,000 100,000
November 12, 1997 28,019 shares of Series C Preferred
Stock and warrants to purchase
Preferred Stock at $1.50 per share,
through 10/31/02 42,029 42,029
June 26, 1998 66,667 shares of Series C
Preferred Stock 100,001 100,001
MEDICAL DEVICE Specializes in the development,
ALLIANCE, INC. manufacture and marketing of
devices for ultrasound-assisted lipoplasty
January 24, 1997 20,000 shares of Common Stock 100,000 100,000
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
4
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<CAPTION>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY INVESTMENT PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONT'D.)
AS OF JUNE 30, 1999
- ------------------------------------------------------------------------------------------------------
Company Nature of Business
Initial Investment Date Investment Cost Fair Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ONLINE RESOURCES & Provides a variety of inter-
COMMUNICATIONS active banking and financial services
CORPORATION to end-users and corporate
customers in the banking and
financial services industry
March 17, 1997 18,118 shares of common stock 152,466 245,726
Warrants to purchase
7,233 shares of Common
Stock at $8.43 per share,
expiring 6/1/02 - -
ADVANCED UROSCIENCE, Developing Acyst, an injectable
INC. bulking agent, for the treatment
of stress urinary incontinence.
April 7, 1997 25,000 shares of Series A
Preferred Stock 100,000 100,000
NEOCRIN COMPANY Research and development
of minimally invasive,
encapsulated cellular transplants
for the treatment of diabetes.
September 3, 1997 50,000 shares of Series E
Preferred Stock 100,000 100,000
April 23, 1999 3,000 shares of Series F
Preferred Stock 6,000 6,000
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
5
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<CAPTION>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY INVESTMENT PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONT'D.)
AS OF JUNE 30, 1999
- ------------------------------------------------------------------------------------------------------
Company Nature of Business
Initial Investment Date Investment Cost Fair Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BIOSEPARATIONS, INC. Develops automated instrumentation
that can isolate and process cells for
use in biotechnology, diagnostic,
therapeutic, and clinical research applications
October 14, 1997 50,000 shares of Series B
Preferred Stock 100,000 100,000
Warrant to purchase 9,091 shares
of Common Stock at $1.10 per
share, through 10/15/02 - -
Warrant to purchase 50,000 shares
of Series B Preferred Stock at $0.20
per share, through 1/31/01 - -
---------- ----------
$1,788,112 $1,671,633
========== ==========
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The accompanying notes are an integral part of these financial statements.
</TABLE>
6
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
COMMUNITY INVESTMENT PARTNERS II, L.P.
STATEMENT OF FINANCIAL CONDITION
<CAPTION>
Unaudited
June 30, December 31,
1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
------
Investments at Fair Value
(cost $1,788,112 and $1,807,912, respectively) $1,671,633 $1,671,491
Cash and Cash Equivalents 26,479 26,598
Accrued Interest and Dividends Receivable 28,742 25,322
---------- ----------
TOTAL ASSETS $1,726,854 $1,723,411
========== ==========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
Liabilities:
Accounts Payable and Accrued Expenses $ 7,120 $ 14,000
---------- ----------
TOTAL LIABILITIES 7,120 14,000
---------- ----------
Partnership Capital:
Capital - Limited Partners 1,702,418 1,692,198
Capital - General Partners 17,316 17,213
---------- ----------
TOTAL PARTNERSHIP CAPITAL 1,719,734 1,709,411
---------- ----------
TOTAL LIABILITIES AND
PARTNERSHIP CAPITAL $1,726,854 $1,723,411
========== ==========
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The accompanying notes are an integral part of these financial statements.
</TABLE>
7
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
COMMUNITY INVESTMENT PARTNERS II, L.P.
STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME
------
Dividend and Interest Income $ 1,969 $ 3,441 $ 3,949 $ 7,315
------- -------- -------- --------
TOTAL INCOME 1,969 3,441 3,949 7,315
------- -------- -------- --------
EXPENSES
--------
Professional Fees 6,441 10,394 12,655 14,490
Management Fees -- 7,233 -- 14,325
Independent General Partners' Fees -- 1,000 -- 2,000
------- -------- -------- --------
TOTAL EXPENSES 6,441 18,627 12,655 30,815
------- -------- -------- --------
Net (Loss) before Realized Gains and
Unrealized (Losses) and Gains (4,472) (15,186) (8,706) (23,500)
Net Realized Gains on
Sale of Investments -- -- (913) --
Net Unrealized Gains (Losses) on
Investments 96,299 (71,479) 19,942 48,665
------- -------- -------- --------
NET INCOME (LOSS) $91,827 $(86,665) $ 10,323 $ 25,165
======= ======== ======== ========
Per Unit Information:
Net Income (Loss) $ .81 $ (.77) $ .09 $ .22
======= ======== ======== ========
Net Asset Value (as of June 30, 1999
and December 31, 1998) $ 15.28 $ 15.19
======== ========
Units Outstanding:
Limited Partners 111,395 111,395
General Partners 1,135 1,135
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The accompanying notes are an integral part of these financial statements.
</TABLE>
8
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
COMMUNITY INVESTMENT PARTNERS II, L.P.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30, 1999 June 30, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS (USED) PROVIDED BY
OPERATING ACTIVITIES:
Net Income $ 10,323 $ 25,165
Adjustments to reconcile Net Income to Net
Cash Used by Operating Activities -
Decrease in Accrued Expenses (6,880) (9,159)
Increase in Accrued Interest and
Dividends Receivable (3,420) (2,410)
Purchase of Portfolio Investments (6,000) (102,421)
Sale of Portfolio Investments 24,887 51,600
Unrealized Gains on Portfolio Investments (19,942) (48,665)
Net Realized Losses on Sale of Portfolio Investments 913 --
-------- ---------
Total Cash Used by Operating Activities $ (119) $ (85,890)
CASH AND EQUIVALENTS, beginning of period 26,598 112,496
-------- ---------
CASH AND EQUIVALENTS, end of period $ 26,479 $ 26,606
======== =========
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The accompanying notes are an integral part of these financial statements.
</TABLE>
9
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
COMMUNITY INVESTMENT PARTNERS II, L.P.
STATEMENT OF CHANGES IN PARTNERSHIP CAPITAL
(UNAUDITED)
<CAPTION>
Six Months Ended June 30, 1999 and 1998
Limited Partners General Partners Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1997 $1,830,287 $18,608 $1,848,895
Net Income 24,913 252 25,165
---------- ------- ----------
Balance, June 30, 1998 $1,855,200 $18,860 $1,874,060
========== ======= ==========
Balance, December 31, 1998 $1,692,198 $17,213 $1,709,411
Distribution -- -- --
Net Income 10,220 103 10,323
---------- ------- ----------
Balance, June 30, 1999 $1,702,418 $17,316 $1,719,734
========== ======= ==========
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The accompanying notes are an integral part of these financial statements.
</TABLE>
10
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY INVESTMENT PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
Community Investment Partners II, L.P. (CIP II) is a limited
partnership which has elected to be a business development company under
the Investment Company Act of 1940, as amended. As a business
development company, the partnership is required to invest at least 70%
of its total assets in qualifying investments as specified in the
Investment Company Act. CIP Management, L.P., LLLP (Management), a
limited liability limited partnership, is the Managing General Partner
of CIP II. Management is responsible for making all decisions regarding
CIP II's investment portfolio. CIP II is no longer making initial
investments, but may increase existing holdings.
All portfolio investments are carried at cost until significant
developments affecting an investment provide a basis for revaluation.
Thereafter, portfolio investments are carried at fair value as obtained
from outside sources or at a value determined quarterly by the Managing
General Partner under the supervision of the Independent General
Partners. Due to the inherent uncertainty of valuation, those estimated
values for portfolio investments carried at cost may differ
significantly from the values that would have been used had a ready
market for the investment existed, and the differences could be material
to the financial statements. Investments in securities traded on a
national securities exchange are valued at the latest reported sales
price on the last business day of the period. If no sale has taken
place, the securities are valued at the last bid price. If no bid price
has been reported, or if no exchange quotation is available, the
securities are valued at the quotation obtained from an outside broker.
Investment transactions are recorded on a trade date basis. Income is
recorded on an accrual basis.
The General Partners of CIP II, have amended, and Management has
agreed to amend, the Management Agreement for CIP II to clarify the
right of Management to waive all or any portion of the management fee
from time to time without any reduction in the level of services.
11
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Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
COMMUNITY INVESTMENT PARTNERS II, L.P.
MANAGEMENT'S FINANCIAL DISCUSSION
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1999 VERSUS QUARTER ENDED JUNE 30, 1998
Net income for the three months ended June 30, 1999 was $91,827,
compared to a net loss of $86,665 for the three months ended June 30,
1998. Income for the three months ended June 30, 1999 is comprised of
$1,969 interest income and an unrealized gain on investments in the
amount of $96,299, primarily the result of an increase in the share
price of Online Resources and Communications Corporation common stock.
Interest income decreased approximately 57% from 1998, due to the
repayment of Hawk Corporation promissory notes.
Expenses for the three months ended June 30, 1999 were $6,441, a
decrease of $12,186 from the same period in 1998. The decrease in
expenses related to the termination of the directors' fee, waiving of
management fees, and lower other professional expenses. Directors' fees
were discontinued after the second quarter of 1998 due to the fact that
initial investments were no longer being made. The Management Agreement
was amended after the second quarter of 1998 to waive the annual
management fee.
The June 30, 1999 unrealized loss on investments was $116,479. The
unrealized loss consisted of a $93,259 unrealized gain on online
Resources and Communications Corporation, a $40,126 unrealized gain on
Computer Motion, Inc., and a $249,864 unrealized loss on FCOA
Acquisition Corp., which declared bankruptcy in the first quarter of
1999. The future income or loss of the Partnership is contingent upon
the performance of the portfolio investments and the ability to find
suitable investment alternatives.
SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS ENDED JUNE 30, 1997
Net income for the six months ended June 30, 1999 and 1998 was
$10,323 and $25,165, respectively. The decrease in net income is
attributable to lower unrealized gains on investments for the period
ended June 30, 1999, compared to the same period in 1998.
Dividend and interest income decreased 46%, or $3,366 from the six
months ended June 30, 1998 due to the repayment of Hawk Corporation
promissory notes. Expenses decreased $18,162 (59%) compared to the six
month period ended June 30, 1998 as a result of decreased professional
expenses, mainly directors' fees and management fees.
On May 22, 1999, Online Resources and Communications Corporation
issued a 2.81 reverse stock split. The company also completed a public
offering in early June 1999. As a result, the 1,515 shares of Series C
convertible preferred stock were automatically converted to 18,118
shares of common stock. The warrants previously held now entitle the
Company to purchase 7,233 shares of common stock at the price of $8.43
per share. The warrants are valid through June 1, 2002, when they
expire.
12
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Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
INVESTMENT TRANSACTIONS
Following is a summary of portfolio investment transactions during the
period ended June 30, 1999.
<TABLE>
<CAPTION>
Type of Realized
Company Transaction Cost Proceeds Gain (Loss)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES:
- ------
Quarter 1 ended:
- ----------------
Hawk Corp. (Houghton Payment of
Acquisition Corp.) Term Note $25,800 $24,887 $(913)
------- ------- -----
Total Sales $25,800 $24,887 $(913)
======= ======= =====
PURCHASES:
- ----------
Quarter 2 ended:
- ----------------
BioSeparations, Inc. Purchase of Series
F Preferred Stock $ 6,000
-------
Total Purchases $ 6,000
=======
</TABLE>
In addition to the above transactions, the 1,525 shares of Online
Resources and Communications Corporation Series C Convertible Preferred
Stock previously held underwent a 2.81 reverse stock split and were
converted in 18,118 shares of common stock in conjunction with a public
offering. The Partnership now hold warrants to purchase 7,233 shares of
common stock, exercisable at $8.43 until June 1, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The partnership's total capital of $1,719,734 as of June 30, 1999,
consisted of $1,702,418 in limited partner capital and $17,316 in
general partner capital. Net income was allocated to the limited
partners in the amount of $10,220 and to the general partners in the
amount of $103.
At June 30, 1999, the Partnership had $26,479 in cash and cash
equivalents.
SUBSEQUENT EVENTS
There were no subsequent events.
13
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<PAGE>
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
YEAR 2000 ISSUE
Although the Partnership has no Year 2000 issues that would result
from its own information systems, the Partnership has investments in
publicly and privately placed securities and loans. The Partnership may
be exposed to credit risk to the extent that the related borrowers are
materially adversely impacted by the Year 2000 issue.
14
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Part II. OTHER INFORMATION
COMMUNITY INVESTMENT PARTNERS II, L.P.
Item 1: Legal Proceedings
The partnership is not a party to any material pending legal
proceedings.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports were filed on Form 8-K for the quarter ended June 30,
1999.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMMUNITY INVESTMENT PARTNERS II, L.P.
By: CIP Management, L.P., LLLP, Managing General Partner
By: CIP Management, Inc., its Managing General Partner
<TABLE>
<S> <C> <C>
/s/ Daniel A. Burkhardt President, Treasurer and Director August 13, 1999
- -----------------------------
Daniel A. Burkhardt
/s/ Ray L. Robbins, Jr. Vice-President and Director August 13, 1999
- -----------------------------
Ray L. Robbins, Jr.
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for Community Investment Partners II, L.P. for the
quarter ended June 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 1,788,112
<INVESTMENTS-AT-VALUE> 1,671,633
<RECEIVABLES> 28,742
<ASSETS-OTHER> 26,479
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,726,854
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,120
<TOTAL-LIABILITIES> 7,120
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 112,530
<SHARES-COMMON-PRIOR> 112,530
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,719,734
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,949
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> (913)
<APPREC-INCREASE-CURRENT> 19,942
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,655
<AVERAGE-NET-ASSETS> 1,714,573
<PER-SHARE-NAV-BEGIN> 15.19
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.28
<EXPENSE-RATIO> 0
</TABLE>
