-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NV0IsIT/aWYM1xJSJakS0iYIBYFRaa1BkgGR5Cp3eGDa9QFDz3pAcGYDbTmSY7Va vM51ZQFkiFdBge4N2nQIHQ== 0000789538-95-000008.txt : 19951119 0000789538-95-000008.hdr.sgml : 19951119 ACCESSION NUMBER: 0000789538-95-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ML VENTURE PARTNERS II LP CENTRAL INDEX KEY: 0000789538 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133324232 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 814-00043 FILM NUMBER: 95591680 BUSINESS ADDRESS: STREET 1: WORLD FINANCIAL CTR N TOWER STREET 2: 25TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10281-1330 BUSINESS PHONE: 2124491000 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 1995 Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 0-14217 ML VENTURE PARTNERS II, L.P. ================================================================================ (Exact name of registrant as specified in its charter) Delaware 13-3324232 ================================================================================ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) World Financial Center, North Tower New York, New York 10281-1327 ================================================================================ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 449-1000 Not applicable ================================================================================ Former name, former address and former fiscal year, if changed since last report 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 ML VENTURE PARTNERS II, L.P. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Balance Sheets as of September 30, 1995 (Unaudited) and December 31, 1994 Schedule of Portfolio Investments as of September 30, 1995 (Unaudited) Statements of Operations for the Three and Nine Months Ended September 30, 1995 and 1994 (Unaudited) Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 (Unaudited) Statement of Changes in Partners' Capital for the Nine Months Ended September 30, 1995 (Unaudited) Notes to Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Item 2. Changes in Securities. Item 3. Defaults upon Senior Securities. Item 4. Submission of Matters to a Vote of Security Holders. Item 5. Other Information. Item 6. Exhibits and Reports on Form 8-K. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. ML VENTURE PARTNERS II, L.P. BALANCE SHEETS September 30, 1995 December 31, (Unaudited) 1994 ASSETS Investments - Note 2 Portfolio investments, at fair value (cost $40,619,365 at September 30, 1995 and $52,936,366 at December 31, 1994) $ 68,940,427 $ 75,400,208 Short-term investments, at amortized cost 44,359,910 6,935,099 Cash and cash equivalents 536,375 638,868 Deposit in escrow 218,233 - Accrued interest receivable 793,539 563,815 Notes receivable - 250,656 Receivable from securities sold 3,072,677 7,655 ------------------ ----------------- TOTAL ASSETS $ 117,921,161 $ 83,796,301 ================== ================= LIABILITIES AND PARTNERS' CAPITAL Liabilities: Cash distribution payable - Note 7 $ 32,001,136 $ - Accounts payable 42,345 43,472 Due to Management Company - Note 4 295,890 325,000 Due to Independent General Partners - Note 5 23,400 25,350 ------------------ ----------------- Total liabilities 32,362,771 393,822 ------------------ ----------------- Partners' Capital: Managing General Partner 3,301,387 2,191,479 Individual General Partners 1,797 3,917 Limited Partners (120,000 Units) 53,934,144 58,743,241 Unallocated net unrealized appreciation of investments - Note 2 28,321,062 22,463,842 ------------------ ----------------- Total partners' capital 85,558,390 83,402,479 ------------------ ----------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 117,921,161 $ 83,796,301 ================== =================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) September 30, 1995 Active Portfolio Investments: Initial Investment Company / Position Date Cost Fair Value Biocircuits Corporation*(A) 515,269 shares of Common Stock May 1991 $ 1,422,501 $ 682,577 2,000,000 shares of Preferred Stock 1,000,000 1,000,000 Warrants to purchase 1,207,062 shares of Preferred Stock at $.60 per share, exercisable after 12/1/95 and expiring 12/18/96 0 0 - ------------------------------------------------------------------------------------------------------------------------------- Borg-Warner Automotive, Inc.*(A) 444,664 shares of Common Stock Sept. 1988 2,223,320 10,313,426 - ------------------------------------------------------------------------------------------------------------------------------- Borg-Warner Security Corporation*(A) 500,000 shares of Common Stock Sept. 1988 2,500,000 3,243,750 - ------------------------------------------------------------------------------------------------------------------------------- CellPro, Incorporated(A)(B) 64,333 shares of Common Stock Mar. 1989 119,573 724,550 - ------------------------------------------------------------------------------------------------------------------------------- Clarus Medical Systems, Inc.* 895,152 shares of Preferred Stock Jan. 1991 2,389,168 895,152 Warrants to purchase 20,238 shares of Common Stock at $3.75 per share, expiring on 7/31/97 0 0 Warrants to purchase 70,203 shares of Common Stock at $.01 per share, expiring between 3/7/00 and 7/3/00 0 0 Warrants to purchase 14,127 shares of Preferred Stock at $1.00 per share, expiring on 3/7/00 0 0 - ------------------------------------------------------------------------------------------------------------------------------- Corporate Express, Inc.*(A)(C) 559,503 shares of Common Stock May 1992 1,064,481 9,257,872 - ------------------------------------------------------------------------------------------------------------------------------- Diatech, Inc.* 1,349,508 shares of Preferred Stock Dec. 1991 2,986,023 4,454,528 - ------------------------------------------------------------------------------------------------------------------------------- Elantec, Inc.(D) 2,889,947 shares of Preferred Stock Aug. 1988 1,069,569 1,362,585 852,273 shares of Common Stock 340,909 216,027 - ------------------------------------------------------------------------------------------------------------------------------- Home Express, Inc.* 486,067 shares of Preferred Stock June 1992 1,822,751 2,303,957 - ------------------------------------------------------------------------------------------------------------------------------- Horizon Cellular Telephone Company, L.P.: HCTC Investment, L.P. 10% Promissory Note due 3/26/98 May 1992 2,587,500 2,587,500 SPTHOR Corporation 10% Promissory Note due 3/26/98 May 1992 646,875 646,875 34.5 shares of Common Stock 215,625 215,625 - ------------------------------------------------------------------------------------------------------------------------------- I.D.E. Corporation* 493,391 shares of Preferred Stock Mar. 1988 1,110,909 555,455 - -------------------------------------------------------------------------------------------------------------------------------
ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued September 30, 1995 Initial Investment Company / Position Date Cost Fair Value IDEC Pharmaceuticals Corporation(A)*: ML/MS Associates, L.P.* 34.4% Limited Partnership interest June 1989 $ 3,960,000 $ 3,770,609 MLMS Cancer Research, Inc.* 400,000 shares of Common Stock July 1989 46,957 38,087 - ------------------------------------------------------------------------------------------------------------------------------- Inference Corporation(A)(E) 214,424 shares of Common Stock Apr. 1993 794,065 1,945,898 Brightware, Inc. 140,485 shares of Common Stock Apr. 1993 100,000 100,000 Warrants to purchase 38,736 shares of Common Stock at $5 per share, expiring on 4/19/99 0 0 Warrants to purchase 4,846 shares of Common Stock at $5.25 per share, expiring on 12/16/97 0 0 Warrants to purchase 59,165 shares of Common Stock at $5 per share, expiring on 6/10/98 0 0 - ------------------------------------------------------------------------------------------------------------------------------- Ligand Pharmaceuticals Inc.*(A)(F) 427,275 shares of Common Stock Apr. 1989 1,044,663 2,927,027 Warrants to purchase 3,167 shares of Common Stock at $7.22 per share to $9.60 per share, expiring between 5/31/97 and 7/31/97 0 0 - ------------------------------------------------------------------------------------------------------------------------------- Neocrin Company 447,418 shares of Preferred Stock June 1991 4,019,306 2,237,090 Warrants to purchase 13,005 shares of Preferred Stock at $5.00 per share, expiring on 1/20/96 130 130 - ------------------------------------------------------------------------------------------------------------------------------- OccuSystems, Inc.(A)(G) 403,864 shares of Common Stock June 1993 2,019,320 4,210,282 - ------------------------------------------------------------------------------------------------------------------------------- Photon Dynamics, Inc.* 1,222,828 shares of Preferred Stock Sept. 1988 2,452,226 1,435,181 - ------------------------------------------------------------------------------------------------------------------------------- Raytel Medical Corporation* 1,250,000 shares of Preferred Stock Feb. 1990 1,483,278 2,483,278 Options to purchase 55,938 shares of Preferred Stock at $.71 per share, expiring on 10/31/01 0 72,160 - ------------------------------------------------------------------------------------------------------------------------------- Sanderling Biomedical, L.P.*(H) 80% Limited Partnership interest May 1988 1,838,639 3,264,931 - ------------------------------------------------------------------------------------------------------------------------------- SDL, Inc.*(A)(I) 379,155 shares of Common Stock July 1992 999,015 6,805,579 - ------------------------------------------------------------------------------------------------------------------------------- Viasoft, Inc.(A)(J) 113,795 shares of Common Stock Dec. 1987 362,562 1,190,296 - ------------------------------------------------------------------------------------------------------------------------------- Totals from Active Portfolio Investments $ 40,619,365 $ 68,940,427 ---------------------------------
ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued September 30, 1995 Supplemental Information: Liquidated Portfolio Investments(L) Cost Realized Gain Return Totals from Liquidated Portfolio Investments(K) $ 74,666,239 $ 49,233,544 $ 123,899,783 ====================================================== Combined Net Combined Unrealized and Fair Value Cost Realized Gain and Return Totals from Active & Liquidated Portfolio Investments $ 115,285,604 $ 77,554,606 $ 192,840,210 ======================================================
(A) Public company (B) In July and August 1995, the Partnership sold 252,000 common shares of CellPro, Incorporated for $3.8 million, realizing a gain of $3.3 million. (C) In July and September 1995, the Partnership sold 303,196 common shares of Corporate Express, Inc. for $6.8 million, realizing a gain of $5.3 million. (D) Subsequent to the end of the quarter, on October 11, 1995, Elantec, Inc. completed its initial public offering at $7 per share. In connection with the offering and a 10-for-1 reverse split of its outstanding common stock, the Partnership exchanged its 2,889,947 preferred shares and 852,273 common shares of Elantec for 374,222 common shares of the company. Additionally, the Partnership sold 130,976 of its post-split shares for $853,000, realizing a gain of $329,000. (E) During the quarter, in a non-cash transaction, the Partnership exchanged its warrants to purchase 102,747 shares of Inference Corporation common stock for 73,939 shares of common stock. (F) In September 1995, the Partnership sold 75,000 shares of Ligand Pharmaceuticals Inc. common stock for $731,000, realizing a gain of $549,000. Additionally, the Partnership exercised warrants to purchase 2,417 shares of Ligand common stock for $10,719. (G) In September 1995, the Partnership sold 100,966 shares of OccuSystems, Inc. common stock for $2.1 million, realizing a gain of $1.6 million. (H) During the quarter, the Partnership received 67,747 shares of Regeneron Pharmaceuticals, Inc. common stock resulting from an in-kind distribution made by Sanderling Biomedical, L.P. The Partnership sold such shares during the quarter for $1.1 million, realizing a gain of $907,000. (I) In August 1995, the Partnership sold 40,000 shares of SDL, Inc. common stock for $1.4 million, realizing a gain of $1.4 million. (J) In July 1995, the Partnership sold 113,500 common shares of Viasoft, Inc. for $1.5 million, realizing a gain of $1.2 million. (K) During the quarter, the Partnership sold its 92,843 shares of Eckerd Corporation for $2.9 million, realizing a gain of $2 million and sold its 516,895 shares of Regeneron Pharmaceuticals, Inc. for $6.3 million, realizing a gain of $5.7 million. (L) Amounts provided for "Supplemental Information: Liquidated Portfolio Investments" are cumulative from inception through September 30, 1995. * May be deemed an affiliated person of the Partnership as such term is defined in the Investment Company Act of 1940. See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ---------------- -------------- --------------- --------- INVESTMENT INCOME AND EXPENSES Income: Interest from short-term investments $ 449,361 $ 52,980 $ 807,456 $ 289,791 Interest and other income from portfolio investments 81,236 132,950 293,483 607,840 Dividend income 66,700 150,000 200,100 212,500 ---------------- -------------- --------------- --------------- Totals 597,297 335,930 1,301,039 1,110,131 -------------------------- ----------- -------------- ------------- Expenses: Management fee - Note 4 295,890 327,041 913,317 1,008,363 Professional fees 85,870 60,078 222,113 279,142 Mailing and printing 17,418 30,373 182,796 190,912 Independent General Partners' fees - Note 5 23,761 22,190 78,907 66,271 Custodial fees 3,710 3,289 10,752 10,727 Miscellaneous 87 - 572 1,275 ---------------- -------------- --------------- --------------- Totals 426,736 442,971 1,408,457 1,556,690 ----------------- ----------- -------------- ------------- NET INVESTMENT INCOME (LOSS) 170,561 (107,041) (107,418) (446,559) Net realized gain from portfolio investments 21,959,347 1,331,614 39,641,434 15,726,948 ---------------- -------------- --------------- --------------- NET REALIZED GAIN FROM OPERATIONS (allocable to Partners) 22,129,908 1,224,573 39,534,016 15,280,389 Net change in unrealized appreciation of investments (6,225,913) 6,891,653 5,857,220 (24,210,326) ---------------- -------------- --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 15,903,995 $ 8,116,226 $ 45,391,236 $ (8,929,937) ================ ============== =============== ===============
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended September 30, 1995 1994 ---------------- ---------- CASH FLOWS USED FOR OPERATING ACTIVITIES Net investment loss $ (107,418) $ (446,559) Adjustments to reconcile net investment loss to cash used for operating activities: (Increase) decrease in accrued interest and notes receivable 20,932 (429,282) Increase in accrued interest on short-term investments (309,444) (8,794) Increase (decrease) in payables (32,187) 43,762 ---------------- ---------------- Cash used for operating activities (428,117) (840,873) ---------------- ---------------- CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES Purchase of short-term investments (37,115,367) (735,830) Cost of portfolio investments purchased (2,175,224) (909,776) Deposit placed in escrow (218,233) - Net proceeds from the sale of portfolio investments 49,048,916 19,408,535 Proceeds from repayment of note 2,019,721 - ---------------- ---------------- Cash provided from investing activities 11,559,813 17,762,929 ---------------- ---------------- CASH FLOWS USED FOR FINANCING ACTIVITIES Cash distributions to Partners - Note 7 (11,234,189) (17,600,000) ---------------- ---------------- Decrease in cash and cash equivalents (102,493) (677,944) Cash and cash equivalents at beginning of period 638,868 1,412,882 ---------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 536,375 $ 734,938 ================ ================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED) For the Nine Months Ended September 30, 1995 Unallocated Managing Individual Net Unrealized General General Limited Appreciation of Partner Partners Partners Investments Total Balance at beginning of period $ 2,191,479 $ 3,917 $ 58,743,241 $ 22,463,842 $ 83,402,479 Cash distribution, paid April 11, 1995 (2,231,929) (2,260) (9,000,000) - (11,234,189) Accrued cash distribution, payable October 5, 1995 (5,000,236) (900) (27,000,000) - (32,001,136) Net investment loss 96,655 (7) (204,066) - (107,418) Net realized gain from portfolio investments 8,245,418 1,047 31,394,969 - 39,641,434 Net change in unrealized appreciation of investments - - - 5,857,220 5,857,220 ------------- -------- -------------- -------------- ---------------- Balance at end of period $ 3,301,387 $ 1,797 $ 53,934,144(A) $ 28,321,062 $ 85,558,390 ============= ======== ============== ============== ================
(A) The net asset value per unit of limited partnership interest, including an assumed allocation of net unrealized appreciation of investments, was $636 at September 30, 1995. Cumulative cash distributions paid, or payable, to Limited Partners from inception to September 30, 1995 totaled $790 per Unit. See notes to financial statements. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. Organization and Purpose ML Venture Partners II, L.P. (the "Partnership") is a Delaware limited partnership formed on February 4, 1986. MLVPII Co., L.P., the managing general partner of the Partnership (the "Managing General Partner") and four individuals (the "Individual General Partners") are the general partners of the Partnership. The general partner of MLVPII Co., L.P. is Merrill Lynch Venture Capital Inc. (the "Management Company"), an indirect subsidiary of Merrill Lynch & Co., Inc. The Partnership's objective is to achieve long-term capital appreciation from its portfolio of venture capital investments in new and developing companies and other special investment situations. The Partnership does not engage in any other business or activity. The Partnership is scheduled to terminate on December 31, 1997. However, pursuant to the Partnership Agreement, the Individual General Partners can extend the termination date for up to two additional two-year periods if they determine that such extensions would be in the best interest of the Partnership. 2. Significant Accounting Policies Valuation of Investments - Short-term investments are carried at amortized cost which approximates market. Portfolio investments are carried at fair value as determined quarterly by the Managing General Partner under the supervision of the Individual General Partners. The fair value of publicly-held portfolio securities is adjusted to the average closing public market price for the last five trading days of each quarter discounted by a factor of 0% to 50% for sales restrictions. Factors considered in the determination of an appropriate discount include, underwriter lock-up or Rule 144 trading restrictions, insider status where the Partnership either has a representative serving on the company's Board of Directors or is greater than a 10% shareholder, and other liquidity factors such as the size of the Partnership's position in a given company compared to the trading history of the public security. Privately-held portfolio securities are carried at cost until significant developments affecting the portfolio company provide a basis for change in valuation. The fair value of private securities is adjusted 1) to reflect meaningful third-party transactions in the private market or 2) to reflect significant progress or slippage in the development of the company's business such that cost is no longer reflective of fair value. As a venture capital investment fund, the Partnership's portfolio investments involve a high degree of business and financial risk that can result in substantial losses. The Managing General Partner considers such risks in determining the fair value of the Partnership's portfolio investments. Investment Transactions - Investment transactions are recorded on the accrual method. Portfolio investments are recorded on the trade date, the date the Partnership obtains an enforceable right to demand the securities or payment therefor. Realized gains and losses on investments sold are computed on a specific identification basis. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Income Taxes - No provision for income taxes has been made since all income and losses are allocable to the Partners for inclusion in their respective tax returns. The Partnership's net assets for financial reporting purposes differ from its net assets for tax purposes. Net unrealized appreciation of investments of $29.2 million at September 30, 1995, which was recorded for financial statement purposes, was not recognized for tax purposes. Additionally, from inception to September 30, 1995, timing differences relating to realized losses totaling $1.7 million have been deducted on the Partnership's financial statements and syndication costs relating to the selling of Units totaling $11.3 million were charged to partners' capital on the financial statements. These amounts have not been deducted or charged against partners' capital for tax purposes. Statements of Cash Flows - The Partnership considers its interest-bearing cash account to be cash equivalents. 3. Allocation of Partnership Profits and Losses The Partnership Agreement provides that the Managing General Partner will be allocated, on a cumulative basis over the life of the Partnership, 20% of the Partnership's aggregate investment income and net realized gains and losses from venture capital investments, provided that such amount is positive. All other gains and losses of the Partnership are allocated among all the Partners (including the Managing General Partner) in proportion to their respective capital contributions to the Partnership. From its inception to September 30, 1995, the Partnership had a $52.2 million net gain from its venture capital investments, which includes interest and other income from portfolio investments totaling $2.9 million. 4. Related Party Transactions The Management Company performs, or arranges for others to perform, the management and administrative services necessary for the operation of the Partnership and receives a management fee at the annual rate of 2.5% of the gross capital contributions to the Partnership, reduced by selling commissions, organizational and offering expenses paid by the Partnership, capital distributed and realized capital losses with a minimum annual fee of $200,000. Such fee is determined and payable quarterly. On November 9, 1994, the Securities and Exchange Commission (the "SEC") issued an exemptive order permitting the Partnership to acquire 97,273 shares of Corporate Express, Inc. common stock from the Management Company subject to certain conditions, including review and approval by the Independent General Partners. On December 13, 1994, the Partnership purchased such shares for $1,111,685, representing original cost of $1,069,998 plus interest expense of $41,687. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 5. Independent General Partners' Fees As compensation for services rendered to the Partnership, each of the three Independent General Partners receives $20,000 annually in quarterly installments, $1,400 for each meeting of the General Partners attended or for each other meeting, conference or engagement in connection with Partnership activities at which attendance by an Independent General Partner is required and $1,400 for each committee meeting attended ($500 if a committee meeting is held on the same day as a meeting of the General Partners). 6. Commitments The Partnership has a $393,043 commitment to fund MLMS Cancer Research, Inc. The Partnership is a shareholder of MLMS Cancer Research which is the general partner of ML/MS Associates, L.P., formerly a research and development joint venture with IDEC Pharmaceuticals Corporation. 7. Cash Distributions On August 1, 1995, the General Partners approved a cash distribution to Partners totaling $32,001,136; $27,000,000, or $225 per Unit, to Limited Partners of record on September 30, 1995, and $5,001,136 to the General Partners. The distribution was paid on October 5, 1995. Cash distributions paid or approved during the periods presented and cumulative cash distributions to Partners from inception of the Partnership to September 30, 1995 are listed below. General Limited Per $1,000 Distribution Date Partners Partners Unit - ------------------------------------------------ -------------- --------------- --------- October 5, 1995 $ 5,001,136 $ 27,000,000 $ 225 April 11, 1995 2,234,189 9,000,000 75 September 1, 1994 1,400,000 0 0 May 26, 1994 0 16,200,000 135 Inception to December 31, 1993 0 42,600,000 355 -------------- --------------- ------ Cumulative totals at September 30, 1995 $ 8,635,325 $ 94,800,000 $ 790 ============== =============== ======
8. Subsequent Event At a meeting held on November 3, 1995, the General Partners approved a cash distribution to Partners totaling $14,336,506; $12,000,000, or $100 per Unit, to the Limited Partners and $2,336,506 to the General Partners. The distribution is scheduled to be paid in January 1996 to Limited Partners of record on December 31, 1995. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 9. Pending Litigation The Partnership has been named as a defendant, along with other entities and individuals, in an action involving In-Store Advertising, Inc. ("ISA"). The action is a purported class action suit wherein the plaintiffs, who purchased shares of ISA in its July 19, 1990 initial public offering through November 8, 1990, allege violations under certain sections of the Securities Act of 1933, the Securities Exchange Act of 1934 and common law. The plaintiffs seek rescission of their purchases of ISA common stock together with damages and certain costs and expenses. The Partnership believes it has meritorious defenses to the allegations and that the cost of resolution of the litigation will not have a material impact on the financial condition and results of operations of the Partnership. As of September 30, 1995, the Partnership has incurred cumulative legal expenses totaling $205,000 related to the litigation. 10. Interim Financial Statements In the opinion of MLVPII Co., L.P., the managing general partner of the Partnership, the unaudited financial statements as of September 30, 1995, and for the three and nine month periods then ended, reflect all adjustments necessary for the fair presentation of the results of the interim periods. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources During the three months ended September 30, 1995, the Partnership made follow-on investments of $70,000 in Clarus Medical Systems, Inc. and $11,000 in Ligand Pharmaceuticals, Inc. From its inception to September 30, 1995, the Partnership had invested $115.3 million in 58 portfolio companies. At September 30, 1995, the Partnership had fully liquidated 37 of its portfolio company investments and partially liquidated an additional 10 investments. Liquidated investments at September 30, 1995 had an aggregate cost of $74.7 million and had returned $123.9 million to the Partnership, resulting in a cumulative net realized gain of $49.2 million. Generally, cash received from the sale of portfolio investments, after an adequate reserve for operating expenses and follow-on investments in existing portfolio companies, is distributed to Partners as soon as practicable after receipt. The Partnership does not intend to make investments in new portfolio companies, however, it may make follow-on investments in certain existing portfolio companies. At September 30, 1995, the Partnership held $44.9 million in cash and short-term investments; $44.4 million in short-term securities with maturities of less than one year and $536,000 in an interest-bearing cash account. Interest earned from such investments totaled $449,000 and $807,000 for the three and nine months ended September 30, 1995, respectively. Funds needed to cover future operating expenses and follow-on investments will be obtained from the Partnership's existing cash reserves, from interest and other investment income and from proceeds received from the sale of portfolio investments. On October 5, 1995, the Partnership made a cash distribution to Partners totaling $32 million; $27 million, or $225 per Unit, to Limited Partners of record on September 30, 1995, and $5 million to the General Partners. Additionally, in November 1995, the General Partners approved a cash distribution to be paid in January 1996 totaling $14.3 million; $12 million, or $100 per Unit, to Limited Partners of record on December 31, 1995, and $2.3 million to the General Partners. These distributions will bring cumulative cash distributions paid to Partners to $117.8 million; $106.8 million, or $890 per Unit, to the Limited Partners and $11 million to the General Partners. Results of Operations For the three and nine months ended September 30, 1995, the Partnership had a net realized gain from operations of $22.1 million and $39.5 million, respectively. For the three and nine months ended September 30, 1994, the Partnership had a net realized gain from operations of $1.2 million and $15.3 million, respectively. Net realized gain or loss from operations is comprised of 1) net realized gain or loss from portfolio investments and 2) net investment income or loss (interest and dividend income less operating expenses). Realized Gains and Losses from Portfolio Investments - For the three and nine months ended September 30, 1995, the Partnership had a net realized gain from portfolio investments of $22 million and $39.6 million, respectively. During the three months ended September 30, 1995, the Partnership sold shares of common stock of eight of its portfolio companies in the public market for $26.6 million, realizing a gain of $22 million. The public securities liquidated during the three month period were: 252,000 shares of CellPro, Incorporated, 303,196 shares of Corporate Express, Inc., 92,843 shares of Eckerd Corporation, 75,000 shares of Ligand Pharmaceuticals Inc., 100,966 shares of OccuSystems, Inc., 584,642 shares of Regeneron Pharmaceuticals, Inc. (including 67,747 shares received during the quarter as an in-kind distribution from Sanderling Biomedical Ventures, L.P.), 40,000 shares of SDL, Inc. and 113,500 shares of Viasoft, Inc. Additionally, during the six months ended June 30, 1995, the Partnership sold shares of common stock in the public market of eight of its portfolio companies for $25.3 million, realizing a gain of $17.8 million. The shares sold during the six month period were: 213,419 shares of Micro Linear Corporation, 95,000 shares of CellPro, Incorporated, 204,291 shares of Mobile Telecommunications Technologies Corporation, 861,000 shares of Regeneron Pharmaceuticals, Inc., 129,435 shares of Corporate Express, Inc., 115,267 shares of Children's Discovery Centers of America, Inc., 144,486 shares of Komag, Incorporated and 60,000 shares of Viasoft. Additionally, on March 31, 1995, the Partnership wrote-off $145,000 of its $395,000 remaining investment in Target Vision, Inc. which was sold in April 1995 for $100,000 in cash and a $150,000 promissory note. The Partnership received payment for the promissory note in July 1995. For the three and nine months ended September 30, 1994, the Partnership had a net realized gain from portfolio investments of $1.3 million and $15.7 million, respectively. In August 1994, the Partnership sold its 94,435 preferred shares of The Business Depot Ltd. for $2.5 million, realizing a gain of $1.3 million. Additionally, during the six month period ended June 30, 1994, the Partnership sold common stock of the following portfolio companies in the public market for $16.3 million, realizing a gain of $14.4 million. The shares sold during the six month period were: 370,000 shares of CellPro, 90,000 shares of Komag, 140,000 shares of Regeneron and 78,271 shares of Ringer Corporation. Also, in a private transaction, the Partnership sold 26,570 preferred shares of OccuSystems, Inc. for $173,000, realizing a gain of $40,000. Additionally, the Partnership realized a $54,000 gain from the receipt of final escrow payments relating to the sale of its investment in R-Byte, Inc. and wrote-off its remaining $100,000 investment in Research Applications, Inc. Investment Income and Expenses - For the three months ended September 30, 1995 and 1994, the Partnership had net investment income of $171,000 and a net investment loss of $107,000, respectively. The $278,000 increase in net investment income for the 1995 period compared to the 1994 period primarily was attributable to a $396,000 increase in interest earned from short-term investments partially offset by a $135,000 decrease in interest and dividend income from portfolio investments. The increase in interest earned from short-term investments was the result of an increase the average amount of funds invested in such securities and higher short-term interest rates during the 1995 period compared to the 1994 period. The increase in funds available for investment in short-term securities was the result of proceeds totaling $26.5 million received by the Partnership from the sale of portfolio investments for the 1995 period compared to $2.5 million for the same period in 1994. Such funds are invested in short-term securities until cash distributions to Partners are made. The decline in interest and dividend income from portfolio investments was the result of a decrease in the interest bearing debt securities in the Partnership's portfolio of investments during the 1995 period as compared to the 1994 period. Net investment loss for the nine months ended September 30, 1995 and 1994 was $107,000 and $447,000, respectively. The decrease in net investment loss was the result of a $517,000 increase in interest earned from short-term investments and a $148,000 decrease in operating expenses for the 1995 period, which were partially offset by a $326,000 decrease in interest and dividend income from portfolio investments for the 1995 period. The increase in interest from short-term investments was the result of an increase in funds invested in such securities and higher short-term interest rates during the 1995 period. The increase in funds available for investment in short-term securities was the result of proceeds totaling $49 million received by the Partnership from the sale of portfolio investments for the 1995 period compared to $19.4 million for the same period in 1994. The decrease in interest and dividend income from portfolio investments for the 1995 period was the result of a decrease in the interest bearing debt securities in the Partnership's portfolio of investments during the 1995 period compared to the 1994 period. The $148,000 decrease in operating expenses primarily resulted from a reduction in legal fees incurred during the 1995 period and a decrease in the management fee, as discussed below. The Management Company provides for the management and administrative services necessary for the operation of the Partnership. The Management Company receives a management fee at an annual rate of 2.5% of the gross capital contributions to the Partnership, reduced by selling commissions, organizational and offering expenses paid by the Partnership, return of capital and realized capital losses, with a minimum annual fee of $200,000. Such fee is determined and payable quarterly. The management fee for the three months ended September 30, 1995 and 1994, was $296,000 and $327,000, respectively. The management fee for the nine months ended September 30, 1995 and 1994, was $913,000 and $1 million, respectively. The management fee will continue to decline in future periods as the Partnership's investment portfolio continues to mature and cash distributions are made to Partners. The management fee and other operating expenses are paid with funds provided from operations. Funds provided from operations for the period were obtained from interest received on short-term investments, interest and dividend income from portfolio investments and proceeds from the sale of portfolio investments. Unrealized Gains and Losses and Changes in Unrealized Appreciation or Depreciation of Portfolio Investments - For the nine months ended September 30, 1995, the Partnership had a $28.5 million net unrealized gain from its portfolio investments, primarily resulting from the net upward revaluation of its publicly traded securities. Additionally, during the nine month period, $22.6 million of unrealized gain was transferred to realized gain relating to portfolio investments sold during the period, as discussed above. The $28.5 million unrealized gain offset by the $22.6 million transfer from unrealized gain to realized gain resulted in a $5.9 million increase to net unrealized appreciation of investments for the nine month period. For the nine months ended September 30, 1994, the Partnership had an $11.4 million net unrealized loss from its portfolio investments primarily resulting from the net downward revaluation of the Partnership's publicly traded securities. Additionally, during the nine month period, $12.8 million of unrealized gain was transferred to realized gain primarily relating to portfolio investments sold during the period, as discussed above. The $11.4 million unrealized loss and the $12.8 million net transfer from unrealized gain to realized gain resulted in a $24.2 million reduction to net unrealized appreciation of investments for the nine month period. Net Assets - Changes to net assets resulting from operations are comprised of 1) net realized gain or loss from operations and 2) changes to net unrealized appreciation or depreciation of portfolio investments. For the nine months ended September 30, 1995, the Partnership had a $45.4 million net increase in net assets resulting from operations, comprised of the $39.5 million net realized gain from operations and the $5.9 million increase in unrealized appreciation of investments for the nine month period. At September 30, 1995, the Partnership's net assets were $85.6 million, up $2.2 million from $83.4 million at December 31, 1994. This $2.2 million increase resulted from the $45.4 million net increase in net assets resulting from operations for the nine month period offset by the $11.2 million cash distribution paid to Partners in April 1995 and the $32 million accrued cash distribution paid to Partners in October 1995. For the nine months ended September 30, 1994, the Partnership had an $8.9 million net decrease in net assets resulting from operations, comprised of the $24.2 million decrease in net unrealized appreciation of investments offset by the $15.3 million net realized gain from operations for the nine month period. At September 30, 1994, the Partnership's net assets were $86.1 million, a decrease of $26.5 million from $112.7 million at December 31, 1993. This $26.5 million decrease resulted from the $8.9 million net decrease in net assets resulting from operations for the nine month period and the $17.6 million of cash distributions paid to Partners during the period. Gains and losses from investments are allocated to Partners' capital accounts when realized, in accordance with the Partnership Agreement (see Note 3 of Notes to Financial Statements). However, for purposes of calculating the net asset value per unit of limited partnership interest, net unrealized appreciation of investments has been included as if the net appreciation had been realized and allocated to the Limited Partners in accordance with the Partnership Agreement. Pursuant to such calculation, the net asset value per $1,000 Unit was $636 and $638 at September 30, 1995 and December 31, 1994, respectively. PART II - OTHER INFORMATION Item 1. Legal Proceedings. The Partnership has been named as a defendant in an action relating to its ownership of securities of In-Store Advertising, Inc. ("In-Store Advertising"). On or about July 16, 1993, a Second Amended Consolidated Class Action Complaint (the "Amended Complaint") was filed in the United States District Court for the Southern District of New York in the In Re In-Store Advertising Securities Litigation. The action is a purported class action suit wherein the plaintiffs (the "Plaintiffs") are persons who allegedly purchased shares of In-Store Advertising common stock in the July 19, 1990 initial public offering (the "Offering") and through November 8, 1990. The defendants named in the Amended Complaint include present and former individual officers and directors of In-Store Advertising, the underwriters involved in the Offering, KPMG Peat Marwick (In-Store Advertising's auditors) and certain other defendants, including the Partnership, who owned In-Store Advertising securities prior to the Offering (the "Venture Capital Defendants"). Prior to the filing of the Amended Complaint, In-Store Advertising filed a "prepackaged" plan in U.S. Bankruptcy Court pursuant to Chapter XI of the U.S. Bankruptcy Code. The Amended Complaint alleges violations under Sections 11, 12(2) and 15 of the Securities Act of 1933, as amended (the "1933 Act"), Section 10(b) and 20 of the Securities Exchange Act of 1934, as amended (the "1934 Act") and Rule 10b-5 promulgated thereunder, and common law claims of negligent misrepresentation, fraud and deceit in connection with the sale of securities. The Plaintiffs seek rescission of the purchases of In-Store Advertising's common stock to the extent the members of the alleged classes still hold their shares, together with damages and certain costs and expenses. The Amended Complaint alleges that the Venture Capital Defendants are liable under Section 10(b) of the 1934 Act and Rule 10b-5, and are also liable as controlling persons of In-Store Advertising within the meaning of Section 15 of the 1933 Act and Section 20(a) of the 1934 Act. The Venture Capital Defendants are also being sued as alleged knowing and substantial aiders and abettors of the other defendants' wrongful conduct and under common law fraud and negligence theories. An individual director of In-Store Advertising, named as a defendant in the action, was a Vice President of Merrill Lynch Venture Capital Inc., the General Partner of the Managing General Partner of the Partnership. The Partnership believes that it has meritorious defenses to the allegations in the Amended Complaint (see Note 9 of Notes to Financial Statements). Item 2. Changes in Securities. Not applicable. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. The 1995 Annual Meeting of the Limited Partners was held on June 30, 1995 with respect to 1) the election of the Individual General Partners, 2) the election of the Managing General Partner, 3) the ratification of the independent auditors and 4) the ratification of the Management Agreement and the Sub-Management Agreement. At the meeting, the four Individual General Partners, Kevin K. Albert, Steward S. Flaschen, Jerome Jacobson and William M. Kelly, were elected to continue to serve as Individual General Partners and MLVPII Co., L.P. was elected to continue to serve as the Managing General Partner. The proposal to amend Paragraph 11.4 of the Amended and Restated Agreement of Limited Partnership with respect to the requirement to hold Annual Meetings of Limited Partners was adjourned to a meeting held on July 27, 1995, at which time such proposal was approved. Affirmative Negative Votes Votes Abstentions Ratification of the selection of Deloitte & Touche LLP as independent auditors of the Partnership for its fiscal year ending December 31, 1995. 69,907 1,823 2,962 Approval of the continuance of the Management Agreement among the Partnership, the Management Company and the Managing General Partner and the continuance of the Sub-Management Agreement among the Partnership, the Managing General Partner, the Management Company and the Sub-Manager. 65,391 4,976 4,325 Proposal to amend Paragraph 11.4 of the Amended and Restated Agreement of Limited Partnership with respect to the requirement to hold Annual Meetings of Limited Partners. 60,428 10,406 5,721
Item 5. Other Information. On July 3, 1995, the Partnership purchased 70,202 shares of preferred stock of Clarus Medical Systems, Inc. and a warrant to purchase 23,401 shares of Clarus common stock at $0.01 per share for a total of $70,202. In September 1995, the Partnership exercised warrants to purchase 2,417 shares of Ligand Pharmaceuticals Inc. for $10,719. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits (3) (a) Amended and Restated Certificate of Limited Partnership of the Partnership, dated as of January 12, 1987. (1) (3) (b) Amended and Restated Certificate of Limited Partnership of the Partnership, dated July 27, 1990. (2) (3) (c) Amended and Restated Certificate of Limited Partnership of the Partnership, dated March 25, 1991. (3) (3) (d) Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of May 4, 1987. (4) (3) (e) Amendment No. 1 dated February 14, 1989 to Amended and Restated Agreement of Limited Partnership of the Partnership. (5) (3) (f) Amendment No. 2 dated July 27, 1990 to Amended and Restated Agreement of Limited Partnership of the Partnership. (2) (3) (g) Amendment No. 3 dated March 25, 1991 to Amended and Restated Agreement of Limited Partnership of the Partnership. (3) (3) (h) Amendment No. 4 dated May 23, 1991 to Amended and Restated Agreement of Limited Partnership of the Partnership. (6) (10) (a) Management Agreement dated as of May 23, 1991 among the Partnership, Management Company and the Managing General Partner. (6) (10) (b) Sub-Management Agreement dated as of May 23, 1991 among the Partnership, Management Company, the Managing General Partner and the Sub-Manager. (8) (27) Financial Data Schedule. (28) Prospectus of the Partnership dated February 10, 1987 filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as supplemented by a supplement thereto dated April 21, 1987 filed pursuant to Rule 424(c) under the Securities Act of 1933. (7) (b) No reports on Form 8-K have been filed during the quarter for which this report is filed.
(1) Incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1988 filed with the Securities and Exchange Commission on March 27, 1989. (2) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990 filed with the Securities and Exchange Commission on November 14, 1990. (3) Incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990 filed with the Securities and Exchange Commission on March 28, 1991. (4) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1987 filed with the Securities and Exchange Commission on August 14, 1987. (5) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989 filed with the Securities and Exchange Commission on May 15, 1989. (6) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991 filed with the Securities and Exchange Commission on August 14, 1991. (7) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 1987 filed with the Securities and Exchange Commission on May 15, 1987. (8) Incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1992 filed with the Securities and Exchange Commission on March 26, 1993. 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. ML VENTURE PARTNERS II, L.P. By: /s/ Kevin K. Albert Kevin K. Albert General Partner By: MLVPII Co., L.P. its Managing General Partner By: Merrill Lynch Venture Capital Inc. its General Partner By: /s/ Kevin K. Albert Kevin K. Albert President (Principal Executive Officer) By: /s/ Diane T. Herte Diane T. Herte Vice President and Treasurer (Principal Financial and Accounting Officer) Date: November 13, 1995 EX-27 2 EXHIBIT 27
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML VENTURE PARTNERS II, L.P.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1995 JAN-1-1995 SEP-30-1995 84,644,253 113,300,337 3,866,216 0 754,608 117,921,161 0 0 32,362,771 32,362,771 0 0 0 0 0 0 0 0 28,321,062 85,558,390 200,100 1,100,939 0 1,408,457 (107,418) 39,641,434 5,857,220 45,391,236 0 0 0 11,234,189 0 0 0 34,124,860 0 0 0 0 0 0 0 0 638 0 0 0 0 0 636 0 0 0
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