-----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, KM18nAyrMOOYkvYE0LLuI31+F76zrc+yeCFLoGRw70kd8M17Yx0JV/7e76dh4ZaY 6CBPYGhe9Hm4d7evVyU08Q== 0000789538-98-000004.txt : 19980817 0000789538-98-000004.hdr.sgml : 19980817 ACCESSION NUMBER: 0000789538-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 814-00043 FILM NUMBER: 98689030 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 June 30, 1998 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 10281-1326 =============================================================================== (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 June 30, 1998 (Unaudited) and December 31, 1997 Schedule of Portfolio Investments as of June 30, 1998 (Unaudited) Statements of Operations for the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 (Unaudited) Statement of Changes in Partners' Capital for the Six Months Ended June 30, 1998 (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 June 30, 1998 December 31, (Unaudited) 1997 ASSETS Portfolio investments, at fair value (cost $11,390,508 as of June 30, 1998 and $13,013,680 as of December 31, 1997) $ 17,344,202 $ 17,021,243 Short-term investments, at amortized cost 4,433,607 2,979,552 Cash and cash equivalents 464,569 1,918,335 ----------------- ------------------ TOTAL ASSETS $ 22,242,378 $ 21,919,130 ================= ================== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses $ 101,951 $ 144,890 Due to Management Company 58,651 41,349 Due to Independent General Partners 19,500 25,698 ----------------- ------------------ Total liabilities 180,102 211,937 ----------------- ------------------ Partners' Capital: Managing General Partner 1,106,242 1,416,952 Individual General Partners 500 543 Limited Partners (120,000 Units) 15,001,840 16,282,135 Unallocated net unrealized appreciation of investments 5,953,694 4,007,563 ----------------- ------------------ Total partners' capital 22,062,276 21,707,193 ----------------- ------------------ TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 22,242,378 $ 21,919,130 ================= ==================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited) As of June 30, 1998 Initial Investment Company / Position Date Cost Fair Value Borg-Warner Security Corporation* (A) 500,000 shares of Common Stock Sept. 1988 $ 2,500,000 $ 8,484,375 - ------------------------------------------------------------------------------------------------------------------------------- Brightware, Inc. (B) 171,650 shares of Common Stock May 1995 43,565 257,475 Warrants to purchase 38,737 shares of Common Stock at $.40 per share, expiring on 4/19/99 1,138 42,611 - ------------------------------------------------------------------------------------------------------------------------------- Clarus Medical Systems, Inc.* 179,028 shares of Preferred Stock Jan. 1991 1,000,548 895,152 Warrants to purchase 14,043 shares of Common Stock at $.05 per share, expiring between 3/7/00 and 7/3/00 0 0 Warrants to purchase 2,826 shares of Preferred Stock at $5.00 per share, expiring on 3/7/00 0 0 - ------------------------------------------------------------------------------------------------------------------------------- CoCensys, Inc. (A) 152,507 shares of Common Stock Feb. 1989 192,504 247,824 - ------------------------------------------------------------------------------------------------------------------------------- Corporate Express, Inc. (A) 60,000 shares of Common Stock May 1992 12,000 609,000 - ------------------------------------------------------------------------------------------------------------------------------- Diatide, Inc.* (A) 809,704 shares of Common Stock Dec. 1991 2,986,023 4,605,192 - ------------------------------------------------------------------------------------------------------------------------------- Horizon Cellular Telephone Company, L.P.: (C) SPTHOR Corporation 10% Promissory Note May 1992 5,073 5,073 5.67% Bridge Loan 9,271 9,271 34.5 shares of Common Stock 20,518 20,518 - ------------------------------------------------------------------------------------------------------------------------------- I.D.E. Corporation 113,322 shares of Common Stock Mar. 1988 227,000 0 - ------------------------------------------------------------------------------------------------------------------------------- Neocrin Company 48,429 shares of Preferred Stock June 1991 363,378 0 - ------------------------------------------------------------------------------------------------------------------------------- Photon Dynamics, Inc.* (A) 425,236 shares of Common Stock Sept. 1988 2,452,226 1,190,658 Warrants to purchase 6,062 shares of Common Stock at $5.40 per share, expiring on 6/30/00 0 0 - ------------------------------------------------------------------------------------------------------------------------------- Raytel Medical Corporation(A) 62,500 shares of Common Stock Feb. 1990 241,639 275,000 Options to purchase 27,969 shares of Common Stock at $1.42 per share, expiring on 10/31/01 0 83,348 - ------------------------------------------------------------------------------------------------------------------------------- Sanderling Biomedical, L.P.* 80% Limited Partnership interest May 1988 1,335,625 618,705 - ------------------------------------------------------------------------------------------------------------------------------- Total Portfolio Investments (D) $ 11,390,508 $ 17,344,202 --------------------------------- ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited), continued As of June 30, 1998 Supplemental Information: Liquidated Portfolio Investments(E) Cost Realized Gain Return Totals from Liquidated Portfolio Investments $ 105,142,488 $ 111,947,782 $ 217,090,270 ========================================================= Combined Net Combined Unrealized and Fair Value Cost Realized Gain and Return Totals from Active & Liquidated Portfolio Investments $ 116,532,996 $ 117,901,476 $ 234,434,472 =========================================================
(A) Public company (B) In June 1998, in a non-cash transaction, the Partnership exchanged its warrant to purchase 59,166 common shares of Brightware, Inc. at $.80 per share for 27,611 shares of Brightware common stock. (C) In April 1998, the Partnership received $125,793, plus interest of $8,496, from the sale of options in connection with its investment in HCTC/SPTHOR. (D) On May 18, 1998, Biocircuits Corporation announced that it ceased all ordinary business and began to liquidate its remaining assets. As a result, the Partnership wrote-off the remaining $1,488,884 cost of its investment in Biocircuits as of June 30, 1998. (E) Amounts provided for "Supplemental Information: Liquidated Portfolio Investments" are cumulative from inception through June 30, 1998. * May be deemed an affiliated person of the Partnership as 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 Six Months Ended June 30, June 30, 1998 1997 1998 1997 ------------ ------------- ------------- -------- INVESTMENT INCOME AND EXPENSES Income: Interest from short-term investments $ 71,485 $ 319,820 $ 142,073 $ 453,185 Interest and other income from portfolio investments 8,496 537 8,496 16,976 Dividend income from portfolio investments - - - 37,754 ------------- -------------- ------------- -------------- Total investment income 79,981 320,357 150,569 507,915 ------------- -------------- ------------- -------------- Expenses: Management fee 50,000 59,095 100,000 197,484 Professional fees 24,646 37,461 54,714 81,436 Mailing and printing 13,371 29,065 40,523 101,764 Independent General Partners' fees 20,257 24,509 44,400 47,981 Custodial fees 853 - 952 3,500 Miscellaneous 3,603 - 3,649 296 ------------- -------------- ------------- -------------- Total investment expenses 112,730 150,130 244,238 432,461 ------------- -------------- ------------- -------------- NET INVESTMENT (LOSS) INCOME (32,749) 170,227 (93,669) 75,454 Net realized (loss) gain from portfolio investments (1,497,379) (4,017,085) (1,497,379) 9,592,048 ------------- -------------- ------------- -------------- NET REALIZED (LOSS) GAIN FROM OPERATIONS (1,530,128) (3,846,858) (1,591,048) 9,667,502 Change in unrealized appreciation of investments 944,548 7,939,497 1,946,131 (2,098,699) ------------- -------------- ------------- -------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (585,580) $ 4,092,639 $ 355,083 $ 7,568,803 ============= ============== ============= ==============
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, 1998 1997 ---------------- ---------- CASH FLOWS USED FOR OPERATING ACTIVITIES Net investment (loss) income $ (93,669) $ 75,454 Adjustments to reconcile net investment (loss) income to cash used for operating activities: (Increase) decrease in accrued interest and accounts receivable - 44,693 Increase in accrued interest from short-term investments (282) (14,467) Decrease in liabilities, net (31,835) (115,768) ---------------- ---------------- Cash used for operating activities (125,786) (10,088) ---------------- ---------------- CASH FLOWS (USED FOR) PROVIDED FROM INVESTING ACTIVITIES Net purchase of short-term investments (1,453,773) (17,968,729) Cost of portfolio investments purchased - (335,176) Net proceeds from the sale of portfolio investments 125,793 16,777,825 Repayment of investments in notes - 2,381,659 ---------------- ---------------- Cash (used for) provided from investing activities (1,327,980) 855,579 ---------------- ---------------- (Decrease) increase in cash and cash equivalents (1,453,766) 845,491 Cash and cash equivalents at beginning of period 1,918,335 346,129 ---------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 464,569 $ 1,191,620 ================ ================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited) For the Six Months Ended June 30, 1998 Unallocated Managing Individual Net Unrealized General General Limited Appreciation Partner Partners Partners of Investments Total Balance at beginning of period $ 1,416,952 $ 543 $ 16,282,135 $ 4,007,563 $ 21,707,193 Net investment loss 745 (3) (94,411) - (93,669) Net realized loss from (311,455) (40) (1,185,884) - (1,497,379) Change in unrealized appreciation of investments - - - 1,946,131 1,946,131 ------------- -------- -------------- -------------- ---------------- Balance at end of period $ 1,106,242 $ 500 $ 15,001,840(A) $ 5,953,694 $ 22,062,276 ============= ======== ============== ============== ================
(A) The net asset value per unit of limited partnership interest, including an assumed allocation of net unrealized appreciation of investments, is $164 as of June 30, 1998. Cumulative cash distributions paid or accrued to Limited Partners from inception to June 30, 1998 totaled $1,525 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. DLJ Capital Management Corporation (the "Sub-Manager"), an indirect subsidiary of Donaldson, Lufkin & Jenrette, Inc., is the sub-manager of the Partnership, pursuant to a sub-management agreement among the Partnership, the Management Company, the Managing General Partner and the Sub-Manager. 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. In July 1997, the Individual General Partners voted to extend the term of the Partnership for an additional two-year period. The Partnership is now scheduled to terminate on December 31, 1999. In addition, the Individual General Partners have the right to extend the term of the Partnership for an additional two-year period if they determine that such extension is 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 Sub-Manager under the supervision of the Individual General Partners and the Managing General Partner. The fair value of publicly-held portfolio securities is adjusted to the closing public market price for the last trading day of the accounting period 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 Sub-Manager considers such risks in determining the fair value of the Partnership's portfolio investments. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited), continued 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. 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 approximately $6 million as of June 30, 1998, which was recorded for financial statement purposes, was not recognized for tax purposes. Additionally, from inception to June 30, 1998, timing differences of approximately $6.8 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 June 30, 1998, the Partnership had a $116.2 million net gain from its venture capital investments, which includes interest and other income from portfolio investments totaling $4.3 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. 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, $1,500 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 $1,500 for each audit committee meeting attended ($500 if an audit committee meeting is held on the same day as a meeting of the Independent General Partners). ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited), continued 6. Interim Financial Statements In the opinion of MLVPII Co., L.P., the managing general partner of the Partnership, the unaudited financial statements as of June 30, 1998, and for the six month period then ended, reflect all adjustments necessary for the fair presentation of the results of the interim period. 7. Classification of Portfolio Investments As of June 30, 1998, the Partnership's investments in portfolio companies were categorized as follows: % of Type of Investments Cost Fair Value Net Assets* - ------------------- -------------- --------------- ----------- Common Stock and Warrants $ 8,676,613 $ 15,816,001 71.69% Limited Partnerships 1,335,625 618,705 2.80% Preferred Stock 1,363,926 895,152 4.06% Debt Securities 14,344 14,344 0.07% -------------- --------------- ------- Total $ 11,390,508 $ 17,344,202 78.62% ============== =============== ====== Country/Geographic Region Midwestern U.S. $ 3,512,548 $ 9,988,527 45.28% Western U.S. 4,630,075 2,715,621 12.31% Eastern U.S. 3,247,885 4,640,054 21.03% -------------- --------------- ------ Total $ 11,390,508 $ 17,344,202 78.62% ============== =============== ====== Industry Business Services $ 2,512,000 $ 9,093,375 41.22% Biotechnology 4,514,152 5,471,721 24.80% Semiconductors/Electronics 2,452,226 1,190,658 5.40% Medical Devices and Services 1,605,565 1,253,500 5.68% Telecommunications 34,862 34,862 0.16% Computer Hardware/Software 271,703 300,086 1.36% -------------- --------------- ------- Total $ 11,390,508 $ 17,344,202 78.62% ============== =============== ======
* Percentage of net assets is based on fair value. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources As of June 30, 1998, the Partnership held $4,898,176 in cash and cash equivalents, consisting of $4,433,607 in short-term securities with maturities of less than one year and $464,569 in an interest-bearing cash account. Interest earned from such investments totaled $71,485 and $142,073 for the three and six months ended June 30, 1998, respectively. Interest earned in future periods is subject to fluctuations in short-term interest rates and changes in amounts available for investment in such securities. Funds needed to cover future operating expenses and follow-on investments will be obtained from the Partnership's existing cash reserves, interest and other investment income and proceeds from the sale of portfolio investments. The Partnership has completed its investment phase and will not make investments in any new portfolio companies. Therefore, net proceeds received from the sale of portfolio investments will be distributed to Partners as soon as practicable, after an adequate reserve for operating expenses and follow-on investments in existing portfolio companies. Results of Operations For the three and six months ended June 30, 1998, the Partnership had a net realized loss from operations of $1,530,128 and $1,591,048, respectively. For the three and six months ended June 30, 1997, the Partnership had a net realized loss from operations of $3,846,858 and a net realized gain from operations of $9,667,502, 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 both the three and six months ended June 30, 1998, the Partnership had a net realized loss from its portfolio investments of $1,497,379. In June 1998, the Partnership realized a loss of $1,488,884 resulting from the write-off of its remaining investment in Biocircuits Corporation. Also during the quarter, the Partnership received $125,793 from Horizon Cellular Telephone Company, L.P. relating to the previous sale of certain options in connection with its investment in Horizon, resulting in a realized loss of $8,495. For the three and six months ended June 30, 1997, the Partnership had a net realized loss from portfolio investments of $4,017,085 and a net realized gain from portfolio investments of $9,592,048, respectively. In March 1997 and in May 1997, the Partnership received 347,826 and 129,407 common shares of IDEC Pharmaceuticals Corporation, respectively, from ML/MS Associates, L.P. and MLMS Cancer Research, Inc. (MLMS), representing the final liquidating distribution from MLMS. The Partnership sold 197,562 shares of IDEC in March 1997 and sold an additional 126,828 shares in June 1997. These transactions resulted in a net realized gain of $2,267,482 and $5,807,909 for the three and six months ended June 30, 1997, respectively. Also during the three and six months ended June 30, 1997, the Partnership recognized a realized gain of $109,350 and $1,796,646 from the sale of options in connection with its investment in Horizon Cellular Telephone Company. During the three months ended March 31, 1997, the Partnership sold its remaining 251,694 common shares of Borg-Warner Automotive, Inc. for $9,639,880, realizing a gain of $8,381,410. These gains were more than offset by the partial write-off, as of June 30, 1997, of the Partnership's investments in Biocircuits Corporation, Clarus Medical Systems, Inc. and Neocrin Company, Inc., which resulted in an aggregate realized loss of $6,393,917. These write-offs were due to continued operating and financial difficulties at these companies. Investment Income and Expenses - For the three months ended June 30, 1998 and 1997, the Partnership had a net investment loss of $32,749 and net investment income of $170,227, respectively. A $240,376 decrease in investment income, partially offset by a $37,400 decrease in operating expenses resulted in a net investment loss for 1998 as compared to net investment income for the same period in 1997. The decline in investment income was attributable to a $248,335 decrease in interest from short-term investments, partially offset by a $7,959 increase in interest and other income from portfolio investments. The decrease in interest from short-term investments primarily was due to a decrease in funds available for investment in such securities during the second quarter of 1998 compared to the same period in 1997. The decline in operating expenses primarily resulted from decreased management fees, as discussed below, and a reduction in professional fees and mailing and printing expenses incurred during the 1998 period. Such reduced operating expenses reflect the decreased level of activity as the Partnership proceeds to liquidate its remaining investments. For the six months ended June 30, 1998 and 1997, the Partnership had a net investment loss of $93,669 and net investment income of $75,454, respectively. A $357,346 decrease in investment income, partially offset by a $188,223 decrease in operating expenses resulted in a net investment loss for 1998 as compared to net investment income for the same period in 1997. The decline in investment income was due to a $311,112 decrease in interest from short-term investments and a $46,234 decrease in income from portfolio investments. The decrease in interest from short-term investments primarily was due to a decrease in funds available for investment in such securities during the six months ended June 30, 1998 compared to the same period in 1997. The decrease in income from portfolio investments primarily resulted from a decrease in dividend income due to the sale of the Partnership's investment in Borg-Warner Automotive, which was fully liquidated during the first quarter of 1997. The decline in operating expenses primarily resulted from decreased management fees, as discussed below, and a reduction in professional fees and mailing and printing expenses incurred during the 1998 period. Such reduced operating expenses reflect the decreased level of activity as the Partnership proceeds to liquidate its remaining investments. The Management Company is responsible 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 June 30, 1998 and 1997 was $50,000 and $59,095, respectively. The management fee for the six months ended June 30, 1998 and 1997 was $100,000 and $197,484, respectively. The decline in the management fee for the 1998 periods compared to the same periods in 1997 reflects the continued liquidation of the Partnership's remaining portfolio investments and subsequent distribution to Partners. The management fee will remain at the annual minimum fee of $200,000 for 1998 and will remain the same in future periods through the liquidation of the Partnership. The management fee and other operating expenses are paid with funds provided from operations and from existing cash reserves. Funds provided from operations for the period were obtained from interest earned from short-term investments and proceeds from the sale of certain portfolio investments. Unrealized Gains and Losses and Changes in Unrealized Appreciation or Depreciation of Investments - For the six months ended June 30, 1998, the Partnership had a $722,131 net unrealized gain from its portfolio investments, primarily resulting from the net upward revaluation of its remaining publicly traded securities. Additionally, during the six month period, unrealized appreciation increased by $1,224,000 resulting from the transfer from unrealized loss to realized loss relating to the write-off of the Partnership's remaining investment in Biocircuits Corporation, as discussed above. The $722,131 unrealized gain and the $1,224,000 transfer from unrealized loss to realized loss, resulted in a $1,946,131 increase to the Partnership's net unrealized appreciation of investments for the six month period ended June 30, 1998. For the six months ended June 30, 1997, the Partnership had a $950,471 net unrealized gain from its portfolio investments, primarily resulting from the net upward revaluation of its remaining publicly traded securities. Additionally, during the six month period, unrealized appreciation declined $3,049,170 resulting from the net transfer from unrealized gain to realized gain related to the portfolio investments sold and written-off during the period, as discussed above. The $950,471 unrealized gain offset by the $3,049,170 transfer from unrealized gain to realized gain, resulted in a $2,098,699 decrease to the Partnership's net unrealized appreciation of investments for the six month period ended June 30, 1997. 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. As of June 30, 1998, the Partnership's net assets were $22,062,276, up $355,083 from $21,707,193 as of December 31, 1997. This increase was comprised of the $1,946,131 increase in unrealized appreciation of investments, partially offset by the $1,591,048 net realized loss from operations for the six month period ended June 30, 1998. As of June 30, 1997, the Partnership's net assets were $27,701,110, down $14,221,926 from $41,923,036 as of December 31, 1996. This decrease was due to the $21,790,729 accrued cash distribution paid to Partners in July 1997, exceeding the $7,568,803 increase in net assets from operations. The increase in net assets from operations was comprised of the $9,667,502 net realized gain from operations partially offset by the $2,098,699 decrease in unrealized appreciation of investments for the six month period ended June 30, 1997. 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 as of June 30, 1998 and December 31, 1997 was $164 and $162, respectively. PART II - OTHER INFORMATION Item 1. Legal Proceedings. The Partnership is not a party to any legal proceedings. 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. No matter was submitted to a vote of security holders during the period in which this report covers. Item 5. Other Information. Not applicable 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/ Robert Aufenanger Robert Aufenanger Executive Vice President and Director By: /s/ Diane T. Herte Diane T. Herte Vice President and Treasurer (Principal Financial and Accounting Officer) Date: August 14, 1998 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 JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1998 JAN-1-1998 JUN-30-1998 11,390,508 17,344,202 0 0 4,898,176 22,242,378 0 0 180,102 180,102 0 0 120,000 120,000 0 0 0 0 5,953,694 22,062,276 0 150,569 0 244,238 (93,669) (1,497,379) 1,946,131 355,083 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 21,884,735 162 (1) 3 0 0 0 164 0 0 0
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