-----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, E/Ny6/0kRIrK60FbLQpUTHdA2HBRxCQagr9gzjxSwznrXmbQynoLWTYwIY9wEAv+ UOBS/Vmr67Px5eFH4EqDIQ== 0000789538-99-000002.txt : 19990517 0000789538-99-000002.hdr.sgml : 19990517 ACCESSION NUMBER: 0000789538-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623307 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 March 31, 1999 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 March 31, 1999 (Unaudited) and December 31, 1998 Schedule of Portfolio Investments as of March 31, 1999 (Unaudited) Statements of Operations for the Three Months Ended March 31, 1999 and 1998 (Unaudited) Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 (Unaudited) Statement of Changes in Partners' Capital for the Three Months Ended March 31, 1999 (Unaudited) Notes to Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk. 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 March 31, 1999 December 31, (Unaudited) 1998 ASSETS Portfolio investments, at fair value (cost $9,834,307 as of March 31, 1999 and $10,197,685 as of December 31, 1998) $ 13,814,513 $ 14,970,273 Short-term investments, at amortized cost 496,249 4,488,454 Cash and cash equivalents 257,435 423,675 Receivable from liquidated securities - 475,435 Accrued interest receivable - 1,291 ---------------- ---------------- TOTAL ASSETS $ 14,568,197 $ 20,359,128 ================ ================ LIABILITIES AND PARTNERS' CAPITAL Liabilities: Cash distribution payable $ - $ 4,514,772 Accounts payable and accrued expenses 115,545 85,874 Due to Management Company 50,000 100,410 Due to Independent General Partners 24,000 19,870 ---------------- ---------------- Total liabilities 189,545 4,720,926 ---------------- ---------------- Partners' Capital: Managing General Partner 576,261 652,777 Individual General Partners 327 341 Limited Partners (120,000 Units) 9,821,858 10,212,496 Unallocated net unrealized appreciation of portfolio investments 3,980,206 4,772,588 ---------------- ---------------- Total partners' capital 14,378,652 15,638,202 ---------------- ---------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 14,568,197 $ 20,359,128 ================ ================
See notes to financial statements ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited) As of March 31, 1999 Initial Investment Company / Position Date Cost Fair Value Borg-Warner Security Corporation* (A) 500,000 shares of Common Stock Sept. 1988 $ 2,500,000 $ 6,281,250 - ------------------------------------------------------------------------------------------------------------------------------- Brightware, Inc. (B) 200,057 shares of Common Stock May 1995 44,703 300,086 - ------------------------------------------------------------------------------------------------------------------------------- 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 24,782 - ------------------------------------------------------------------------------------------------------------------------------- Corporate Express, Inc. (A) 60,000 shares of Common Stock May 1992 12,000 249,000 - ------------------------------------------------------------------------------------------------------------------------------- Diatide, Inc.* (A) 809,704 shares of Common Stock Dec. 1991 2,986,023 2,171,019 - ------------------------------------------------------------------------------------------------------------------------------- I.D.E. Corporation 113,322 shares of Common Stock Mar. 1988 227,000 0 - ------------------------------------------------------------------------------------------------------------------------------- Photon Dynamics, Inc.* (A) 425,236 shares of Common Stock Sept. 1988 2,452,226 3,027,062 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 241,639 206,250 Options to purchase 27,969 shares of Common Stock at $1.42 per share, expiring on 10/31/01 0 52,582 - ------------------------------------------------------------------------------------------------------------------------------- ReGen Biologics, Inc. 72,800 shares of Common Stock Apr. 1991 364 263,900 62,400 shares of Preferred Stock 114,400 226,200 - ------------------------------------------------------------------------------------------------------------------------------- Stereotaxis, Inc. 21,632 shares of Common Stock Apr. 1990 216 16,224 134,674 shares of Preferred Stock 62,684 101,006 - ------------------------------------------------------------------------------------------------------------------------------- Total Portfolio Investments $ 9,834,307 $ 13,814,513 ---------------------------------
ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited), continued March 31, 1999 Supplemental Information: Liquidated Portfolio Investments(C) (D) Net Cost Realized Gain Return Totals from Liquidated Portfolio Investments $ 106,698,689 $ 110,915,427 $ 217,614,116 ========================================================= Combined Net Combined Unrealized and Fair Value Cost Realized Gain and Return Totals from Active & Liquidated Portfolio Investments $ 116,532,996 $ 114,895,633 $ 231,428,629 =========================================================
(A) Public company (B) In March 1999, in a non-cash transaction, the Partnership exchanged its warrant to purchase 38,737 common shares of Brightware, Inc. at $.40 per share for 28,407 shares of Brightware common stock. (C) In March 1999, the Partnership wrote-off its remaining investment in Neocrin Company, realizing a loss of $363,378. (D) Amounts provided for "Supplemental Information: Liquidated Portfolio Investments" are cumulative from inception through March 31, 1999. * 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) For the Three Months Ended March 31, 1999 1998 --------------- -------------- INVESTMENT INCOME AND EXPENSES Income: Interest from short-term investments $ 22,972 $ 70,588 Interest and other income from portfolio investments 530 - ---------------- ------------- Total investment income 23,502 70,588 ---------------- ------------- Expenses: Management fee 50,000 50,000 Professional fees 26,340 30,068 Mailing and printing 25,467 27,152 Independent General Partners' fees 24,000 24,000 Custodial fees 1,011 99 Miscellaneous 474 189 ---------------- ------------- Total investment expenses 127,292 131,508 ---------------- ------------- NET INVESTMENT LOSS (103,790) (60,920) Net realized loss from portfolio investments (363,378) - ---------------- ------------- NET REALIZED LOSS FROM OPERATIONS (467,168) (60,920) Change in net unrealized appreciation of portfolio investments (792,382) 1,001,583 ---------------- ------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (1,259,550) $ 940,663 ================ =============
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, 1999 1998 ---------------- --------------- CASH FLOWS USED FOR OPERATING ACTIVITIES Net investment loss $ (103,790) $ (60,920) Adjustments to reconcile net investment loss to cash used for operating activities: Decrease (increase) in accrued interest and accounts receivable 1,291 (4,399) Decrease in accrued interest from short-term investments 31,428 3,343 (Decrease) increase in payables (16,609) 6,518 ---------------- --------------- Cash used for operating activities (87,680) (55,458) ---------------- --------------- CASH FLOWS PROVIDED FROM (USED FOR) INVESTING ACTIVITIES Net return (purchase) of short-term investments 3,960,777 (1,485,862) Net proceeds from the sale of portfolio investments 475,435 - ---------------- --------------- Cash provided from (used for) investing activities 4,436,212 (1,485,862) ---------------- --------------- CASH FLOWS USED FOR FINANCING ACTIVITES Cash distribution paid to partners (4,514,772) - ---------------- --------------- Decrease in cash and cash equivalents (166,240) (1,541,320) Cash and cash equivalents at beginning of period 423,675 1,918,335 ---------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 257,435 $ 377,015 ================ ===============
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited) For the Three Months Ended March 31, 1999 Unallocated Managing Individual Net Unrealized General General Limited Appreciation Partner Partners Partners of Investments Total Balance at beginning of period $ 652,777 $ 341 $ 10,212,496 $ 4,772,588 $ 15,638,202 Net investment loss (933) (4) (102,853) - (103,790) Net realized loss from portfolio investments (75,583) (10) (287,785) - (363,378) Change in unrealized appreciation of investments - - - (792,382) (792,382) ------------- -------- -------------- -------------- ---------------- Balance at end of period $ 576,261 $ 327 $ 9,821,858 (A) $ 3,980,206 $ 14,378,652 ============= ======== =============== ============== ================
(A) The net asset value per unit of limited partnership interest, including an assumed allocation of net unrealized appreciation of investments, was $108 as of March 31, 1999. Additionally, cumulative cash distributions paid to limited partners from inception to March 31, 1999 totaled $1,560 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. The Managing General Partner is working toward the ultimate termination of the Partnership, with an emphasis on liquidating the remaining assets as soon as practical with the goal of maximizing returns to Partners. 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 no later than 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. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited), continued 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. 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 $4.0 million as of March 31, 1999, which was recorded for financial statement purposes, was not recognized for tax purposes. Additionally, from inception to March 31, 1999, timing differences of approximately $6.4 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. Reclassifications - Certain reclassifications have been made to the prior period financial statements to conform with the current period presentation. 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 March 31, 1999, the Partnership had a $115.2 million net realized 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. ML VENTURE PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited), continued 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). 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 March 31, 1999, and for the three month period then ended, reflect all adjustments necessary for the fair presentation of the results of the interim period. 7. Subsequent Event Subsequent to the end of the quarter through April 26, 1999, the Partnership sold 221,000 common shares of Photon Dynamics, Inc. for $2,225,850, realizing a gain of $951,400. 8. Classification of Portfolio Investments As of March 31, 1999, the Partnership's investments in portfolio companies were categorized as follows: % of Type of Investments Cost Fair Value Net Assets* - ------------------- -------------- --------------- ----------- Common Stock and Warrants $ 8,656,675 $ 12,592,155 87.58% Preferred Stock 1,177,632 1,222,358 8.50% -------------- --------------- ------- Total $ 9,834,307 $ 13,814,513 96.08% ============== =============== ====== Country/Geographic Region Midwestern U.S. $ 3,575,448 $ 7,542,632 52.46% Western U.S. 3,045,836 4,100,862 28.52% Eastern U.S. 3,213,023 2,171,019 15.10% -------------- --------------- ------ Total $ 9,834,307 $ 13,814,513 96.08% ============== =============== ====== Industry Business Services $ 2,512,000 $ 6,530,250 45.41% Biotechnology 3,356,191 2,803,131 19.50% Semiconductors/Electronics 2,452,226 3,027,062 21.05% Medical Devices and Services 1,242,187 1,153,984 8.03% Computer Hardware/Software 271,703 300,086 2.09% -------------- --------------- ------- Total $ 9,834,307 $ 13,814,513 96.08% ============== =============== ======
* 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 March 31, 1999, the Partnership held $496,249 in short-term investments with maturities of less than one year and $257,435 in an interest-bearing cash account. Interest earned from such investments totaled $22,972 for the three months ended March 31, 1999. 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 the Partnership's future operating expenses and follow-on investments will be obtained from the Partnership's existing cash reserves, from interest and other investment income received and from proceeds received from the sale of portfolio investments. The Managing General Partner is working toward the termination of the Partnership as soon as practical, with the goal of maximizing returns to partners. 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 no later than 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. The Partnership will not make additional investments in any new portfolio companies. Generally, net proceeds received from the sale of portfolio investments are distributed to Partners as soon as practicable, after an adequate reserve for operating expenses and follow-on investments in the remaining portfolio companies. Subsequent to the end of the quarter through April 26, 1999, the Partnership sold 221,000 common shares of Photon Dynamics, Inc. for $2,225,850. See Note 7 of Notes to Financial Statements. Results of Operations For the three months ended March 31, 1999 and 1998, the Partnership had a net realized loss from operations of $467,168 and $60,920, 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, dividend and other portfolio income less operating expenses). Realized Gains and Losses from Portfolio Investments - For the three months ended March 31, 1999, the Partnership had a $363,378 net realized loss resulting from the write-off of its remaining investment in Neocrin Company due to continued operating and financial difficulties at the company. The Partnership had no realized gains or losses from portfolio investments for the three months ended March 31, 1998. Investment Income and Expenses - For the three months ended March 31, 1999 and 1998, the Partnership had a net investment loss of $103,790 and $60,920, respectively. The increase in net investment loss for the 1999 period compared to the same period in 1998, was primarily attributable to a $47,086 decrease in investment income for the 1999 period compared to the same period in 1998. The decline in investment income primarily resulted from a decrease in interest from short-term investments, primarily due to a decrease in funds available for investment in such securities during the first quarter of 1999 compared to the same period in 1998. Operating expenses of $127,292 for the three months ended March 31, 1999 were slightly lower than operating expenses of $131,508 for the three months ended March 31, 1998. 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 March 31, 1999 and 1998, was $50,000. 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 received from short-term investments. Unrealized Gains and Losses and Changes in Unrealized Appreciation of Portfolio Investments - For the three months ended March 31, 1999, the Partnership reduced the fair value of its remaining portfolio investments on a net basis by $1,155,760. Additionally, during the quarter, $363,378 of unrealized loss was transferred to realized loss relating to the write-off of Neocrin Company during the quarter, as discussed above. As a result, the Partnership had a $792,382 unfavorable change in net unrealized appreciation of investments for the three months ended March 31, 1999. For the three months ended March 31, 1998, the Partnership increased the fair value of its remaining portfolio investments on a net basis by $1,001,583, increasing net unrealized appreciation of investments for the three month period ended March 31, 1998. 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 of portfolio investments. As of March 31, 1999, the Partnership's net assets were $14,378,652, down $1,259,550 from $15,638,202 as of December 31, 1998. This decrease was comprised of the $467,168 net realized loss from operations and the $792,382 decrease in net unrealized appreciation of investments for the three months ended March 31, 1999. As of March 31, 1998, the Partnership's net assets were $22,647,856, up $940,663 from $21,707,193 as of December 31, 1997. This increase was comprised of the $1,001,583 increase in net unrealized appreciation of investments offset by the $60,920 net realized loss from operations for the three months ended March 31, 1998. 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 such net unrealized 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 March 31, 1999 and December 31, 1998 was $108 and $117, respectively. Year 2000 Issue - The Year 2000 ("Y2K") concern arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of "19". If not corrected, many computer applications could fail or create erroneous results. The impact of the Y2K concern on the Partnership's operations is currently being assessed. The Management Company is responsible to provide or arrange for the provision of administrative services necessary to support the Partnership's operations. The Management Company has arranged for Palmeri Fund Administrators, Inc. (the "Administrator") to provide certain administrative and accounting services for the Partnership, including maintenance of the books and records of the Partnership, maintenance of the limited partner database, issuance of financial reports and tax information to limited partners and processing distribution payments to limited partners. Fees charged by the Administrator are paid directly by the Management Company. The Administrator has assessed its computer hardware and software systems, specifically as they relate to the operations of the Partnership. As part of this investigation of potential Y2K concerns, the Administrator contracted with an outside computer service provider to examine all of the Administrator's computer hardware and software applications. This review and evaluation has been completed. The Administrator currently is in the process of purchasing, installing, and testing the necessary software patches and new computer hardware required to ensure that all of its computer systems are Y2K compliant. This correction phase is expected to be completed by September 1999. Additionally, the Administrator has contacted the outside service providers used to assist the Administrator or the Management Company with the administration of the Partnership's operations to ascertain whether these entities are addressing the Y2K issue within their own operation. There can be no guarantee that the Administrator's systems or that systems of other companies providing services to the Partnership will be corrected in a timely manner. Since the Partnership does not own any equipment and all of its administrative needs are provided by the Management Company, any costs relating to the investigation and correction of potential Y2K concerns affecting the Partnership's operations will be incurred by the Administrator, the Management Company or the outside service providers. Therefore, the Management Company and the Managing General Partner do not expect the Partnership to incur any costs relating to the investigation or correction of Y2K concerns. Finally the Y2K issue is a global concern that my affect all business entities, including the Partnership's portfolio companies. The General Partner is continuing to assess the impact of Y2K concerns affecting its portfolio companies. However, the extent to which any potential Y2K problems could affect the valuations of these companies is presently unknown. At the time that specific Y2K problems are identified, if any, the Managing General Partner will take such issues into consideration in adjusting the fair value of the Partnership's portfolio investments. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Partnership is subject to market risk arising from changes in the value of its portfolio investments, short-term investments and interest-bearing cash equivalents, which may result from fluctuations in interest rates and equity prices. The Partnership has calculated its market risk related to its holdings of these investments based on changes in interest rates and equity prices utilizing a sensitivity analysis. The sensitivity analysis estimates the hypothetical change in fair values, cash flows and earnings based on an assumed 10% change (increase or decrease) in interest rates and equity prices. To perform the sensitivity analysis, the assumed 10% change is applied to market rates and prices on investments held by the Partnership at the end of the accounting period. The Partnership's portfolio investments had an aggregate fair value of $13,814,513 as of March 31, 1999. An assumed 10% decline from this fair value, including an assumed 10% decline of the per share market prices of the Partnership's publicly-traded securities, would result in a reduction to the fair value of such investments and an unrealized loss of $1,381,451. As of March 31, 1999, the Partnership held discounted commercial paper with a remaining maturity of 55 days. This short-term investment was carried at an aggregate amortized cost of $496,249 as of March 31, 1999. An assumed 10% increase in the market interest rates of such short-term investments held by the Partnership as of March 31, 1999, would result in a reduction to the fair value of such investments and an unrealized loss which is also considered to be immaterial. Market risk relating to the Partnership's interest-bearing cash equivalents held as of March 31, 1999 is also considered to be immaterial. PART II - OTHER INFORMATION Item 1. Legal Proceedings. Not applicable. 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 covered by this report. 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: 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/ David G. Cohen David G. Cohen Vice President By: /s/ Diane T. Herte Diane T. Herte Vice President and Treasurer (Principal Financial and Accounting Officer) Date: May 14, 1999
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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-1-1999 MAR-31-1999 9,834,307 13,814,513 0 0 753,684 14,568,197 0 0 189,545 189,545 0 0 120,000 120,000 0 0 0 0 3,980,206 14,378,652 0 23,502 0 127,292 (103,790) 0 (792,382) (1,259,550) 0 0 0 0 0 0 0 (1,259,550) 0 0 0 0 0 0 0 15,008,427 117 (1) (8) 0 0 0 108 0 0 0
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