-----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, ASKwVm4X4h6fXI1InlrrBH3qD6CA36lxcmMTXlSzlJ4U2iMOr4oLirC162ecWc+9 PabD+AwfEli7HcKsPh9gDA== 0000950114-98-000152.txt : 19980327 0000950114-98-000152.hdr.sgml : 19980327 ACCESSION NUMBER: 0000950114-98-000152 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY INVESTMENT PARTNERS II LP CENTRAL INDEX KEY: 0000887499 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 431609351 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 814-00102 FILM NUMBER: 98574647 BUSINESS ADDRESS: STREET 1: 201 PROGRESS PKWY CITY: MARYLAND HEIGHTS STATE: MO ZIP: 63043 BUSINESS PHONE: 3148512000 10-K 1 COMMUNITY INVESTMENT PARTNERS II, L.P. FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission file number 0-20213 ----------------- ------- COMMUNITY INVESTMENT PARTNERS II, L.P. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MISSOURI 43-1609351 - ------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 201 Progress Parkway Maryland Heights, Missouri 63043 - ------------------------------------------------------------------------------- (Address and principal executive office) (Zip Code) Registrant's telephone number, including area code (314) 515-2000 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: None. 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 --- --- As of March 15, 1998, 90,404 units of limited partnership interest (Units), representing net assets of $1,485,338 were held by non-affiliates. There is no established public market for such Units. 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Prospectus of the Registrant dated November 4, 1992, filed with the Securities and Exchange Commission are incorporated by reference in Part I, Part II and Part III hereof. 2 3 COMMUNITY INVESTMENT PARTNERS II, L.P. TABLE OF CONTENTS
PART I Page ---- Item 1. Business 4 Item 2. Properties 6 Item 3. Legal Proceeding 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 8. Index to Financial Statements and Supplementary Financial Data 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27 PART III Item 10. Directors and Executive Officers of the Registrant 28 Item 11. Executive Compensation 29 Item 12. Security Ownership of Certain Beneficial Owners and Management 29 Item 13. Certain Relationships and Related Transactions 30 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 31 SIGNATURES 32 INDEX TO EXHIBITS 33
3 4 PART I Item 1. BUSINESS Community Investment Partners II, L.P. (the "Partnership") was formed to seek long-term capital appreciation by making investments in companies and other special investment situations. The Partnership will not engage in any other business or activity. The Partnership will dissolve on December 31, 2007, subject to the right of the Individual General Partners to extend the term for up to two additional two-year periods. The Partnership has elected to be a business development company under the Investment Company Act of 1940, as amended. As a business development company, the Partnership is required to invest at least 70% of its assets in qualifying investments as specified in the Investment Company Act. The Partnership was formed on May 8, 1992, under the Revised Uniform Limited Partnership Act of Missouri. CIP Management, L.P., LLLP, the Managing General Partner, is a Missouri limited liability limited partnership formed on October 10, 1989 as a limited partnership and registered as a limited liability limited partnership on July 23, 1997. The general partner of CIP Management, L.P., LLLP is CIP Management, Inc., an indirect subsidiary of Edward D. Jones & Co., L.P. The Partnership participated in a public offering of its limited partnership interests in 1992. The Partnership sold 111,410 Units of limited partnership interest and 1,120 units of general partnership interest for an aggregate price of $1,406,625. After offering expenses, the Partnership received approximately $1,224,000 in proceeds available for investment. The Partnership executed a call to each partner requesting the deposit of an amount equal to the initial capital contribution on August 25, 1994. The information set forth under the captions "Investment Objectives & Policies" and "Regulation" in the Prospectus of the Partnership dated November 4, 1992, filed with the Securities and Exchange Commission pursuant to Rule 497(b) under the Securities Act of 1933, is incorporated herein by reference. Risks of Unit Ownership The purchase and ownership of Units involve a number of significant risks and other important factors. The portfolio company investments of the Partnership involve a high degree of business and financial risk that can result in substantial losses. Among these are the risks associated with investment in companies with little operating history, companies operating at a loss or with substantial variations in operating results from period to period, companies with the need for substantial additional capital to support expansion or achieve or maintain a competitive position, companies which may be highly leveraged, companies which may not be diversified and companies in which the Partnership may be the sole or primary lender. The Partnership intends to invest in only a few companies. Therefore, a loss or other problem with a single investment would have a material adverse effect on the Partnership. 4 5 Other risks include the Partnership's ability to find suitable investments for its funds because of competition from other entities having similar investment objectives. Risks may arise due to the significant period of time that may elapse before the Partnership has completed the selection of its portfolio company investments and the significant period of time (typically four to seven years or longer) which will elapse before portfolio company investments have reached a state of maturity such that disposition can be considered. It is unlikely that any significant distributions of the proceeds from the disposition of investments will be made until the later years of the term of the Partnership. Portfolio companies may require additional funds. There can be no assurance that the Partnership will have sufficient funds from reserves or borrowing to make such follow-on investments which may have a substantial negative impact on a portfolio company in need of additional funds. All decisions with respect to the management of the Partnership, including identifying and making portfolio investments, are made exclusively by the General Partners. Limited Partners must rely on the abilities of the General Partners. The key personnel of the Managing General Partner have considerable prior experience in investment banking and in structuring investments. In addition, they have prior experience in the operation of Community Investment Partners, L.P., a business development company with a similar investment strategy. Ownership of the Units also entails risk because Limited Partners may not be able to liquidate their investment in the event of an emergency or for any other reason due to the substantial restrictions on transfers contained in the Partnership Agreement and the lack of a market for the resale of Units. The information set forth under the captions "Risk and Other Important Factors" (including the subsections "Risks of Investment," "Size of Partnership," "Ability to Invest Funds," "Time Required to Maturity of Investments; Illiquidity of Investments," "Need for Follow-on Investments," "Use of Leverage," "Unspecified Investments," "Reliance on Management," "New Business," "No Market for Units" and "Federal Income Tax Considerations") on pages 9 through 14 of the Prospectus of Partnership dated November 4, 1992, filed with the Securities and Exchange Commission pursuant to Rule 497(b) under the Securities Act of 1933 on November 4, 1992, is incorporated herein by this reference. (This information has been restated herein pursuant to section 64(b) of the Investment Company Act of 1940). Partners should refer to the Partnership Agreement for more detailed information. Employees The Partnership has no employees. The Managing General Partner performs management and administrative services for the operation of the Partnership. The Managing General Partner is paid an annual management fee of 1.5% of total assets. The Managing General Partner is reimbursed by the Partnership for out of pocket expenses in connection with finding, evaluating, structuring, approving, monitoring and liquidating the Partnership's portfolio investments. 5 6 Item 2. PROPERTIES The Partnership does not own or lease any physical properties. Item 3. LEGAL PROCEEDINGS The Partnership is not a party to any material pending legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the period covered by this report. 6 7 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for the Limited Partnership interests. As of March 15, 1998, the total number of holders of units is 131. The number of limited partnership units outstanding is 111,395. The number of general partnership units outstanding is 1,135 as of March 15, 1998. The information set forth under the captions "Partnership Distributions and Allocations" and "Transferability of Units" in the Prospectus of the Partnership dated November 4, 1992, filed with the Securities and Exchange Commission pursuant to Rule 497(b) under the Securities Act of 1933 is incorporated herein by reference. 7 8 Item 6. SELECTED FINANCIAL DATA
BALANCE SHEET: As of December 31, -------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- Net Assets $1,848,895 $1,982,725 $2,014,889 $2,645,511 $1,355,231 Portfolio Investments at Fair Value $1,733,229 $1,397,330 $ 545,013 $1,000,013 $ 500,013 INCOME STATEMENT: For the Year Ended December 31, ------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 -------- -------- --------- -------- -------- Net Income (Loss) $437,384 $(16,866) $(630,622) $(86,345) $(48,394) before Unrealized Losses Unrealized Losses (8,564) (15,298) - - - Net Income (Loss) 428,820 (32,164) (630,622) (86,345) (48,394) Per Unit of Partnership Interest: Net Asset Value $ 16.43 $ 17.62 $ 17.91 $ 23.50 $ 12.04 Net Income (Loss) 3.89 (.15) (5.60) (.77) (.43) before Unrealized Losses Unrealized Losses (.08) (.14) - - - Net Income (Loss) 3.81 (.29) (5.60) (.77) (.43)
8 9 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (FISCAL YEAR 1997 VERSUS 1996) Net income for the year ended December 31, 1997, was $428,820, compared to a net loss of $32,164 in 1996. The increase in net income is mainly attributable to realized gains of $511,973 from the sale of 2,000 shares of Class A Cumulative Redeemable Preferred Stock of Houghton Acquisition Corporation as outlined in Note 6 to the financial statements. For 1997, there was a net unrealized loss on investments of $8,564 due to the unrealized loss recorded for FCOA Acquisition Corporation when the share price decreased. This unrealized loss was offset by unrealized gains recorded for Computer Motion, Inc., which participated in an initial public offering during the year. Income also was derived from dividends and interest. However, dividend and interest income decreased approximately $48,600, or 58%, from the prior year, due to a smaller amount of cash funds invested in certificates of deposit and money market funds. The cash was used to make several investments which are outlined in the Schedule of Portfolio Investments and the schedule of investment transactions included in Note 6 to the financial statements. Expenses increased approximately $9,200, or 9%, from the prior year due to higher legal and trustee fees. The Partnership made a distribution of $5 per unit during 1997. As of December 31, 1997, unrealized losses on investments totaled $23,862. The future income or loss of the Partnership is contingent upon the performance of the portfolio investments. (FISCAL YEAR 1996 VERSUS 1995) Net loss for the year ended December 31, 1996, was $32,164, compared to a net loss of $630,622 for 1995. Income was derived from dividend income on portfolio investments and interest income from certificates of deposit. The majority of the reduced net loss incurred during 1996 is due primarily to an investment in West End Soda Brew of $600,000, which was written off in 1995. In addition, the Partnership had lower interest income of $15,212, due to cash being used to purchase investments throughout 1996. Dividend income increased $18,979 due to the increased level of investments. During the year, the Partnership made several investments as outlined in the Schedule of Portfolio Investments. One such investment, FCOA Acquisition Corp., participated in an initial public stock offering on December 13, 1996. The initial public offering price was $9 per share, and the stock trades on the NASDAQ under the ticker symbol FCPY. As of December 31, 1996, an unrealized loss of $15,298 has been recorded for the FCOA Acquisition Corporation investment. Expenses decreased by $9,989, from $110,490 in 1995 to $100,501 in 1996. The decrease is primarily related to lower professional fees. The future income or loss of the Partnership is contingent upon the performance of current and future investments. SUBSEQUENT EVENTS The Partnership received a principal payment of $51,600, due January 2, 1998, for the 8% Convertible Promissory Note from Hawk Corporation. This related to the prior sale of the Partnership's investment in Houghton Acquisition Corporation. In addition, $1,582 was received 9 10 for interest accrued for the fourth quarter of 1997 on this Note. LIQUIDITY AND CAPITAL RESOURCES Total capital for the Partnership as of December 31, 1997, was $1,848,895. This consisted of $1,830,287 in Limited Partner capital and $18,608 in General Partner capital. Net income of $428,820 for 1997 was allocated in the amount of $424,532 to the Limited Partners and in the amount of $4,288 to the General Partners. The Partnership is actively reviewing potential portfolio investments. Until the Partnership finishes investing in portfolio investments, it intends to invest its cash balances in a money market account. At December 31, 1997, $90,000 was invested in the money market account. Due to their short term nature, such investments provide the Partnership with the liquidity necessary for investments as opportunities arise. 10 11 Item 8. INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ---- Report of Independent Accountants 12 Balance Sheet as of December 31, 1997 and 1996 13 Schedule of Portfolio Investments as of December 31, 1997 and 1996. 14 Income Statement for the Years Ended December 31, 1997, 1996, and 1995. 19 Statement of Changes in Partnership Capital for the Years Ended December 31, 1997, 1996 and 1995. 20 Statement of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995. 21 Notes to Financial Statements. 22
Financial Statement Schedules: All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 11 12 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Community Investment Partners II, L.P. In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Community Investment Partners II, L.P. (the "Partnership") at December 31, 1997 and 1996, and the results of its operations, its cash flows and the changes in its Partnership Capital for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of portfolio investments owned at December 31, 1997, provide a reasonable basis for the opinion expressed above. As explained in Note 3, the financial statements include securities valued at $1,382,233 (75 percent of net assets), whose values have been estimated by the Managing General Partner in the absence of readily ascertainable market values. Those estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material. PRICE WATERHOUSE LLP St. Louis, Missouri March 9, 1998 12 13 COMMUNITY INVESTMENT PARTNERS II, L.P. BALANCE SHEET
ASSETS ------ December 31, 1997 1996 ---------- ---------- Investments at Fair Value (Note 3) (cost $1,757,091 and $1,412,628, respectively) $1,733,229 $1,397,330 Cash and Cash Equivalents 112,496 540,528 Deferred Organizational Costs, net (Note 3) - 36,683 Accrued Interest and Dividends Receivable 18,974 17,835 Prepaid Expenses - 2,449 ---------- ---------- TOTAL ASSETS $1,864,699 $1,994,825 ========== ========== LIABILITIES AND PARTNERSHIP CAPITAL ----------------------------------- December 31, 1997 1996 ---------- ---------- Liabilities: Accounts Payable and Accrued Expenses $ 15,804 $ 12,100 ---------- ---------- TOTAL LIABILITIES 15,804 12,100 ---------- ---------- Partnership Capital: Capital - Limited Partners 1,830,287 1,962,730 Capital - General Partners 18,608 19,995 ---------- ---------- TOTAL PARTNERSHIP CAPITAL 1,848,895 1,982,725 ---------- ---------- TOTAL LIABILITIES AND PARTNERSHIP CAPITAL $1,864,699 $1,994,825 ========== ========== The accompanying notes are an integral part of these financial statements.
13 14 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997
Company Nature of Business Fair Value Initial Investment Date Investment Cost (Note 3) - ------------------------------------------------------------------------------------------------------------------ Hawk Corporation Designs, engineers, manufactures, (Houghton Acquisition and markets friction products and precision Corporation) engineered components January 2, 1997 8% Convertible Promissory Note, due 1/2/99 $ 77,400 $ 77,400 8% Contingent EBITDA Promissory Note, due 4/30/00 0 0 Global Surgical Formed to acquire the Urban Corporation Microscope Division and the Surgical Mechanical Research subsidiary of Storz Medical January 31, 1994 3,000 shares of Common Stock 300,000 300,000 June 30, 1995 7% Promissory Note, due 6/29/00 45,000 45,000 January 26, 1996 7% Promissory Note, due 1/25/01 67,500 67,500 Computer Motion, Inc. Develops and supplies medical robotics June 26, 1997 40,948 warrants to purchase common stock, exercisable at $4.569 per warrant through 5/2/03 8 8 August 12, 1997 16,208 shares of Common Stock 124,993 170,184 16,209 warrants to purchase common stock, exercisable at $7.712 per warrant, through 12/31/03 250 250 FCOA Acquisition A chain of greeting card/ Corporation party stores which offer (d/b/a Factory Card a full line of products at Outlet) everyday value prices July 30, 1996 26,063 Common Shares 249,865 180,812 The accompanying notes are an integral part of these financial statements. 14 15 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (cont'd.) AS OF DECEMBER 31, 1997 Company Nature of Business Fair Value Initial Investment Date Investment Cost (Note 3) - ------------------------------------------------------------------------------------------------------------------ Permalok Corporation Develops and sells steel pipe joining system to the domestic underground utility construction industry September 24, 1996 25,000 shares of Convertible Preferred Stock $ 200,000 $ 200,000 Stereotaxis, Inc. Develops and markets a system by which surgery can be conducted remotely using computer controlled magnets December 30, 1996 138,889 shares of Preferred Stock 100,000 100,000 November 12, 1997 10% Convertible Promissory 39,609 39,609 Note, due 10/31/02 Medical Device Specializes in the development, Alliance, Inc, manufacture and marketing of devices for ultrasound-assisted lipoplasty January 24, 1997 20,000 shares of Common Stock 100,000 100,000 Online Resources & Provides a variety of inter- Communications active banking and financial Corporation services to end-users and corporate customers in the banking and financial services industry March 17, 1997 1,525 shares of Series C Convertible Preferred Stock 152,466 152,466 Warrants to purchase 20,327 shares of Common Stock at $3.00 per warrant, expiring 6/1/02 0 0 The accompanying notes are an integral part of these financial statements. 15 16 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (cont'd.) AS OF DECEMBER 31, 1997 Company Nature of Business Fair Value Initial Investment Date Investment Cost (Note 3) - ------------------------------------------------------------------------------------------------------------------ Advanced UroScience, Developing Acyst, an injectable Inc. bulking agent, for the treatment of stress urinary incontinence. April 7, 1997 25,000 shares of Series A Preferred Stock $ 100,000 $ 100,000 Neocrin Company Research and development of minimally invasive, encapsulated cellular transplants for the treatment of diabetes. September 3, 1997 50,000 shares of Series E Preferred Stock 100,000 100,000 BioSeparations, Inc. Develops automated instrumentation that can isolate and process cells for use in biotechnology, diagnostic, therapeutic, and clinical research applications October 14, 1997 50,000 shares of Series B Preferred Stock 100,000 100,000 Warrant to purchase 9,091 shares of Common Stock at $1.10 per share, through 10/15/02 - - Warrant to purchase 50,000 shares of Series B Preferred Stock at $0.20 per share, through 1/31/01 - - ---------- ---------- $1,757,091 $1,733,229 ========== ========== The accompanying notes are an integral part of these financial statements.
16 17 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1996
Company Nature of Business Fair Value Initial Investment Date Investment Cost (Note 3) - ------------------------------------------------------------------------------------------------------------------ Houghton Acquisition Organized for the purpose of Corporation acquiring Hutchinson Foundry Products, Inc. March 10, 1993 2,000 shares of Class A cumulative redeemable Preferred Stock $ 200,013 $ 200,013 Global Surgical Formed to acquire the Urban Corporation Microscope Division and the Surgical Mechanical Research subsidiary of Storz Medical January 31, 1994 3,000 shares of Common Stock 300,000 300,000 June 30, 1995 7% Promissory Note, due 6/29/00 45,000 45,000 January 26, 1996 7% Promissory Note, due 1/25/01 67,500 67,500 Computer Motion, Inc. Develops and supplies medical robotics May 3, 1996 Prime +1% Term Note, due 10/31/98 125,000 125,000 September 9, 1996 25,000 shares of Series E Preferred Stock 125,000 125,000 25,000 warrants 250 250 FCOA Acquisition A chain of greeting card/ Corporation party stores which offer (d/b/a Factory Card a full line of products at Outlet) everyday value prices July 30, 1996 26,063 Common Shares 249,865 234,567 The accompanying notes are an integral part of these financial statements. 17 18 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (cont'd.) AS OF DECEMBER 31, 1996 Company Nature of Business Fair Value Initial Investment Date Investment Cost (Note 3) - ------------------------------------------------------------------------------------------------------------------ Permalok Corporation Develops and sells steel pipe joining system to the domestic underground utility construction industry September 24, 1996 25,000 shares of Convertible Preferred Stock $ 200,000 $ 200,000 Stereotaxis, Inc. Develops and markets a system by which surgery can be conducted remotely using computer controlled magnets December 30, 1996 138,889 shares of Preferred Stock 100,000 100,000 ---------- ---------- $1,412,628 $1,397,330 ========== ========== The accompanying notes are an integral part of these financial statements.
18 19 COMMUNITY INVESTMENT PARTNERS II, L.P. INCOME STATEMENT
For the Year Ended December 31, 1997 1996 1995 -------- -------- --------- INCOME ------ Interest and Dividend Income $ 35,075 $ 83,635 $ 79,868 Net Realized Gain (Loss) on Sale of Investments (Note 6) 511,973 - (600,000) -------- -------- --------- TOTAL INCOME (LOSS) 547,048 83,635 (520,132) -------- -------- --------- EXPENSES -------- Management Fees (Note 5) 28,851 30,496 30,918 Amortization of Deferred Organization Costs (Note 3) 36,683 36,684 36,683 Professional Fees 31,106 19,898 29,540 Independent General Partners' Fees 12,000 12,000 12,000 Other 1,024 1,423 1,349 -------- -------- --------- TOTAL EXPENSES 109,664 100,501 110,490 -------- -------- --------- Net Income (Loss) before Unrealized Losses 437,384 (16,866) (630,622) Net Unrealized Losses on Investments (8,564) (15,298) - -------- -------- --------- NET INCOME (LOSS) $428,820 $(32,164) $(630,622) ======== ======== ========= The accompanying notes are an integral part of these financial statements.
19 20 COMMUNITY INVESTMENT PARTNERS II, L.P. STATEMENT OF CHANGES IN PARTNERSHIP CAPITAL
For the Years Ended December 31, 1997, 1996 and 1995 ---------------------------------------------------- Limited General Partners Partners Total ---------- -------- ---------- Balance, December 31, 1994 $2,618,888 $26,623 $2,645,511 Net loss (624,316) (6,306) (630,622) ---------- ------- ---------- Balance, December 31, 1995 $1,994,572 $20,317 $2,014,889 Net loss (31,842) (322) (32,164) ---------- ------- ---------- Balance, December 31, 1996 $1,962,730 $19,995 $1,982,725 Distribution (556,975) (5,675) (562,650) Net Income 424,532 4,288 428,820 ---------- ------- ---------- Balance, December 31, 1997 $1,830,287 $18,608 $1,848,895 ========== ======= ========== The accompanying notes are an integral part of these financial statements.
20 21 COMMUNITY INVESTMENT PARTNERS II, L.P. STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997 1996 1995 - --------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED (USED) FOR OPERATING ACTIVITIES: Net Income (Loss) $ 428,820 $ (32,164) $ (630,622) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Amortization of Deferred Organization Costs 36,683 36,683 36,683 Purchase of Portfolio Investments (592,083) (867,615) (145,000) Net Realized (Gain) Loss on Sale/ - Liquidation of Portfolio Investment (511,973) - 600,000 Unrealized Losses on Portfolio Investments 8,564 15,298 - Increase in Accrued Interest Receivable (1,139) (8,251) (2,206) Increase in Accounts Payable and Accrued Expenses 3,704 - 7,000 Decrease (Increase) in Prepaid Expense 2,449 (2,449) - Sale of Portfolio Investments 759,593 - - --------- ---------- ---------- Total Cash Provided (Used) for Operating Activities 134,618 (858,498) (134,145) CASH FLOWS USED BY FINANCING ACTIVITIES: Capital Distributions (562,650) - - --------- ---------- ---------- Total Cash Used by Financing Activities (562,650) - - --------- ---------- ---------- Net Decrease in Cash and Cash Equivalents (428,032) (858,498) (134,145) CASH AND CASH EQUIVALENTS: Beginning of year 540,528 1,399,026 1,533,171 --------- ---------- ---------- End of year $ 112,496 $ 540,528 $1,399,026 ========= ========== ========== The accompanying notes are an integral part of these financial statements.
21 22 COMMUNITY INVESTMENT PARTNERS II, L.P. NOTES TO FINANCIAL STATEMENTS 1. GENERAL Partnership Organization ------------------------ Community Investment Partners II, L.P. (the "Partnership") was formed on May 8, 1992, under the Revised Uniform Limited Partnership Act of Missouri. CIP Management, L.P., LLLP, the Managing General Partner, is a Missouri limited liability limited partnership formed on October 10, 1989 as a limited partnership and registered as a limited liability limited partnership on July 23, 1997. The general partner of CIP Management, L.P.,LLLP is CIP Management, Inc., an indirect subsidiary of Edward D. Jones & Co., L.P. Business -------- The Partnership elected to be a business development company under the Investment Company Act of 1940, as amended. As a business development company, the Partnership is required to invest at least 70% of its assets in qualifying investments as specified in the Investment Company Act. The Managing General Partner is responsible for making the Partnership's investment decisions. The Partnership will seek long-term capital appreciation by making investments in companies and other special investment situations. The Partnership is not permitted to engage in any other business or activity. The Partnership will dissolve on December 31, 2007, subject to the right of the Individual General Partners to extend the term for up to two additional two-year periods. Risk of Ownership ----------------- The purchase and ownership of Partnership Units involve a number of significant risks and other important factors. The portfolio company investments of the Partnership involve a high degree of business and financial risk that can result in substantial losses. Among these are the risks associated with investment in companies with little operating history, companies operating at a loss or with substantial variations in operating results from period to period, companies with the need for substantial additional capital to support expansion or achieve or maintain a competitive position, companies which may be highly leveraged, companies which may not be diversified and companies in which the Partnership may be the sole or primary lender. The Partnership intends to invest in only a few companies; therefore, a loss or other problem with a single investment would have a material adverse effect on the Partnership. 2. ALLOCATION OF PARTNERSHIP PROFITS AND LOSSES Generally, profits will be allocated 99% to the Limited Partners and 1% to the General Partners until the Partners' Capital Accounts equal their undistributed Capital Contributions. Thereafter, profits will be allocated 90% to the Limited Partners and 10% to the General Partners in an amount sufficient to cause their Capital Accounts to equal an amount equal to (i) two times their Capital Contributions less (ii) cumulative distributions pursuant to paragraph 4.1 and paragraph 9.2.2 of the Partnership Agreement, at which time profits will be allocated 80% to the Limited Partners and 20% to the General Partners. 22 23 Generally, losses will be allocated 99% to the Limited Partners and 1% to the General Partners; provided, however, that losses will be allocated 80% to the Limited Partners and 20% to the General Partners to the extent of any prior allocation of profits which were made to the Partners on an 80%/20% basis. Next, losses will be allocated 90% to the Limited Partners and 10% to the General Partners to the extent any prior allocations of profits were made to the Partners on an 90%/10% basis. Thereafter, losses, if any, will be allocated to those Partners who bear the economic risk of loss. Partners should refer to the partnership agreement for more specific information. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents ------------------------- All short-term investments with original maturities of three months or less are considered to be cash equivalents. Investment Transactions ----------------------- All portfolio investments are carried at cost until significant developments affecting an investment provide a basis for revaluation. Thereafter, portfolio investments are carried at fair value as obtained from outside sources or at a value determined quarterly by the Managing General Partner under the supervision of the Independent General Partners. Due to the inherent uncertainty of valuation, those estimated values for portfolio investments carried at cost may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material to the financial statements. Investment in securities traded on a national securities exchange are valued at the latest reported sales price on the last business day of the period. If no sale has taken place, the securities are valued at the last bid price. If no bid price has been reported, or if no exchange quotation is available, the securities are valued at the quotation obtained from an outside broker. Investment transactions are recorded on a trade date basis. Income is recorded on an accrual basis. 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 as of 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. Organizational Costs -------------------- Organizational costs were amortized over a sixty-month period. As of December 31, 1997, the organizational costs were fully amortized. Income Taxes ------------ Income taxes have not been provided for as the Partnership is a limited partnership and each partner is liable for its own tax payments. Allocation of Partnership profits and losses for tax purposes is based upon taxable income which may differ from net income for financial reporting primarily due to differences between book and tax accounting for portfolio investments. 23 24 Distributions ------------- When excess cash, if any, becomes available, it is the Partnership's intent to make distributions. All distributions are subject to the sole discretion of the Managing General Partner and the Independent General Partners. 4. PER UNIT INFORMATION There is no market for the Limited Partnership interests. Per Unit Information is as follows:
For the Year Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------ Number of unit holders 131 131 131 Limited partnership units 111,395 111,395 111,395 General partnership units 1,135 1,135 1,135 -------- -------- -------- Total units outstanding 112,530 112,530 112,530 ======== ======== ======== Net asset value per unit $ 16.43 $ 17.62 $ 17.91 ======== ======== ======== Net income (loss) per unit $ 3.81 $ (.29) $ (5.60) ======== ======== ========
24 25 5. RELATED PARTY TRANSACTIONS The Partnership is furnished with certain non-reimbursed management and accounting services by affiliates, whose value is not reflected in the accompanying financial statements. The Managing General Partner performs management and administrative services for the operation of the Partnership. The Managing General Partner is paid an annual management fee of 1.5% of total assets. This fee for 1997 was $28,851. The Partnership may place its General Partners on Boards of Directors of portfolio companies. The Managing General Partner and the Independent General Partners of the Partnership are also the managing general partner and independent general partners, respectively, of Community Investment Partners, L.P., a business development company. Additionally, the Managing General Partner is the managing general partner of Community Investment Partners III L.P., LLLP, another business development company. 25 26 6. INVESTMENT TRANSACTIONS Following is a summary of portfolio investment transactions during the years ended December 31, 1997, 1996, and 1995 respectively.
For the year ended December 31, 1997: - ------------------------------------- Type of Realized Company Investment Cost Proceeds Gain (Loss) ------- ---------- ---- -------- ----------- Purchases: --------- Medical Device Alliance, Inc. Common Stock $100,000 Online Resources & Communications Promissory Note Corporation & Warrants 152,466 Series A Advanced UroScience, Inc. Preferred Stock 100,000 Computer Motion, Inc. Warrants 8 Series E Neocrin Company Preferred Stock 100,000 BioSeparations, Inc. Series B Preferred Stock & Warrants 100,000 Stereotaxis, Inc. Convertible Promissory Note 39,609 -------- Total Purchases $592,083 ======== Sales: ----- Class A Cumulative Houghton Redeemable Preferred Acquisition Corp. Stock $200,013 $711,986 $511,973 Computer Motion, Inc. Term Note 125,000 125,000 - Computer Motion, Inc. Fractional Shares Common Stock 7 7 - -------- -------- -------- Total Sales $325,020 $836,993 $511,973 ======== ======== ======== 26 27 Proceeds included $634,586 in cash and a $77,400 8% Convertible Promissory Note due 1/2/99. A $25,800 Promissory Note contingent upon the future income of HAC before interest, taxes, depreciation, amortization and corporate charges was also received as consideration. Due to the contingent nature of the $25,800 Promissory Note, a gain has not been recorded. This note has been recorded at an original cost of $0, and additional gain will be recorded if, or when, payments become due under terms of the Note. For the year ended December 31, 1996: - ------------------------------------- Type of Realized Company Investment Cost Proceeds Gain (Loss) ------- ---------- ---- -------- ----------- Purchases: --------- Global Surgical Promissory Note $ 67,500 Corporation Computer Motion, Inc. Term Note, Preferred Stock & Warrants 250,250 Factory Card Outlet Common Stock 249,865 Convertible Permalok Corporation Preferred Stock 200,000 Stereotaxis, Inc. Preferred Stock 100,000 -------- Total Purchases $867,615 ======== For the year ended December 31, 1995: - ------------------------------------- Type of Realized Company Investment Cost Proceeds Gain (Loss) ------- ---------- ---- -------- ----------- Purchases: --------- West End Soda Brew, LP Limited Partnership Interest $100,000 Global Surgical Promissory Note 45,000 Corporation -------- Total Purchases $145,000 ========
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 27 28 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT There are two Independent General Partners and one Managing General Partner of the Partnership. These Independent General Partners and the Managing General Partner are responsible for the management and administration of the Partnership. The General Partners are "interested persons" of the Partnership as defined by the Investment Company Act of 1940, but the Partnership has obtained an exemptive order from the Securities and Exchange Commission permitting them to be considered disinterested persons. The Independent General Partners provide overall guidance and supervision with respect to the operation of the Partnership and perform the various duties imposed on the directors of a business development company by the Investment Company Act of 1940. In addition to general fiduciary duties, the Independent General Partners supervise the management and underwriting arrangement of the Partnership, the custody arrangement with respect to portfolio securities, the selection of accountants, fidelity bonding and transactions with affiliates. Specific Information regarding the Independent General Partners: Tommy L. Gleason, Jr., 52, has been an Independent General Partner of the Partnership since May 1992. He is also an independent general partner of Community Investment Partners, L.P., a business development company. Mr. Gleason is the Chairman and Chief Executive Officer of Galaxy Systems Management, Inc., the general Partner of Galaxy Telecom, L.P., which is involved in management of cable television systems located in sixteen states and serving approximately 175,000 subscribers. Mr. Gleason owns 2,026 Units. E. Stanley Kroenke, 50, has served as an Independent General Partner of the Partnership since May 1992. He is also an independent general partner of Community Investment Partners, L.P., a business development company. Mr. Kroenke leads a company that is a national investor, developer, and owner of commercial real estate. The company is a developer and owner of numerous shopping centers as well as apartment projects around the country. Mr. Kroenke is co-owner and vice chairman of the St. Louis Rams National Football League franchise. He also serves as a member of the board of directors of Wal-Mart Stores, Inc., Bentonville, Arkansas; Central Bancompany, Jefferson City, Missouri; Boone County National Bank, Columbia, Missouri; and the Strategic Development Board of the University of Missouri School of Business, Columbia, Missouri. He serves as a trustee of the College of the Ozarks in Point Lookout, Missouri, as well as chairman of their real estate committee. Mr. Kroenke owns 5,633 Units. CIP Management, L.P., LLLP (the "Managing General Partner") is the Managing General Partner of Community Investment Partners II, L.P. The Managing General Partner is also managing general partner of Community Investment Partners, L.P. and Community Investment Partners III L.P., LLLP, business development companies. The General Partners of the Managing General Partner are CIP Management, Inc., a Missouri corporation and a wholly-owned subsidiary of Edward D. Jones & Co., L.P., and Daniel A. Burkhardt. 28 29 The Directors and Officers of CIP Management, Inc. are as follows: Daniel A. Burkhardt, 50, President, Treasurer and Director of CIP Management, Inc. since October 1989 and general partner of CIP Management, L.P.,LLLP since February 1990. He is a general partner of The Jones Financial Companies, L.P., LLP, the parent company of Edward D. Jones & Co., L.P., where he has specialized in investment banking and structuring investments since 1980. He is also a director of Essex County Gas Company, St. Joseph Light & Power Co., SEMCO Energy, Inc. and Mid-America Realty Investment, Inc. Mr. Burkhardt is the beneficial owner of 4,052 Units. Ray A. Robbins, Jr., 53, Vice President and Director of CIP Management, Inc. since October 1989. He is a general partner of The Jones Financial Companies, L.P., LLP, the parent company of Edward D. Jones & Co., L.P., where he has specialized in securities analysis since 1984, and where he was responsible for municipal bond transactions from 1975 to 1983. Mr. Robbins is a beneficial owner of 3,242 Units. Marilyn A. Gaffney, 39, Secretary of CIP Management, Inc. since October 1989. She is a Limited Partner of The Jones Financial Companies, L.P., LLP, the parent company of Edward D. Jones & Co., L.P., where she has been a senior investment adviser in investment banking since 1980. Ms. Gaffney is the beneficial owner of 405 Units. Item 11. EXECUTIVE COMPENSATION The information set forth under the caption "Partnership Distributions and Allocations" in the Prospectus of the Partnership dated November 4, 1992, filed with the Securities and Exchange Commission pursuant to Rule 497(b) under the Securities Act of 1933, is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information concerning the security ownership of the Independent General Partners and the Officers and Directors of CIP Managements, Inc., described in Item 10, is herein incorporated by reference. 29 30 As of March 15, 1998, the following parties are known by the Partnership to be the beneficial owners of more than 5% of the Units.
Amount of Beneficial % of Limited Name Ownership of Units Partnership Capital ---- ------------------ ------------------- Richard P. Kiphart 10,131 9.09% EDJ Ventures Ltd. 5,633 5.06% E. Stanley Kroenke 5,633 5.06%
The Partnership is not aware of any arrangement which may, at a subsequent date, result in a change of control of the Partnership. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain relationships and related transactions, described in Item 10, are herein incorporated by reference. 30 31 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a. The following documents are filed as part of this report: 1. Financial Statements: -------------------- See Index to Financial Statements and Supplementary Data contained in Item 8 of this Form 10-K. 2. Financial Statement Schedules: ----------------------------- All financial statement schedules are omitted because they are not applicable, or the required information is included in the balance sheet or notes thereto. 3. Exhibits: -------- (3) Amended and Restated Certificate and Agreement of Limited Partnership dated as of November 4, 1992. (4) Form of Unit Certificate. (10) Management Agreement dated November 4, 1992, between the Partnership and CIP Management, L.P., LLLP. (28) Prospectus of the Partnership dated November 4, 1992, filed with the Securities and Exchange Commission in connection with Registration Statement No. 33-47917 on Form N-2 under the Securities Act of 1933. [FN] Incorporated by reference to Exhibit A of the Prospectus of the Partnership dated November 4, 1992 filed with the Securities and Exchange Commission pursuant to Rule 497(b) under the Securities Act of 1933. Incorporated by reference to the Partnership's Registration Statement No. 33-47917 on Form N-2 under the Securities Act of 1933. b. No reports on Form 8-K were filed during the quarter ended December 31, 1997. c. Exhibits filed as part of this report are included in Item (14) (a)(3) above. d. All financial statement schedules are omitted because they are not applicable, or the required information is included in the balance sheet or notes thereto. 31 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on this 23rd day of March, 1998. Community Investment Partners II, L.P. By: CIP Management, L.P.,LLLP, its Managing General Partner By: CIP Management, Inc., its Managing General Partner /s/ Daniel A. Burkhardt, President ----------------------------------- By: Daniel A. Burkhardt, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Daniel A. Burkhardt - ------------------------------ General Partner of CIP Management Daniel A. Burkhardt L.P., LLLP, President, Treasurer and Director of CIP Management, Inc. /s/ Ray L. Robbins - ------------------------------ Vice President and Director of CIP Ray L. Robbins Management, Inc. /s/ Tommy L. Gleason, Jr. - ------------------------------ Individual General Partner, Tommy L. Gleason, Jr. Community Investment Partners II, L.P. /s/ E. Stanley Kroenke - ------------------------------ Individual General Partner, E. Stanley Kroenke Community Investment Partners II, L.P.
32 33 INDEX TO EXHIBITS
Exhibit Number Description of Exhibit Page - ------ ---------------------- ---- (3) Amended and Restated Certificate and Agreement of Limited Partnership dated as of November 4, 1992 (4) Form of Unit Certificate (10) Management Agreement dated November 4, 1992, between the Partnership and CIP Management, L.P., LLLP (28) Prospectus of the Partnership dated November 4, 1992, filed with the Securities and Exchange Commission in connection with Registration Statement No. 33-47917 on Form N-2 under the Securities Act of 1933 - -------------------- Incorporated by reference
33 EX-27 2 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information extracted from the financial statements for Community Investment Partners II, L.P. for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1,757,091 1,733,229 18,974 0 0 1,864,699 0 0 15,804 15,804 0 0 112,530 112,530 0 0 0 0 0 1,848,895 0 35,075 0 0 0 511,973 (8,564) 0 0 0 0 (562,650) 0 0 0 0 0 0 0 0 0 0 109,664 1,915,810 17.62 3.81 0 0 (5.00) 0 16.43 0 0 0
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