10-K405 1 cip2.txt COMMUNITY INVEST. PARTNERS II, L.P. FORM 10-K405 UNITED STATES 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, 2000 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.) 12555 Manchester Road St. Louis, Missouri 63131 -------------------------------------------------------------------------------- (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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this form 10-K. / X / As of March 15, 2001, 94,767 units of limited partnership interest (Units), representing net assets of $1,117,799 were held by non-affiliates. There is no established public market for such Units. 1 DOCUMENTS INCORPORATED BY REFERENCE None 2
COMMUNITY INVESTMENT PARTNERS II, L.P. TABLE OF CONTENTS PART I Page Item 1. Business..............................................................4 Item 2. Properties............................................................6 Item 3. Legal Proceedings.....................................................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 Disclosures..............................31 PART III Item 10. Directors and Executive Officers of the Registrant...................32 Item 11. Executive Compensation...............................................33 Item 12. Security Ownership of Certain Beneficial Owners and Management...........................................................33 Item 13. Certain Relationships and Related Transactions.......................34 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................................35 SIGNATURES......................................................................36 INDEX TO EXHIBITS...............................................................37
3 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 could have a material adverse effect on the Partnership. 4 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 Management Agreement was amended to waive the annual management fee of 1.5% of total assets, computed quarterly, to the Managing General Partner. This payment was terminated after the second quarter of 1998. 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 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 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, 2001, the total number of holders of units is 130. The number of limited partnership units outstanding is 111,395. The number of general partnership units outstanding is 1,135 as of March 15, 2001. 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 ITEM 6. SELECTED FINANCIAL DATA
STATEMENTS OF FINANCIAL CONDITION: As of December 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Net Assets $ 1,327,318 $ 2,050,649 $ 1,709,411 $ 1,848,895 $ 1,982,725 Portfolio Investments at Fair Value $ 1,303,328 $ 2,019,936 $ 1,671,491 $ 1,733,229 $ 1,397,330 STATEMENTS OF INCOME: For the Years Ended December 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Net Loss before Net Realized (Losses) Gains and Net Unrealized (Losses) Gains $ (6,968) $ (16,095) $ (26,925) $ (74,589) $ (16,866) Net Realized (Losses) Gains (5,257) (106,913) - 511,973 - Net Unrealized (Losses) Gains (711,106) 464,246 (112,559) (8,564) (15,298) Net (Loss) Income (723,331) 341,238 (139,484) 428,820 (32,164) Per Unit of Partnership Interest: Net Asset Value 11.79 18.22 15.19 16.43 17.62 Net Loss before Net Realized (Losses) Gains and Net Unrealized (Losses) Gains (.06) (.14) (.24) (.66) (.15) Net Realized (Losses) Gains (.05) (.95) - 4.55 - Net Unrealized (Losses) Gains (6.32) 4.12 (1.00) (.08) (.14) Net (Loss) Income $ (6.43) $ 3.03 $ (1.24) $ 3.81 $ (.29)
8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL YEAR 2000 VERSUS 1999 Net loss for the year ended December 31, 2000 was $723,331, compared to net income of $341,238 for the year ended December 31, 1999. The 2000 net loss was primarily caused by unrealized losses on portfolio investments. Net realized losses on investments for the year ended December 31, 2000 were $5,257, a 95% decrease from net realized losses of $106,913 for the year ended December 31, 1999. 2000 net realized losses consisted of a net realized loss of $8,550 from the sale of publicly traded investments offset by a $3,293 gain as a result of an escrow disbursement received from Houghton Acquisition Corporation. 1999 net realized losses were higher due to the write-off of the Neocrin investment in the amount of $106,000. There were no investment write-offs during the year ended December 31, 2000. Net unrealized losses for the year ended December 31, 2000 were $711,106, compared to net unrealized gains of $464,246 for the year ended December 31, 1999. The 2000 unrealized losses were caused by a 58% decrease in the share price of Computer Motion, Inc. and an 88% decrease in the share price of Online Resources & Communications Corporation during the year. Total expenses for the year ended December 31, 2000 were $24,768, an increase of 3% over 1999 expenses of $23,981. There were no partnership distributions in 2000. FISCAL YEAR 1999 VERSUS 1998 Net income for the year ended December 31, 1999, was $341,238, compared to a net loss of $139,484 for the year ended December 31, 1998. The net loss decreased primarily due to a $244,774 (417%) increase in net gains on investments offest by a $15,246 (39%) decrease in expenses, as discussed below. Dividend and interest income decreased by $4,416 as a result of the repayment of the Houghton Acquisition Corp. note receivable in the first quarter of 1999. There were no sales of investments during the years ended December 31, 1999 and 1998. The realized loss on investments at December 31, 1999 consists of a $106,000 write-off of the investment in Neocrin Company Series E and F Preferred stock, and a $913 loss on the repayment of the Houghton Acquisition Corp. note receivable. During 1999, Neocrin Company dissolved with no distributions made to investors, thereby causing the Partnership's investment to have a value of zero. The net unrealized gain on securities was $464,246 for 1999, compared to a net unrealized loss of $112,559 for 1998. The increase is primarily due to increases in the market values of Online Resources & Communications (ORCC) and Computer Motion Inc. (RBOT) common stock and warrants. ORCC completed an initial public offering during the second quarter of 1999. The increase in value of RBOT is the result of recording the market value of warrants to purchase common stock, previously recorded at cost. 9 Within total expenses, professional fees and other expenses remained relatively constant between 1999 and 1998. Management fees were zero in 1999, compared to 1998 fees of $14,325. The Management Agreement was amended after the second quarter of 1998 to waive the management fee. Director's fees were also discontinued in 1998, explaining the $2,000 decrease in director's fees for the year ended December 31, 1999. There were no partnership distributions in 1999. LIQUIDITY AND CAPITAL RESOURCES Total capital for the Partnership as of December 31, 2000, was $1,327,318. This consisted of $1,313,926 in Limited Partner capital and $13,392 in General Partner capital. Net loss of $723,331 for 2000 was allocated in the amount of $716,098 to the Limited Partners and in the amount of $7,233 to the General Partners. At December 31, 2000, the Partnership had $23,379 in cash and cash equivalents. 10
ITEM 8. INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA Page ---- Report of Independent Public Accountants........................................12 Report of Independent Accountants...............................................13 Schedule of Portfolio Investments as of December 31, 2000 and 1999......................................................14 Statements of Financial Condition as of December 31, 2000 and 1999..............20 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................21 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................22 Statements of Changes in Partnership Capital for the Years Ended December 31, 2000, 1999 and 1998....................................23 Notes to Financial Statements...................................................24 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 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Community Investment Partners II, L.P. We have audited the accompanying statement of financial condition of Community Investment Partners II, L.P. (a Missouri limited partnership), including the schedule of portfolio investments, as of December 31, 2000, and the related statements of operations, cash flows and changes in partnership capital for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards 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. Our procedures included confirmation of securities owned as of December 31, 2000, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 3, the financial statements include investment securities valued at $1,220,657 (92 percent of net assets) whose values have been estimated by the Managing General Partner in the absence of readily ascertainable market values. However, because of the inherent incertainty of valuation, the General Partner's estimated values may differ from the values that would have been used had a ready market existed for the securities and the differences could be material. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Community Investment Partners II, L.P., as of December 31, 2000, and the results of its operations, cash flows, and the changes in its partnership capital for the year then ended, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP St. Louis, Missouri February 16, 2001 12 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Community Investment Partners II, L.P. In our opinion, the statements of financial condition, including the schedule of portfolio investments, as of December 31, 1999 and the related statements of operations, of cash flows and of changes in partnership capital for each of the two years in the period ended December 31, 1999 present fairly, in all material respects, the financial position, results of operations and cash flows of Community Investment Partners II, L.P. (the "Partnership") at December 31, 1999 and for each of the two years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the Unites States of America. 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 statements in accordance with auditing standards generally accepted in the United States of America, 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 provide a reasonable basis for our opinion. As explained in Note 3, the financial statements include securities valued at $1,164,530 (57 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. We have not audited the financial statements of Community Investment Partners II, L.P. for any period subsequent to December 31, 1999. PricewaterhouseCoopers LLP St. Louis, Missouri March 3, 2000 13 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS As of December 31, 2000
----------------------------------------------------------------------------------------- Company Nature of Business Initial Investment Date Investment Cost Fair Value ----------------------------------------------------------------------------------------- GLOBAL SURGICAL Formed to acquire the Urban Microscope CORPORATION Division and the Surgical Mechanical Research subsidiary of Storz Medical January 31, 1994 3,000 shares of common stock $ 300,000 $ 300,000 August 1, 2000 12% subordinated promissory Note, due 4/30/03 155,221 155,221 COMPUTER MOTION, INC. Develops and supplies medical robotics (RBOT) September 6, 1996 40,948 warrants to purchase common stock, exercisable at $4.569 per warrant through 5/2/03 8 2,088 10,508 shares of common stock 81,035 48,547 16,209 warrants to purchase common stock, exercisable at $7.712 per warrant, through 12/31/03 250 - FCOA ACQUISITION A chain of greeting card/party CORPORATION stores which offer a full line (d/b/a Factory Card of products at everyday value Outlet)(FCPY) prices July 30, 1996 26,063 common shares 249,865 - 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 and warrants to purchase 25,000 shares of convertible preferred stock, exercisable at $9.60 per share, through 7/31/03 200,000 200,000 The accompanying notes are an integral part of this schedule. 14 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (CONT'D.) As of December 31, 2000 ----------------------------------------------------------------------------------------- Company Nature of Business Initial Investment Date Investment Cost Fair Value ----------------------------------------------------------------------------------------- STEREOTAXIS, INC. Develops and markets a system by which surgery can be conducted remotely using computer controlled magnets December 30, 1996 138,889 shares of Series B preferred stock $ 100,000 $ 100,000 November 12, 1997 28,019 shares of Series C preferred stock and 5,281 warrants to purchase preferred stock at $1.50 per share, through 10/31/02 42,029 42,029 June 26, 1998 66,667 shares of Series C preferred stock 100,001 100,001 MEDICAL DEVICE Specializes in the development, ALLIANCE, INC. manufacture and marketing of devices for ultrasound-assisted lipoplasty January 24, 1997 20,000 shares of common stock 100,000 100,000 ONLINE RESOURCES & Provides a variety of interactive COMMUNICATIONS banking and financial services to end- CORPORATION users and corporate customers in the (ORCC) banking and financial services industry March 17, 1997 16,018 shares of common stock 134,794 32,036 Warrants to purchase 7,233 shares of common stock at $8.43 per share, expiring 6/1/02 - - The accompanying notes are an integral part of this schedule. 15 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (CONT'D.) As of December 31, 2000 ----------------------------------------------------------------------------------------- Company Nature of Business Initial Investment Date Investment Cost Fair Value ----------------------------------------------------------------------------------------- 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 NOVOCELL, INC. Research and development of minimally invasive, encapsulated cellular transplants for the treatment of diabetes. September 9, 1999 10,000 shares of Series A preferred stock 10,000 10,000 March 30, 2000 9.5% convertible promissory note, due 3/21/01. 1,531 1,531 April 26, 2000 5,206 shares of Series B preferred stock 11,875 11,875 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 - - ----------- ----------- $ 1,686,609 $ 1,303,328 =========== =========== The accompanying notes are an integral part of this schedule.
16 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS As of December 31, 1999
------------------------------------------------------------------------------------------- Company Nature of Business Fair Value Investment Date Investment Cost (Note 3) ------------------------------------------------------------------------------------------- GLOBAL SURGICAL Formed to acquire the Urban Microscope CORPORATION Division and the Surgical Mechanical Research subsidiary of Storz Medical January 31, 1994 3,000 shares of common stock $ 300,000 $ 300,000 September 30, 1995 7%, $45,000 promissory note, due 6/29/00 45,000 45,000 January 26, 1996 7%, $67,500 promissory note, due 1/25/01 67,500 67,500 COMPUTER MOTION, INC. Develops and supplies medical robotics (RBOT) September 6, 1996 40,948 warrants to purchase common stock, exercisable at $4.569 per warrant through 5/2/03 8 263,337 16,208 shares of common stock 124,993 178,288 16,209 warrants to purchase common stock, exercisable at $7.712 per warrant, through 12/31/03 250 53,296 FCOA ACQUISITION A chain of greeting card/party stores CORPORATION which offer a full line of products at (d/b/a Factory Card everyday value prices Outlet)(FCPY) July 30, 1996 26,063 common shares 249,865 - 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 and a warrant to purchase 25,000 shares of convertible preferred stock, exercisable at $9.60 per share, through 7/31/03 200,000 200,000 The accompanying notes are an integral part of this schedule. 17 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (CONT'D.) As of December 31, 1999 ------------------------------------------------------------------------------------------- Company Nature of Business Fair Value Investment Date Investment Cost (Note 3) ------------------------------------------------------------------------------------------- STEREOTAXIS, INC. Develops and markets a system by which surgery can be conducted remotely using computer controlled magnets December 30, 1996 138,889 shares of Series B preferred stock $ 100,000 $ 100,000 November 12, 1997 28,019 shares of Series C preferred stock and warrants to purchase preferred stock at $1.50 per share, through 10/31/02 42,029 42,029 June 26, 1998 66,667 shares of Series C preferred stock 100,001 100,001 MEDICAL DEVICE Specializes in the development, ALLIANCE, INC. manufacture and marketing of devices for ultrasound-assisted lipoplasty January 24, 1997 20,000 shares of common stock 100,000 100,000 ONLINE RESOURCES & Provides a variety of interactive COMMUNICATIONS banking and financial services to end- CORPORATION users and corporate customers in the (ORCC) banking and financial services industry March 17, 1997 18,118 shares of common stock 152,466 301,211 Warrants to purchase 7,233 shares of common stock at $8.43 per share, expiring 6/1/02 - 59,274 The accompanying notes are an integral part of this schedule. 18 COMMUNITY INVESTMENT PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (CONT'D.) As of December 31, 1999 ----------------------------------------------------------------------------------------- Company Nature of Business Fair Value 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 NOVOCELL, INC. Research and development of minimally invasive, encapsulated cellular transplant for the treatment of diabetes. September 9, 1999 10,000 shares of Series A preferred stock 10,000 10,000 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 - - ----------- ----------- $ 1,692,112 $ 2,019,936 =========== =========== The accompanying notes are an integral part of this schedule.
19 COMMUNITY INVESTMENT PARTNERS II, L.P. STATEMENTS OF FINANCIAL CONDITION
ASSETS ------ December 31, -------------------------- 2000 1999 ----------- ----------- Investments at fair value (cost $1,686,609 and $1,692,112, respectively) $ 1,303,328 $ 2,019,936 Cash and cash equivalents 23,379 12,635 Accrued interest and dividends receivable 7,761 32,682 ----------- ----------- TOTAL ASSETS $ 1,334,468 $ 2,065,253 =========== =========== LIABILITIES AND PARTNERSHIP CAPITAL ----------------------------------- December 31, -------------------------- 2000 1999 ----------- ----------- ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 7,150 $ 14,604 ----------- ----------- Partnership Capital: Capital - Limited Partners 1,313,926 2,030,024 Capital - General Partners 13,392 20,625 ----------- ----------- TOTAL PARTNERSHIP CAPITAL 1,327,318 2,050,649 ----------- ----------- TOTAL LIABILITIES AND PARTNERSHIP CAPITAL $ 1,334,468 $ 2,065,253 =========== =========== The accompanying notes are an integral part of this schedule.
20 COMMUNITY INVESTMENT PARTNERS II, L.P. STATEMENTS OF OPERATIONS
For the Years Ended December 31, -------------------------------------- 2000 1999 1998 ---------- --------- ---------- INCOME ------ Dividend and interest income $ 17,800 $ 7,886 $ 12,302 ---------- --------- ---------- TOTAL INCOME $ 17,800 7,886 12,302 ---------- --------- ---------- EXPENSES -------- Management fees - - 14,325 Professional fees 24,253 23,445 22,108 Independent general partners' fees - - 2,000 Other 515 536 794 ---------- --------- ---------- TOTAL EXPENSES 24,768 23,981 39,227 ---------- --------- ---------- Net loss before net realized losses and net unrealized (losses) gains (6,968) (16,095) (26,925) Net realized losses on sale of investments (5,257) (106,913) - Net unrealized (losses) gains on investments (711,106) 464,246 (112,559) ---------- --------- ---------- NET (LOSS) INCOME $ (723,331) $ 341,238 $ (139,484) ========== ========= ========== The accompanying notes are an integral part of this schedule.
21 COMMUNITY INVESTMENT PARTNERS II, L.P. STATEMENTS OF CASH FLOWS
For the Years Ended December 31, ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES: Net (loss) income $ (723,331) $ 341,238 $ (139,484) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Purchase of portfolio investments (56,127) (16,000) (102,421) Proceeds from sale of portfolio investments 56,372 24,887 51,600 Net unrealized (losses) gains on portfolio investments 711,106 (464,246) 112,559 Net realized losses on sale/ liquidation of portfolio investments 5,257 106,913 - Decrease (increase) in accrued interest and dividends receivable 24,921 (7,360) (6,348) (Decrease) increase in accounts payable and accrued expenses (7,454) 605 (1,804) ---------- ---------- ---------- Net cash provided (used) by operating activities 10,744 (13,963) (85,898) CASH AND CASH EQUIVALENTS: Beginning of year 12,635 26,598 112,496 ---------- ---------- ---------- End of year $ 23,379 $ 12,635 $ 26,598 ========== ========== ========== The accompanying notes are an integral part of this schedule.
22 COMMUNITY INVESTMENT PARTNERS II, L.P. STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL For the Years Ended December 31, 2000, 1999 and 1998
-------------------------------------- LIMITED GENERAL PARTNERSHIP PARTNERSHIP CAPITAL CAPITAL TOTAL ----------- ----------- ----------- BALANCE, DECEMBER 31, 1997 $ 1,830,287 $ 18,608 $ 1,848,895 Net Loss (138,089) (1,395) (139,484) ----------- --------- ---------- BALANCE, DECEMBER 31, 1998 $ 1,692,198 $ 17,213 $ 1,709,411 Net Income 337,826 3,412 341,238 ----------- --------- ---------- BALANCE, DECEMBER 31, 1999 $ 2,030,024 $ 20,625 $ 2,050,649 Net Loss (716,098) (7,233) (723,331) ----------- --------- ---------- BALANCE, DECEMBER 31, 2000 $ 1,313,926 $ 13,392 $ 1,327,318 =========== ========= =========== The accompanying notes are an integral part of this schedule.
23 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 could 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. 24 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 ----------------------- 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. Until significant developments affecting an investment provide a basis for revaluation, cost approximates fair market value. Due to the inherent uncertainty of valuation for those portfolio investments with a fair value that is not readily ascertainable, the estimated values used may differ significantly from the values that would have been used had a ready market existed for the securities. 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 accounting principles generally accepted in the United States 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. 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. 25 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 Years Ended December 31, ---------------------------------- 2000 1999 1998 --------- --------- ---------- Number of unit holders 130 132 131 ========= ========= ========== 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 $ 11.79 $ 18.22 $ 15.19 ========= ========= ========== Net (loss) income per unit $ (6.43) $ 3.03 $ (1.24) ========= ========= ==========
26 5. RELATED PARTY TRANSACTIONS The Partnership is furnished with certain non-reimbursed management and accounting services by affiliates, which are not reflected in the accompanying financial statements. The Managing General Partner performs management and administrative services for the operation of the Partnership. The Management Agreement was amended to waive the annual management fee of 1.5% of total assets, computed quarterly, to the Managing General Partner. This payment was terminated after the second quarter of 1998; fees for 1998 totaled $14,325. The Partnership may place its General Partners on Boards of Directors of portfolio companies. The Managing General Partner of the Partnership is also the managing general partner of Community Investment Partners, L.P. and Community Investment Partners III, L.P., LLLP, which are also business development companies, and Community Investment Partners IV, L.P., LLLP, an Employees' Securities Company. Additionally, the Independent General Partners of the Partnership are also the independent general partners of Community Investment Partners III, L.P., LLLP. 27 6. INVESTMENT TRANSACTIONS Following is a summary of portfolio investment transactions during the years ended December 31, 2000, 1999 and 1998, respectively.
For the year ended December 31, 2000 ------------------------------------ Realized Type of Gain Company Investment Cost Proceeds (Loss) ------- ---------- ---- -------- ---- PURCHASES: Novocell, Inc. Purchase of 9.5% $ 1,531 Promissory Note Novocell, Inc. Purchase of 11,875 Series B preferred stock Global Surgical Corp. Purchase of 12% * 42,721 Promissory Note --------- TOTAL PURCHASES $ 56,127 ========= SALES/LIQUIDATIONS: Computer Motion, Inc. Sold 5,700 shares $ 43,957 $ 32,867 $ (11,090) of common stock Online Resources & Sold 2,100 shares 17,672 20,212 2,540 Communications of common stock Corporation Houghton Acquisition Escrow - 3,293 3,293 Corporation Disbursement --------- -------- --------- TOTAL SALES/LIQUIDATIONS $ 61,629 $ 56,372 $ (5,257) ========= ======== ========= *Prior to August 1, 2000, the Partnership held a $45,000 and a $67,500 promissory note from Global Surgical Corporation. On August 1, 2000, both notes plus accrued interest of $42,271 were converted into the current 12% subordinated promissory note receivable from Global Surgical Corporation.
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For the year ended December 31, 1999 ------------------------------------ Type of Realized Company Investment Cost Proceeds Loss ------- ---------- ---- -------- ---- PURCHASES: Neocrin Company Purchase of Series F preferred stock $ 6,000 Novocell, Inc. Purchase of Series A preferred stock 10,000 --------- TOTAL PURCHASES $ 16,000 ========= SALES/LIQUIDATIONS: Hawk Corp. (Houghton Payment of Acquisition Corp.) Term Note $ 25,800 $ 24,887 $ (913) Neocrin Company Write-off investment In Series E preferred stock 100,000 -- (100,000) Write-off investment In Series F preferred stock 6,000 -- (6,000) ---------- --------- ---------- TOTAL SALES/LIQUIDATIONS: $ 131,800 $ 24,887 $ (106,913) ========= ========= ========== In addition to the above transactions, the 1,525 shares of Online Resources and Communications Corporation Series C Convertible Preferred Stock previously held underwent a 2.81 reverse stock split and were converted into 18,118 shares of common stock in conjunction with a public offering. The Partnership now holds warrants to purchase 7,233 shares of common stock, exercisable at $8.43 until June 1, 2002.
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For the year ended December 31, 1998 ------------------------------------ Type of Realized Company Investment Cost Proceeds Gain (Loss) ------- ---------- ---- -------- ---------- PURCHASES: Stereotaxis, Inc. Purchase of Series C convertible preferred stock $ 100,001 Conversion of accrued interest on Note into Series C convertible preferred stock 2,420* --------- TOTAL PURCHASES $ 102,421 ========= SALES/LIQUIDATIONS: Hawk Corp. (Houghton Payment of Acquisition Corp.) Term Note $ 51,600 $ 51,600 - --------- --------- ---------- TOTAL SALES/LIQUIDATIONS: $ 51,600 $ 51,600 - ========= ========= ========== * On June 26,1998, the Stereotaxis, Inc. 10% convertible promissory note, due October 31, 2002 converted into 26,406 shares of Series C preferred stock. The outstanding interest on this 10% convertible promissory note ($2,420 as of 6/26/98) was converted into 1,613 shares of Series C preferred stock. Additionally, the Partnership received 5,281 warrants to purchase preferred stock at $1.50 per share, exercisable through October 31, 2002.
30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 31 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 and Managing General Partner Thomas A. Hughes, 57, is the Assistant Vice President, Associate General Counsel and Manager-Legal of The Detroit Edison Company, the utility subsidiary of DTE Energy Company. He also serves as the Associate General Counsel of DTE Energy Company. Headquartered in Detroit, Michigan, Detroit Edison is Michigan's largest electric utility serving two million customers in Southeastern Michigan. Prior to joining Detroit Edison in 1978, Mr. Hughes served as General Counsel of the Missouri Public Service Commission. Mr. Hughes has served as a Trustee of the Detroit Metropolitan Bar Association Foundation, and as a member of the Michigan State Bar Association Administrative Law Section Council and is currently serving as a member of the Board of Directors of the Michigan Chapter of the American Corporate Counsel Association. Mr. Hughes does not own any units. Ralph G. Kelly, 43, joined Charter Communications, Inc. in 1993 as Vice President-Finance, a position he held until early 1994, when he became Chief Financial Officer of CableMaxx, Inc., a wireless cable television operator. Mr. Kelly returned as Senior Vice President-Treasurer of Charter Communications, Inc. in February 1996, and has responsibility for treasury operations, investor relations and financial reporting. Mr. Kelly has worked in the cable industry since 1984 when he joined Cencom Cable Associates, Inc. as Controller. Mr. Kelly was promoted to Treasurer of Cencom Cable Associates, Inc. in 1989 and was responsible for treasury management, loan compliance, budget administration, supervision of internal audit and SEC reporting. Mr. Kelly is a Certified Public Accountant and was in the audit division of Arthur Andersen LLP from 1979 to 1984. Mr. Kelly does not own any 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 the managing general partner of Community Investment Partners, L.P. and Community Investment Partners III, L.P., LLLP, which are also business development companies, and Community Investment Partners IV, L.P., LLLP, an Employees' Securities Company. 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. 32 The Directors and Officers of CIP Management, Inc. are as follows: Daniel A. Burkhardt, 53, 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.L.L.P., the parent company of Edward D. Jones & Co., L.P., where he has specialized in investment banking and structuring investments since 1980. He is a director of SEMCO Energy, Inc. Mr. Burkhardt is the beneficial owner of 4,052 Units. Ray L. Robbins, Jr., 56, Vice President and Director of CIP Management, Inc. since October 1989. He is a general partner of The Jones Financial Companies, L.L.L.P., 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 Co-Chairman of the Edward D. Jones & Co., L.P. Investment Policy Committee. Mr. Robbins is a beneficial owner of 3,242 Units. Marilyn A. Gaffney, 42, Secretary of CIP Management, Inc. since October 1989. She is a Limited Partner of The Jones Financial Companies, L.L.L.P., 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. 33 As of March 15, 2001, 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. 8,524 7.65% 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. 34 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, 2000. 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. 35 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 29th day of March, 2001. 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/ Ralph G. Kelly ----------------------------- Individual General Partner, Ralph G. Kelly Community Investment Partners II, L.P. /s/ Thomas A. Hughes ----------------------------- Individual General Partner, Thomas A. Hughes Community Investment Partners II, L.P. 36 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
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