10-Q 1 form10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934: For quarterly period ended September 30, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934: For the transition period from ___________ to _______________ Commission File Number: 038593 CAPITAL PARTNERS II, LTD. LIQUIDATING TRUST (Successor in interest to Renaissance Capital Partners II, Ltd.) _____________________________________________________________________________ (Exact name of registrant as specified in its charter) Texas 75-6590369 _____________________________________________________________________________ (State or other jurisdiction (IRS Employer ID No.) of incorporation or organization) 5646 Milton Street, Suite 900, Dallas TX 75206 _____________________________________________________________________________ (Address of principal executive offices) (Zip code) (214) 378-9340 _____________________________________________________________________________ (Registrant's telephone number, including area code) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] PART I. FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS CAPITAL PARTNERS II, LTD. LIQUIDATING TRUST (Successor to Renaissance Capital Partners II, Ltd.) STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) Assets December 31, September 30, 2002 2003 _____________ _____________ Cash $ 51,201 $ 87,513 Investments at fair value, cost of $16,348,874 at December 31, 2002, and $16,325,422 at June 30, 2003 12,124,401 18,640,124 ____________ ____________ Total Assets $ 12,175,602 $ 18,727,637 ============ ============ Liabilities Liabilities: Accounts Payable and Accrued Expenses $ 78,606 $ 128,435 Note Payable (see note 5) 50,000 150,000 ____________ ____________ Total liabilities 128,606 278,435 ____________ ____________ Net Assets in Liquidation 12,046,996 18,449,201 ____________ ____________ $ 12,175,602 $ 18,727,637 ============ ============ Net Assets in Liquidation per Unit of Beneficial Interest $601 $925 ============ ============ Number of Units of Beneficial Interest Outstanding 20,054 19,948 ============ ============

See accompanying notes to financial statements. CAPITAL PARTNERS II, LTD. LIQUIDATING TRUST (Successor to Renaissance Capital Partners II, Ltd.) STATEMENTS OF OPERATIONS (Unaudited) Three months ended Nine months ended Sept. 30, 2003 Sept. 30, 2003 ______________ ______________ Income - Interest income $ 110 $ 266 ____________ ____________ 110 266 ____________ ____________ Expenses - Interest expense 3,031 6,223 General and administrative 12,875 53,560 Trustee Fees 18,000 54,000 ____________ ____________ Total Expenses 33,906 113,783 ____________ ____________ Net operating loss (33,796) (113,517) Net unrealized appreciation on investments 6,213,375 6,572,338 ____________ ____________ Net increase in net assets from operations $ 6,719,579 $ 6,458,821 ============ ============

See accompanying notes to financial statements. CAPITAL PARTNERS II, LTD. LIQUIDATING TRUST (Successor to Renaissance Capital Partners II, Ltd.) STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (Unaudited) Three months ended Nine months ended Sept. 30, 2003 Sept. 30, 2003 __________ __________ Change in net assets resulting from operations: Net operating loss $ (33,796) $ (113,517) Change in net unrealized appreciation or depreciation of portfolio investments 6,213,375 6,572,338 Change in net unrealized loss on distribution of investment (20,439) (31,653) ____________ ____________ Net increase in net assets resulting from operations 6,159,140 6,427,168 Change in net assets resulting from distribution of investments to withdrawing beneficiaries (12,725) (24,963) ____________ ____________ Net increase (decrease) in net assets for the period 6,146,415 6,402,205 Net assets in liquidation at beginning of period 12,302,786 12,046,996 ____________ ____________ Net assets in liquidation at end of period $ 18,449,201 $ 18,449,201 ============ ============

See accompanying notes to financial statements. CAPITAL PARTNERS II, LTD. LIQUIDATING TRUST (Successor to Renaissance Capital Partners II, Ltd.) STATEMENTS OF CASH FLOWS (Unaudited) Three months ended Nine months ended Sept. 30, 2003 Sept. 30, 2003 ________ ________ Cash flows from operating activities Net increase (decrease) in net assets from operations $ 6,179,579 $ 6,458,821 Adjustments to reconcile net assets from operations to net cash used in operating activities: Net unrealized (appreciation) depreciation on investments (6,213,375) (6,572,338) Increase (decrease) in accounts payable and accrued liabilities 21,687 49,828 Increase in note payable 50,000 100,000 ___________ ___________ Net cash used in operating activities 37,892 36,312 ___________ ___________ Net increase (decrease) in cash and cash equivalents 37,892 36,312 Cash and cash equivalents at beginning of period 49,621 51,201 ___________ ___________ Cash and cash equivalents at end of period $ 87,513 $ 87,513 =========== =========== Supplemental disclosure of cash flow information: Interest paid $ 3,301 $ 6,223 =========== ===========

See accompanying notes to financial statements. CAPITAL PARTNERS II, LTD. LIQUIDATING TRUST (Successor to Renaissance Capital Partners II, Ltd.) Notes to Financial Statements September 30, 2003 1. Organization and Purpose Capital Partners II, Ltd. Liquidating Trust (the "Trust"), a liquidating trust established under the laws of the State of Texas on November 17, 2000, is the successor entity to Renaissance Capital Partners II, Ltd. (the "Partnership"). The Partnership, which was a Texas limited partnership formed in 1991, was organized as a diversified, closed-end management investment partnership and operated as a business development company under the Investment Act of 1940. The Partnership's investment objective was to achieve current income and capital appreciation potential by investing primarily in private placement convertible debt investments of small and medium size companies which the Managing General Partner believed offered the opportunity for growth. On October 1, 1998, the Managing General Partner and the Independent General Partners agreed to commence liquidation of the Partnership. The Managing General Partner withdrew from the Partnership and the Partnership appointed an independent general partner as Liquidation Trustee (the "Trustee"). The Trustee, pursuant to a Liquidation Trustee Agreement, assumed all responsibilities and has the authority of the Managing General Partner. Pursuant to the Liquidating Trust Agreement, the Trust was to terminate no later than November 17, 2002. On November 17, 2000, the limited partners of the Partnership authorized the Trustee to transfer the investment assets of the Partnership to the Trust. Upon formation of the Trust and transfer of investment assets to the Trust, holders of the 43,254 limited partnership units of the Partnership, outstanding on November 17, 2000, were deemed to become holders of 43,254 units of beneficial interest in the Trust ("Units"). On November 4, 2002, the Trustee amended the Trust to extend the term for one year to November 17, 2003. Beneficiaries were given the option to elect out of the Trust and receive their proportionate interests in the Trust's single remaining portfolio investment, shares of common stock of Tutogen Medical, Inc. ("Tutogen"). 120 beneficiaries elected to withdraw prior to the deadline of December 19, 2002. The Trust distributed 4,230,847 shares of Tutogen common stock to the withdrawing beneficiaries, of which Centerpulse USA Holding Co. (formerly known as Sulzer Medica USA Holding Co.) accounted for 3,952,454 shares withdrawing from the Trust. As of December 31, 2002, the Trustee transferred the remaining cash out of the partnership into the Trust. As the Partnership has no remaining assets, it dissolved as of December 31, 2002. All of the Tutogen shares are held in the Trust. 2. Significant Accounting Policies (a) Valuation of Investments Portfolio investments are carried at fair value as determined quarterly by the Trustee. The fair value of each publicly-held portfolio security is adjusted to the closing public market price on the last day of the calendar quarter. Most securities held by the Trust are thinly traded and their value as of a particular date does not necessarily represent the amounts that may be realized from their sale or disposition. (b) Federal Income Taxes The Trust is a pass-through entity for federal income tax purposes and, accordingly, is not subject to income tax. Instead, each beneficiary of the Trust is required to take into account, in accordance with such beneficiary's method of accounting, such beneficiary's pro rata share of the Trust's income, gain, loss, deduction or expense, regardless of the amount or timing of distributions to beneficiaries. (c) Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Basis of Presentation The accompanying financial statements have been prepared without audit, in accordance with the rules and regulations of the Securities and Exchange Commission and include all disclosures normally required by accounting principles generally accepted in the United States of America, but do not include all disclosures normally made in annual reports on Form 10-K. All material adjustments, consisting only of those of a normal recurring nature, which, in the opinion of management, were necessary for a fair presentation of the results for the interim period have been made. 4. Trustee and Management Fees In 1998, the Partnership entered into an agreement with the Trustee, whereby the Trustee provided management services to the Partnership in connection with its liquidation and has continued to provide such services to the Trust during its liquidation. For services rendered under the agreement, the Trustee receives $6,000 per month plus up to $4,000 per month for reimbursement of administrative personnel. Effective January 1, 2003, the Trustee has deferred his compensation of $6,000 per month and will be paid only if the value of Tutogen stock has increased by 50% or more above the closing price of $2.65, based on the market price of Tutogen when the Trust is terminated or the price realized by the Trust from a sale of Tutogen common stock prior to the termination of the Trust. Because of the price of Tutogen common stock has increased by more than 50% above $2.65 price, the Trust's financial statements now include an accrued amount which will be payable to the Trustee, assuming that the price realized from the sale of Tutogen or the prevailing price at the time of termination of the Trust remains above the required level. The Trustee serves as Chairman of the Board of Tutogen Medical, Inc., a portfolio investment of the Trust, and the Trustee is the beneficial owner of 178,040 shares of common stock of Tutogen Medical, Inc. with stock options to purchase an additional 140,000 shares of common stock. 5. Notes Payable On December 19, 2002, the Trust entered into a Loan Agreement with Garvon, Inc. Profit Sharing Plan ("Garvon"). Garvon is the holder of 9 units of beneficial interest in the Trust. Garvon agreed to lend the Trust up to $100,000 in two instalments of $50,000 with collateral up to 500,000 shares of Tutogen common stock. The loan bears interest at the rate of 10%, payable quarterly and is due on December 19, 2003. On May 9, 2003, Garvon funded the Trust the second instalment in the amount of $50,000. The proceeds of the loan were used to provide working capital for the Trust. On June 30, 2003, the Trust paid interest accrued on this note to Garvon in the amount of $1,959. Subsequent to the end of the second quarter of 2003, the Trust repaid the principal and interest accrued on this note in the amount of $100,336. On July 10, 2003, the Trust entered into a Loan Agreement with the James E. Brandon Family Trust ("Brandon"), which does not own any units of the Trust. Brandon agreed to lend the Trust $150,000 with collateral of 150,000 shares of Tutogen common stock. The loan bears interest rate of 8%, payable monthly and is due on December 31, 2003. The proceeds of this loan were used to repay the loan from Garvon and provide working capital for the Trust. For the third quarter 2003, the Trust paid interest accrued on this note to Brandon in the amount of $2,696. 6. Investments Investments of the Trust are carried in the statements of assets, liabilities and partners' equity at quoted market or fair value, as determined in good faith by the Liquidation Trustee. For securities that are publicly traded and for which quotations are available, the Trust will value the investments based on the closing sale as of the last day of the fiscal quarter, or in the event of an interim valuation, as of the date of the valuation. If no sale is reported on such date, the securities will be valued at the average of the closing bid and asked prices. The financial statements include investments valued at $12,124,401 (100% of total assets) and $18,640,124 (100% of total assets) as of December 31, 2002, and September 30, 2003, respectively, whose values have been estimated by the Liquidation Trustee. Because of the limited trading market, the estimate values may differ significantly from the values that would have been used had a ready market for the investments existed and the difference could be material. Summarized valuation of investments as of September 30, 2003, follows: FAIR COST VALUE ______ ________ Tutogen Medical, Inc. Common Stock $ 16,325,422 $ 18,640,124 ____________ ____________ $ 16,325,422 $ 18,640,124 ============ ============

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion set forth herein contains certain forward looking statements with respect to the financial condition, results of operations and business of the Trust. These forward looking statements are subject to certain risks and uncertainties, not all of which can be predicted or anticipated. Factors that may cause actual results to differ materially from those contemplated by the forward looking statements herein include, but are not limited to, changes in economic conditions; competitive conditions in the markets in which portfolio companies conduct their operations, including competition from companies with substantially greater resources than those of the portfolio companies; and the results of litigation, which cannot be predicted with certainty. Readers of this Discussion should not place undue reliance on forward looking statements. 1. Material Changes in Financial Condition For the third quarter ended September 30, 2003, total Beneficiaries' interest increased $6,146,415, due primarily to the increase in the valuation of common stock of Tutogen Medical, Inc. with a value of $5.10 per share as of September 30, 2003. The following portfolio transactions are noted for the quarter ended September 30, 2003 (portfolio companies are herein referred to as the "Company"): TUTOGEN MEDICAL, INC. As of September 30, 2003, the Trust was the beneficial owner of 3,654,926 shares representing approximately 24.24% of the outstanding shares of Tutogen. The Trustee serves as Chairman of the Board of Directors of Tutogen and, during the quarter ended September 30, 2003, he continued to assist Tutogen's efforts to develop new products and markets and to increase its profitability. The value of the Trust units will ultimately be determined primarily by the value of the Trust's interest in Tutogen and, accordingly, the Trustee expects to participate actively in providing guidance and support to Tutogen's management. During the second quarter of 2003, the Trustee was re-appointed Chairman of the Board of Tutogen during the company's Annual Meeting held in April, 2003, in New York. 2. Material Changes in Operations The Trust currently is under liquidation and not actively considering additional Portfolio Investments. Therefore, no significant further amount of income from closing fees and commitment fees is anticipated. For the quarter ended September 30, 2003, the Trust recorded net gain of $6,179,579, which was primarily due to an increase in the closing price of Tutogen's common stock which was $3.40 as of June 30, 2003, and $5.10 on September 30, 2003. This valuation may fluctuate significantly due to the limited trading market for Tutogen stock. The Trust receives no income from the investments. As described in Note 4 to the Trust's Financial Statements, the increased market price of Tutogen common stock has resulted in an accrual of the potential costs of contingent compensation payable to the Trustee. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Trust was formed solely for the purpose of conducting the orderly liquidation of the assets of the Partnership and does not invest in or hold instruments to which this Item is applicable. ITEM 4: CONTROLS AND PROCEDURES The Trustee, who performs the functions of the Trust's chief executive officer and chief financial officer, has within the preceding 90 days evaluated the effectiveness of the Trust's "disclosure controls and procedures" (as defined in rules 13a-14(c) and 15d-14(c) under the Securities and Exchange Act of 1934). Based upon that evaluation, the Trustee concluded that the Trust's disclosure controls and procedures were effective as of the date of the evaluation. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None other than what has been previously disclosed. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibit is numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K. Exhibit No. Description __________ _______________________________ 31 Section 302 Certification 32 Section 906 Certification (b) We filed no reports on Form 8-K for the three months ended September 30, 2003. SIGNATURES Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized. Date: November 7, 2003 CAPITAL PARTNERS II, LTD. LIQUIDATING TRUST (Registrant) By: ____/s/____________________________ Thomas W. Pauken Liquidating Trustee Exhibit 31 SECTION 302 CERTIFICATION I, Thomas W. Pauken, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Capital Partners II, Ltd. Liquidating Trust; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 7, 2003 ____/s/___________________________ Thomas W. Pauken Liquidating Trustee A signed original of this written statement required by Exchange Act Rules 13a-15(e) and 15d-15(e) has been provided to Capital Partners II, Ltd. Liquidating Trust and will be retained by Capital Partners II, Ltd. Liquidating Trust and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 32 SECTION 906 CERTIFICATION I, Thomas W. Pauken, Liquidating Trustee of Capital Partners II, Ltd. Liquidating Trust (the "Trust"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. section 1350, that: (1) the Quarterly Report on Form 10-Q of the Trust for the quarterly period ended September 30, 2003 (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust. Dated: November 7, 2003 ____/s/__________________ Thomas W. Pauken Liquidating Trustee A signed original of this written statement required by Section 906 has been provided to Capital Partners II, Ltd. Liquidating Trust and will be retained by Capital Partners II, Ltd. Liquidating Trust and furnished to the Securities and Exchange Commission or its staff upon request.

CAPITAL PARTNERS II LTD LIQUIDATING TRUST 10-Q