SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended September 30, 1997
Commission file number 0-15681
WESTMED VENTURE PARTNERS, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 13-3443230
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(State of organization) (I.R.S. Employer Identification No.)
Oppenheimer Tower, World Financial Center
New York, New York 10281
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 667-7000
Not applicable
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of September 30, 1997 (Unaudited) and December 31, 1996
Schedule of Portfolio Investments at September 30, 1997 (Unaudited)
Statements of Operations for the Three and Nine Months Ended September 30, 1997
and 1996 (Unaudited)
Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Statement of Changes in Partners' Capital for the Nine Months Ended September
30, 1997 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
WESTMED VENTURE PARTNERS, L.P.
BALANCE SHEETS
<TABLE>
September 30,
1997 December 31,
(Unaudited) 1996
ASSETS
Portfolio investments, at fair value (cost $5,332,762 at
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1997 and $9,247,669 at December 31, 1996) $ 5,264,125 $ 11,533,351
Cash and cash equivalents 7,317,852 6,135,508
Accrued interest receivable 2,635 13,659
Prepaid assets 44,307 39,419
----------------- -----------------
TOTAL ASSETS $ 12,628,919 $ 17,721,937
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ 5,543,614 $ 4,529,538
Accounts payable and accrued expenses 103,221 120,823
Due to Managing General Partner 34,873 63,428
Due to Independent General Partners 7,500 10,000
----------------- -----------------
Total Liabilities 5,689,208 4,723,789
----------------- -----------------
Partners' Capital:
Managing General Partner 69,401 129,985
Limited Partners (66,929 Units) 6,870,310 12,868,163
----------------- -----------------
Total Partners' Capital 6,939,711 12,998,148
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 12,628,919 $ 17,721,937
================= =================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
September 30, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Active Portfolio Investments:
Initial Investment
Company / Position Date Cost Fair Value
Aprogenex, Inc.(A)(E)
<C> <C> <C> <C>
476,739 shares of Common Stock Jan. 1989 $ 490,602 $ 0
10% convertible promissory note due 5/29/98 ` 212,120 0
Warrant to purchase 21,450 shares of Common Stock
at $5.67 per share, expiring 10/15/98 0 0
Warrant to purchase 13,000 shares of Common Stock
at $1.10 per share, expiring 5/29/99 0 0
--------------- ---------------
702,722 0
- -------------------------------------------------------------------------------------------------------------------------------
Cortex Pharmaceuticals, Inc.(A)
140,833 shares of Common Stock May 1988 504,038 418,133
75,000 shares of Preferred Stock(C) 53,030 21,849
--------------- ---------------
557,068 439,982
- -------------------------------------------------------------------------------------------------------------------------------
Exocell, Inc.*
598,083 shares of Preferred Stock Feb. 1988 714,266 464,265
Convertible note due 9/30/97 53,030 53,030
--------------- ---------------
767,296 517,295
- -------------------------------------------------------------------------------------------------------------------------------
MNI Group Inc.(A)
211,973 shares of Common Stock Sept. 1987 451,457 92,844
- -------------------------------------------------------------------------------------------------------------------------------
Argonaut Medical, Inc.
200,709 shares of Common Stock Apr. 1988 30,107 30,107
Nimbus Medical, L.P.
38,340 units of limited partnership interest 0 0
--------------- ---------------
30,107 30,107
- -------------------------------------------------------------------------------------------------------------------------------
Ultramed, Inc.
1,886,704 shares of Common Stock Oct. 1987 500,000 157,500
- -------------------------------------------------------------------------------------------------------------------------------
UroCor, Inc.(A) (D)
284,982 shares of Common Stock May 1991 607,790 2,493,592
Warrant to purchase 8,000 shares of Common Stock
at $1.25 per share, expiring 2/13/01 0 60,000
Warrant to purchase 8,995 shares of Common Stock
at $4.30 per share, expiring 10/18/98 0 40,028
Warrant to purchase 9,000 shares of Common Stock
at $5.00 per share, expiring 6/2/00 0 33,750
--------------- ---------------
607,790 2,627,370
- -------------------------------------------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. (A)
8,124 shares of Common Stock Jan. 1989 101,359 364,057
- -------------------------------------------------------------------------------------------------------------------------------
Xenova Group plc* (A)
304,403 Ordinary shares Aug. 1988 1,614,963 1,034,970
- -------------------------------------------------------------------------------------------------------------------------------
Totals From Active Portfolio Investments $ 5,332,762 $ 5,264,125
=================================
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
September 30, 1997
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(B)
<TABLE>
Cost Realized Loss Return
<S> <C> <C> <C>
Totals From Liquidated Portfolio Investments(D) $ 23,286,152 $ (5,980,428) $ 17,305,724
======================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Net Loss and Return
Totals From Active and Liquidated Portfolio Investments $ 28,618,914 $ (6,049,065) $ 22,569,849
======================================================
</TABLE>
(A) Public company
(B)Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through September 30, 1997.
(C) The 75,000 preferred shares of Cortex Pharmaceuticals, Inc. held by the
Partnership are convertible into 7,359 shares of the company's common stock.
(D) During the quarter, the Partnership sold 50,000 common shares of UroCor for
$438,978, realizing a gain of $207,236. (E) As of September 30, 1997, the
Partnership wrote-off $981,205 of the cost of its common stock investment in
Aprogenex, Inc.
Additionally, the Partnership wrote-off $21,872 of accrued interest relating
to the promissory note due from the company.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------------- --------------- -------------- ----------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C> <C>
Interest from short-term investments $ 87,329 $ 82,893 $ 149,506 $ 151,302
Interest, dividend and other income from
portfolio investments (21,872) 79 (11,346) 237
------------- -------------- -------------- ---------------
Total 65,457 82,972 138,160 151,539
------------- -------------- -------------- ---------------
Expenses:
Management fee 34,873 87,841 163,744 251,773
Professional fees 17,538 27,125 51,702 85,358
Mailing and printing 5,782 3,773 23,915 20,287
Insurance expense 17,040 18,517 57,222 58,034
Custodial fees 996 1,118 2,254 3,824
Independent General Partners' fees 2,500 2,500 7,500 9,877
Miscellaneous - 158 250 3,372
------------- -------------- -------------- ---------------
Total 78,729 141,032 306,587 432,525
------------- -------------- -------------- ---------------
NET INVESTMENT LOSS (13,272) (58,060) (168,427) (280,986)
Net realized gain (loss) from portfolio
investments (773,969) - 2,007,923 1,935,521
------------- -------------- -------------- ---------------
NET REALIZED GAIN (LOSS)
FROM OPERATIONS (787,241) (58,060) 1,839,496 1,654,535
Net change in unrealized appreciation or
depreciation of investments 312,673 (648,976) (2,354,319) (29,447)
------------- -------------- -------------- ---------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS
(allocable to Partners) $ (474,568) $ (707,036) $ (514,823) $ 1,625,088
============= ============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 1997
<TABLE>
1997 1996
-------------- ---------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C>
Net investment loss $ (168,427) $ (280,986)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Increase (decrease) in accrued interest receivable and other assets 6,136 (18,254)
(Decrease) increase in payables (48,657) 38,011
-------------- ---------------
Cash used for operating activities (210,948) (261,229)
-------------- ---------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Proceeds from the sale of portfolio investments 5,922,830 4,330,318
Cost of portfolio investments purchased - (212,120)
Cash distribution from Nimbus Medical L.P. - 30,289
-------------- ---------------
Cash provided from investing activities 5,922,830 4,148,487
-------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distribution paid to Partners (4,529,538) -
-------------- ---------------
Increase in cash and cash equivalents 1,182,344 3,887,258
Cash and cash equivalents at beginning of period 6,135,508 2,310,697
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,317,852 $ 6,197,955
============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
For the Nine Months Ended September 30, 1997
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at beginning of period $ 129,985 $ 12,868,163 $ 12,998,148
Cash distribution, accrued (55,436) (5,488,178) (5,543,614)
Net decrease in net assets resulting
from operations (5,148) (509,675) (514,823)
------------- --------------- ----------------
Balance at end of period $ 69,401 $ 6,870,310(A) $ 6,939,711
============= =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including
the allocation of net unrealized depreciation of investments, was $103 at
September 30, 1997. Such per unit amount is based on average allocations
to all limited partners and does not reflect specific limited partner
allocations, which are determined by the original closing date associated
with the units of limited partnership interest held by each limited
partner.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Purpose
WestMed Venture Partners, L.P. (the "Partnership") was formed under Delaware law
on February 5, 1987. The Partnership operates as a business development company
under the Investment Company Act of 1940, as amended. The Partnership is a
closed-end investment fund and accordingly its units of limited partnership
interest ("Units") are not redeemable. A total of 66,929 Units were sold to
limited partners (the "Limited Partners" and together with the Managing General
Partner (as hereinafter defined), the "Partners") at $500 per Unit.
The general partners of the Partnership include two individuals (the
"Independent General Partners") and the managing general partner, WestMed
Venture Management, L.P., a Delaware limited partnership (the "Managing General
Partner" and collectively with the Independent General Partners, the
"General Partners"). The general partner of the Managing General Partner is
Medical Venture Holdings, Inc., a Delaware corporation affiliated with
Oppenheimer & Co., Inc. ("Opco"). The limited partners of the Managing General
Partner are Oppenheimer Holdings, Inc., MVP Holdings, Inc. and BSW, Inc., a
Delaware corporation owned by John A. Balkoski, Philippe L. Sommer and Howard
S. Wachtler. Alsacia Venture Management, Inc. (the "Sub-Manager"), a
corporation controlled by Philippe L. Sommer, is the sub-manager of the
Partnership pursuant to a sub-management agreement among the Partnership,
the Managing General Partner and the Sub-Manager. The Sub-Manager has been
retained by the Managing General Partner to assist the Managing General Partner
in the performance of its duties to the Partnership.
Opco, a member firm of the New York Stock Exchange, the National Association of
Securities Dealers, Inc., and all principal United States securities exchanges,
is a diversified investment banking and securities firm and registered
investment advisor, providing a broad range of services to individual,
corporate, and institutional clients. Opco operates in the capacity of broker
and dealer for its customers, as well as trader for its own account. The
services provided by Opco and its subsidiaries, and the activities in which it
is engaged, include securities brokerage, securities research, customer
financing, securities trading, corporate finance, mergers and acquisitions,
underwriting and investment advisory services.
On July 22, 1997, CIBC Wood Gundy Securities Corp., the broker dealer subsidiary
of the Canadian Imperial Bank of Commerce, entered into a definitive agreement
to acquire Oppenheimer Holdings, Inc., the parent of OPCO. On November 3, 1997,
the transaction was consummated and the new name of OPCO is CIBC Oppenheimer
Corp. The limited partnership interest in the Managing General Partner that was
previously held by Oppenheimer Holdings, Inc., is now held by CIBC Oppenheimer
Corp.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments, consisting of companies engaged in
the health care industry. The Partnership's originally scheduled termination
date was December 31, 1997, with provision for extension for two additional two
year periods. The General Partners have elected not to extend the Partnership's
termination date. However, pursuant to the Partnership Agreement and Delaware
Law, the General Partner will continue to manage the
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
Partnership through its date of liquidation, which will occur when it has
satisfied all liabilities and obligations to creditors and has sold, distributed
or otherwise disposed of its investments in portfolio companies.
2. Summary of Significant Accounting Policies
Valuation of Investments - Portfolio investments are carried at fair value as
determined quarterly by the Managing General Partner under the supervision of
the Independent General Partners. The fair value of publicly-held portfolio
securities is adjusted to the closing public market price for the last trading
day of the accounting period discounted for sales restrictions. Factors
considered in the determination of an appropriate discount include underwriter
lock-up or Rule 144 trading restrictions, insider status where the Partnership
either has a representative serving on the board of directors of the portfolio
company under consideration or is greater than a 5% shareholder thereof, and
other liquidity factors such as the size of the Partnership's position in a
given company compared to the trading history of the public security.
Privately-held portfolio securities are carried at cost until significant
developments affecting the portfolio company provide a basis for change in
valuation. The fair value of private securities is adjusted (i) to reflect
meaningful third-party transactions in the private market and (ii) to reflect
significant progress or slippage in the development of the company's business
such that cost no longer reflects fair value. As a venture capital investment
fund, the Partnership's portfolio investments involve a high degree of business
and financial risk that can result in substantial losses. The Managing General
Partner considers such risks in determining the fair value of the Partnership's
portfolio investments.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Transactions - Investment transactions are recorded on the accrual
method. For portfolio investments, transactions are recorded on the date which
the Partnership obtains an enforceable right to demand the securities or payment
thereof. Realized gains and losses on investments sold are computed on a
specific identification basis.
Statements of Cash Flows - Cash and cash equivalents include short-term
interest-bearing investments in commercial paper and other money market
investments. The Partnership considers its interest-bearing cash account to be
cash equivalents.
Income Taxes - No provision for income taxes has been made since all income and
losses are allocable to the partners for inclusion in their respective tax
returns. The Partnership's net assets for financial reporting purposes differ
from its net assets for tax purposes. Net unrealized depreciation of $68,637 at
September 30, 1997, which was recorded for financial statement purposes, was not
recognized for tax purposes. Additionally, from inception to September 30, 1997,
other timing differences totaling $8.2 million, relating to
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
net realized losses, original sales commissions paid and other costs of selling
the Units, have been recorded on the Partnership's financial statements but have
not yet been deducted for tax purposes.
3. Allocations of Partnership Profits and Losses
Pursuant to the Partnership's agreement of limited partnership, as amended (the
"Partnership Agreement"), the Partnership's net income and net realized gains
from all sources are allocated to all Partners, in proportion to their capital
contributions, until all Partners have been allocated an amount equal to 6% per
annum, simple interest, on their total Adjusted Invested Capital; i.e., original
capital contributions reduced by previous distributions (the "Priority Return").
Thereafter, net income and net realized gains from venture capital investments
in excess of the amount used to cover the Priority Return are allocated 20% to
the Managing General Partner and 80% to all Partners in proportion to their
capital contributions. Any net income from non-venture capital investments in
excess of the amount used to cover the Priority Return is allocated to all
Partners in proportion to their capital contributions. Realized losses are
allocated to all Partners in proportion to their capital contributions. However,
if realized gains had been previously allocated in the 80-20 ratio, then losses
are allocated in the reverse order in which profits were allocated. From its
inception to September 30, 1997, the Partnership had a $5.5 million net loss
from its venture capital investments including interest and other income from
portfolio investments totaling $493,000.
4. Related Party Transactions
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a one-time venture capital fee equal to 5% of the gross proceeds from
the sale of Units. Such fee is incurred as portfolio investments are made in the
proportion of the cost of each portfolio investment to the net proceeds from the
sale of Units. Venture capital fees incurred are recorded as a cost of acquiring
the portfolio investments. There were no venture capital fees incurred during
the nine months ended September 30, 1997. Cumulative venture capital fees
incurred from inception to September 30, 1997 totaled $1.6 million.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner is responsible for the management,
administrative and certain investment advisory services necessary for the
operation of the Partnership. For such services, the Managing General Partner
receives a management fee at the annual rate of 2% of the lesser of the net
assets of the Partnership or the net contributed capital of the Partnership;
i.e., gross capital contributions to the Partnership (net of selling commissions
and organizational expenses) reduced by capital distributed. Such fee is
determined and payable quarterly. The compensation of the Sub-Manager is paid
directly by the Managing General Partner.
For services rendered to the Partnership, each of the two Independent General
Partners receives a $5,000 annual fee and reimbursement for all out-of-pocket
expenses relating to attendance at meetings of the General Partners.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
5. Subsequent Event - Cash Distribution
In August 1997, the General Partners approved a cash distribution to Partners
totaling $5,543,614. The distribution was paid on October 22, 1997 to Limited
Partners of record on September 30, 1997. Limited Partners received $5,488,178,
or $82 per Unit, and the General Partners received $55,436.
6. Classification of Investments
As of September 30, 1997, the Partnership's investments were categorized as
follows:
<TABLE>
Percentage of
Type of Investments Cost Fair Value of Net Assets*
- ------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Common Stock $ 4,300,316 $ 4,724,981 68.09%
Preferred Stock 767,296 486,114 7.00%
Debt Securities 265,150 53,030 .77%
---------------- --------------- -------
$ 5,332,762 $ 5,264,125 75.86%
================ =============== ======
Country/Geographic Region
Eastern U.S. $ 1,718,753 $ 767,639 11.06%
Midwestern U.S. 607,790 2,627,370 37.86%
Southern U.S. 702,722 0 0.00%
Western U.S. 688,534 834,146 12.02%
United Kingdom 1,614,963 1,034,970 14.92%
---------------- --------------- -------
$ 5,332,762 $ 5,264,125 75.86%
================ =============== ======
Industry
Biotechnology $ 3,642,049 $ 1,992,247 28.71%
Medical Devices 530,107 187,607 2.70%
Medical Services 607,790 2,627,370 37.86%
Nutritional Products 451,457 92,844 1.34%
Pharmaceuticals 101,359 364,057 5.25%
---------------- --------------- -------
$ 5,332,762 $ 5,264,125 75.86%
================ =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
At September 30, 1997, the Partnership held $7.3 million in cash and short-term
investments: $6.3 million in short-term securities with maturities of less than
one year and $1.0 million in an interest-bearing cash account. For the three and
nine months ended September 30, 1997, the Partnership earned interest from such
investments totaling $87,300 and $149,500, respectively. Interest earned from
short-term investments in future periods is subject to fluctuations in
short-term interest rates and changes in funds available for investment.
The Partnership's September 30, 1997 cash balance was reduced by the $5.5
million cash distribution paid to Partners subsequent to the end of the quarter.
On October 21, 1997, Limited Partners of record on September 30, 1997 received
$5,488,178, or $82 per Unit, and the General Partners received $55,436.
It is anticipated that funds needed to cover the Partnership's future operating
expenses and follow-on investments in existing companies will be obtained from
existing cash reserves, interest from short-term investments and proceeds
received from the sale of portfolio investments.
Results of Operations
For the three and nine months ended September 30, 1997, the Partnership had a
$787,200 net realized loss from operations and a $1.8 million net realized gain
from operations, respectively. For the three and nine months ended September 30,
1996, the Partnership had a $58,000 net realized loss from operations and a $1.7
million net realized gain from operations, respectively. Net realized gain or
loss from operations is comprised of (i) net realized gain or loss from
portfolio investments and (ii) net investment income or loss (interest,
dividends and other income, less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the three months
ended September 30, 1997, the Partnership had a net realized loss from portfolio
investments of $774,000. For the nine months ended September 30, 1997, the
Partnership had a net realized gain from portfolio investments of $2.0 million.
During the quarter ended September 30, 1997, the Partnership sold 50,000 common
shares of UroCor for $439,000 realizing a gain of $207,200. On September 30,
1997, the Partnership realized a loss of $981,200 from the partial write-off of
its $1.7 million investment in Aprogenex, Inc., due to an announcement by the
company indicating additional funds were unattainable to support continued
operations.
During the first half of 1997, the Partnership sold an additional 50,000 common
shares of UroCor, Inc., for $490,000, realizing a gain of $232,300, its
remaining 125,504 common shares of Somatogen, Inc. for $666,600, realizing a
gain of $9,500, and 100,197 common shares of Watson Pharmaceuticals, Inc. for
$3,896,400, realizing a gain of $2,646,300. Also during the first half of 1997,
the Partnership sold its remaining 3,926 shares of HBO & Co., Inc. common stock
for $244,400, realizing a gain of $78,500 and its remaining 294,953 ordinary
shares of Pharmaction Holding, Ltd. for $36,500, realizing a loss of $213,500.
The Partnership also received cash distributions from Argonaut Medical., Inc.
and Nimbus Medical, L.P. during the period totaling $150,000, resulting in a
realized gain of $28,900.
The Partnership had no realized gains or losses from its portfolio investments
for the three months ended September 30, 1996. For the nine months ended
September 30, 1996, the Partnership had a net realized gain from its portfolio
investments of $1.9 million. In May 1996, in connection with the merger of
Corvita Corporation and a wholly-owned subsidiary of Pfizer Inc., the
Partnership sold its investment in Corvita for $4,330,300, realizing a gain of
$1,935,500.
Investment Income and Expenses - Net investment loss for the three months ended
September 30, 1997 and 1996 was $13,300 and $58,100, respectively. The decrease
in net investment loss for the 1997 period compared to the 1996 period primarily
resulted from a $62,300 decrease in operating expenses offset by a $17,500
decrease in investment income. The decrease in operating expenses includes a
$53,000 decrease in the management fee, as discussed below, and a $9,600
decrease in professional fees for the 1997 period compared to the 1996 period.
The decrease in investment income primarily resulted from a decrease in interest
income from portfolio investments due to the write-off in 1997 of $21,900 of
accrued interest relating to the promissory note due from Aprogenex. The accrued
interest due from the Aprogenex note was written-off in conjunction with the
partial write-off of the Partnership's equity investment in the company, as
discussed above.
Net investment loss for the nine months ended September 30, 1997 and 1996 was
$168,400 and $281,000, respectively. The decrease in net investment loss for the
1997 period compared to the 1996 period includes a $126,000 decrease in
operating expenses partially offset by a $13,400 decrease in investment income.
The decrease in operating expenses includes an $88,000 decrease in the
management fee, as discussed below, and a $33,300 decrease in professional fees
for the 1997 period compared to the 1996 period. The decrease in professional
fees primarily resulted from reduced legal fees due to work relating to the
preparation of a proxy statement in connection with the Special Meeting of
Limited Partners held on June 21, 1996. The decrease in investment income
primarily resulted from the write-off of accrued interest due from Aprogenex, as
discussed above.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner is responsible for the management,
administrative and certain investment advisory services necessary for the
operation of the Partnership. For such services, the Managing General Partner
receives a management fee at the annual rate of 2% of the lesser of the net
assets of the Partnership or the net contributed capital of the Partnership;
i.e., gross capital contributions to the Partnership (net of selling commissions
and organizational expenses) reduced by capital distributed. Such fee is
determined and payable quarterly. The compensation of the Sub-Manager is paid
directly by the Managing General Partner. For the three months ended September
30, 1997 and 1996, the management fee was $34,800 and $87,800, respectively. For
the nine months ended September 30, 1997 and 1996, the management fee was
$163,700 and $251,700, respectively. The reduced management fee for the 1997
periods compared to the 1996 periods reflects the reduced net asset value of the
Partnership, primarily resulting from the cash distributions paid and accrued
during 1997. The management fee will continue to decline in future periods from
the continued liquidation of the Partnership's remaining portfolio investments
and subsequent distributions to Partners. To the extent possible, the management
fee and other operating expenses are paid with funds provided from operations.
Funds provided from operations are obtained from interest received from
short-term investments, interest and other income from portfolio investments and
proceeds from the sale of portfolio investments.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Portfolio Investments - During the nine months ended September
30, 1997, the Partnership recorded a $638,700 net unrealized loss, primarily
resulting from the net downward revaluation of the Partnership's publicly-traded
portfolio securities during the period. Additionally, $1.7 million was
transferred from unrealized gain to realized gain in connection with the
portfolio securities sold during the period, as discussed above. As a result,
net unrealized appreciation of investments declined $2.4 million for the nine
month period.
During the nine months ended September 30, 1996, the Partnership recorded a
$287,500 net unrealized gain, primarily resulting from the net upward
revaluation of its investment in UroCor, Inc. due to the completion of that
company's initial public offering in May 1996. Additionally, during the nine
month period, $317,000 of unrealized gain was transferred to realized gain
relating to the sale of the Partnership's investment in Corvita, as discussed
above. As a result, net unrealized appreciation of investments declined by
$29,500 for the nine month period.
Net Assets - Changes to net assets resulting from operations are comprised of
(i) net realized gain or loss from operations and (ii) changes to net unrealized
appreciation or depreciation of portfolio investments.
For the nine months ended September 30, 1997, the Partnership had a $514,800
decrease in net assets from operations, comprised of the $2.35 million decrease
to net unrealized appreciation of investments partially offset by the $1.84
million net realized gain from operations. At September 30, 1997, the
Partnership's net assets were $6.9 million, reflecting a decrease of $6.1
million from $13.0 million at December 31, 1996. The $6.1 million decrease was
the result of the $5.54 million cash distribution accrued during the 1997 period
and the $514,800 decrease in net assets from operations for the nine month
period.
For the nine months ended September 30, 1996, the Partnership had a $1.6 million
increase in net assets from operations comprised of the $1.7 million net
realized gain from operations partially offset by the $29,500 decrease to net
unrealized appreciation of investments for the nine month period. As a result,
the Partnership's net assets were $17.5 million at September 30, 1996, up from
$15.9 million at December 31, 1995.
The net asset value per $500 Unit, including an allocation of net unrealized
appreciation or depreciation of portfolio investments, at September 30, 1997 and
December 31, 1996 was $103 and $192, respectively. Such per Unit amounts are
based on average allocations to all Limited Partners and do not reflect specific
Limited Partner allocations, which are determined by the original closing date
associated with the Units held by each Limited Partner.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Partnership is not a party to any material pending legal proceedings.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
A special meeting (the "Meeting") of the Limited Partners of the Partnership was
held on September 30, 1997. The Meeting was held for the following purposes: (i)
to approve or disapprove a new management agreement between the Managing General
Partner and the Partnership ("Proposal 1") and (ii) to approve or disapprove a
new sub-management agreement between the Managing General Partner and the
Sub-Manager ("Proposal 2"). The number of votes cast for, against and withheld
for Proposal 1 was 32,426, 3,238 and 2,333, respectively. The number of votes
cast for, against and withheld for Proposal 2 was 31,940, 3,581 and 2,476,
respectively.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTMED VENTURE PARTNERS, L.P.
By: WestMed Venture Management, L.P.
The Managing General Partner
By: MEDICAL VENTURE HOLDINGS, INC.
General Partner
By: /s/ Stephen McGrath
Stephen McGrath
Executive Vice President
By: /s/ Ann Oliveri Fusco
Ann Oliveri Fusco
Vice President and Principal Financial
and Accounting Officer
Date: November 14, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTMED
VENTURE PARTNERS, L.P.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 5,332,762
<INVESTMENTS-AT-VALUE> 5,264,125
<RECEIVABLES> 2,635
<ASSETS-OTHER> 44,307
<OTHER-ITEMS-ASSETS> 7,317,852
<TOTAL-ASSETS> 12,628,919
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,689,208
<TOTAL-LIABILITIES> 5,689,208
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 66,929
<SHARES-COMMON-PRIOR> 66,929
<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> 6,939,711
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 138,160
<OTHER-INCOME> 0
<EXPENSES-NET> 306,587
<NET-INVESTMENT-INCOME> (168,427)
<REALIZED-GAINS-CURRENT> 2,007,923
<APPREC-INCREASE-CURRENT> (2,354,319)
<NET-CHANGE-FROM-OPS> (514,823)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<DISTRIBUTIONS-OTHER> 5,543,614
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<NET-CHANGE-IN-ASSETS> (6,058,437)
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 192
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<PER-SHARE-DIVIDEND> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
