SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended September 30, 1998
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.)
CIBC 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.
Amendment to Form 10-Q
For the quarter ended September 30, 1998
Item 2 of Part I, Management's Discussion and Analysis of Financial Condition
and Results of Operations, on pages 12 to 14 of Form 10-Q of WestMed Venture
Partners, L.P. for the quarterly period ended September 30, 1998, filed with the
Securities and Exchange Commission on November 16, 1998 is amended by adding the
following:
Year 2000 Issue
The Year 2000 ("Y2K") concern arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create erroneous results.
The impact of the Y2K concern on the Partnership's operations is currently being
assessed.
The Management Company is responsible to provide or arrange for the provision of
administrative services necessary to support the Partnership's operations. The
Management Company has arranged for Palmeri Fund Administrators, Inc. (the
"Administrator") to provide certain administrative and accounting services for
the Partnership, including maintenance of the books and records of the
Partnership, maintenance of the Limited Partner database, issuance of financial
reports and tax information to Limited Partners and processing distribution
payments to Limited Partners. Fees charged by the Administrator are paid
directly by the Management Company.
The Administrator is currently assessing its computer hardware and software
systems, specifically as they relate to the operations of the Partnership. As
part of this investigation of potential Y2K problems, the Administrator has
contracted with an outside computer service provider to examine all of the
Administrator's computer hardware and software applications, to identify any Y2K
concerns. This review and evaluation is in process and is expected to be
completed by May 1999. If Y2K problems are identified, the Administrator will
purchase, install and test the necessary software patches and new computer
hardware to ensure that all of its computer systems are Y2K compliant. This
correction phase, if required, is expected to be completed by September 1999.
Additionally, the Administrator has contacted the outside service providers used
to assist the Administrator or the Management Company with the administration of
the Partnership's operations to ascertain whether these entities are addressing
the Y2K issue within their own operation. There can be no guarantee that the
Administrator's systems or that systems of other companies providing services to
the Partnership will be corrected in a timely manner. The estimated costs to the
Partnership, relating to the investigation or correction of Y2K problems
affecting the Partnership's operations, are expected to be nominal.
Finally, the Y2K issue is a global concern that may affect all business
entities, including the Partnership's portfolio companies. The General Partner
is continuing to assess the impact of Y2K concerns affecting its portfolio
companies. However, the extent to which any potential Y2K problems could affect
the valuations of these companies is presently unknown.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of September 30, 1998 (Unaudited) and December 31, 1997
Schedule of Portfolio Investments at September 30, 1998 (Unaudited)
Statements of Operations for the Three and Nine Months Ended September 30, 1998
and 1997 (Unaudited) Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (Unaudited) Statement of Changes in Partners'
Capital for the Nine Months Ended September 30, 1998 (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,
1998 December 31,
(Unaudited) 1997
ASSETS
Portfolio investments, at fair value (cost $3,645,801 at
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1998 and $4,630,040 at December 31, 1997) $ 1,769,478 $ 3,511,745
Cash and cash equivalents 2,449,759 1,725,666
Receivable from securities sold 180,252 -
Prepaid insurance 53,765 37,451
Accrued interest receivable 2,241 635
---------------- ----------------
TOTAL ASSETS $ 4,455,495 $ 5,275,497
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 78,795 $ 73,487
Due to Managing General Partner 21,835 25,960
Due to Independent General Partners 9,739 10,000
---------------- ----------------
Total liabilities 110,369 109,447
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Partners' Capital:
Managing General Partner 43,455 51,664
Limited Partners (66,929 Units) 4,301,671 5,114,386
---------------- ----------------
Total Partners' Capital 4,345,126 5,166,050
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 4,455,495 $ 5,275,497
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
September 30, 1998
Active Portfolio Investments:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Initial Investment
Company / Position Date Cost Fair Value
Cortex Pharmaceuticals, Inc.(A) (B)
138,833 shares of Common Stock May 1988 $ 496,478 $ 182,288
75,000 shares of Preferred Stock 53,030 9,662
--------------- ---------------
549,508 191,950
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MNI Group Inc.(A)
211,973 shares of Common Stock Sept. 1987 451,457 12,612
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Pharmaction Holdings, Ltd.(A)
Option to purchase 147,476 shares of Common Stock
at $.20 per share, expiring 3/31/99 Sept. 1987 0 0
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Ultramed, Inc.
1,850,904 shares of Common Stock Oct. 1987 492,500 150,000
12% promissory note 7,500 7,500
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500,000 157,500
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UroCor, Inc.(A) (C)
270,977 shares of Common Stock May 1991 558,008 1,174,151
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Xenova Group plc* (A) (D)
301,903 Ordinary shares Aug. 1988 1,586,828 233,265
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Totals From Active Portfolio Investments $ 3,645,801 $ 1,769,478
=================================
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(E)
Cost Realized Loss Return
Totals From Liquidated Portfolio Investments(F) $ 25,072,469 $ (6,592,302) $ 18,480,167
======================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Net Loss and Return
Totals From Active and Liquidated Portfolio Investments $ 28,718,270 $ (8,648,625) $ 20,249,645
======================================================
</TABLE>
(A) Public Company
(B) In August 1998, the Partnership sold 2,000 shares of Cortex Pharmaceuticals,
Inc. common stock for $2,689, realizing a loss of $4,871. The 75,000
preferred shares of Cortex held by the Partnership are convertible into
7,359 shares of the company's common stock.
(C) In May 1998, the Partnership exercised its warrants to purchase 25,995
common shares of UroCor, Inc. for $93,679. The Partnership paid the Managing
General Partner a venture capital fee of $5,677 in connection with this
investment. In September 1998, the Partnership sold 40,000 shares of UroCor,
Inc. common stock for $177,492, realizing a gain of $28,354.
(D) In August 1998, the Partnership sold 2,500 ordinary shares of Xenova Group
plc for $2,760, realizing a loss of $25,375. (E) Amounts provided for
"Supplemental Information: Liquidated Portfolio Investments" are cumulative from
inception through September
30, 1998. See Note 6 of notes to financial statements for portfolio sales
completed subsequent to September 30, 1998. (F) During February 1998, the
Partnership received a liquidating cash distribution of $30,107 from Argonaut
Medical, Inc. During April 1998, the Partnership sold its investment in Exocell,
Inc. for
$150,000, realizing a loss of $617,296. During August 1998, the Partnership
sold its remaining investment in Watson Pharmaceuticals for $811,395,
realizing a gain of $710,036.
* 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,
1998 1997 1998 1997
-------------- --------------- -------------- ---------------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C> <C>
Interest from short-term investments $ 24,566 $ 87,329 $ 68,481 $ 149,506
Interest and other income from
portfolio investments - (21,872) - (11,346)
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Total investment income 24,566 65,457 68,481 138,160
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Expenses:
Management fee 21,835 34,873 79,043 163,744
Professional fees 18,550 17,538 60,284 51,702
Mailing and printing 8,399 5,782 25,545 23,915
Insurance expense 17,070 17,040 45,964 57,222
Custodial fees 510 996 1,650 2,254
Independent General Partners' fees 2,500 2,500 7,500 7,500
Miscellaneous 2,239 - 2,239 250
------------- -------------- -------------- ---------------
Total investment expenses 71,103 78,729 222,225 306,587
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NET INVESTMENT LOSS (46,537) (13,272) (153,744) (168,427)
Net realized gain (loss) from portfolio investments 708,144 (773,969) 90,848 2,007,923
------------- -------------- -------------- ---------------
NET REALIZED GAIN (LOSS) FROM
OPERATIONS 661,607 (787,241) (62,896) 1,839,496
Change in unrealized appreciation or
depreciation of investments (1,921,870) 312,673 (758,028) (2,354,319)
------------- -------------- -------------- ---------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (1,260,263) $ (474,568) $ (820,924) $ (514,823)
============= ============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, 1998
<TABLE>
1998 1997
-------------- ---------------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C>
Net investment loss $ (153,744) $ (168,427)
Adjustments to reconcile net investment loss to cash used for operating
activities:
(Increase) decrease in accrued interest receivable and other assets (17,920) 6,136
Increase (decrease) in payables 922 (48,657)
-------------- ---------------
Cash used for operating activities (170,742) (210,948)
-------------- ---------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Net proceeds from sale of portfolio investments 964,084 5,922,830
Cost of portfolio investments purchased (99,356) -
Cash distribution received 30,107 -
-------------- ---------------
Cash provided from investing activities 894,835 5,922,830
-------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distribution paid to Partners - (4,529,538)
-------------- ---------------
Increase in cash and cash equivalents 724,093 1,182,344
Cash and cash equivalents at beginning of period 1,725,666 6,135,508
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,449,759 $ 7,317,852
============== ===============
Supplemental disclosure of non-cash investing activities:
Receivable from securities sold $ 180,252 $ -
============== ==============
</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, 1998
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 51,664 $ 5,114,386 $ 5,166,050
Net decrease in net assets resulting
from operations (8,209) (812,715) (820,924)
------------- --------------- ----------------
Balance at September 30, 1998 $ 43,455 $ 4,301,671(A) $ 4,345,126
============= =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including
the allocation of net unrealized depreciation of investments, was $64.27
at September 30, 1998. 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 CIBC Oppenheimer
Corp. ("Opco") (formerly Oppenheimer & Co., Inc.). Opco is the successor
corporation to Oppenheimer & Co., Inc., following the acquisition and subsequent
merger of Oppenheimer & Co., Inc. and CIBC Wood Gundy Corp. in November 1997.
Opco is a subsidiary of Canadian Imperial Bank of Commerce. The limited partners
of the Managing General Partner are Opco, 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, serves as the sub-manager of the Partnership
pursuant to a sub-management agreement between 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 certain of
its duties to the Partnership.
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 (as hereinafter
defined) and Delaware Law, the Managing General Partner will continue to manage
the 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, if any. Factors
considered in the determination of an
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
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 of
September 30, 1998, the financial statements include investments valued at
$505,732 (11.6% of Partner's Capital) whose values have been estimated by the
Manager. 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 as of the date on
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 also 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 $1,876,323
at September 30, 1998, which was recorded for financial statement purposes, has
not been recognized for tax purposes. Additionally, from inception to September
30, 1998, other timing differences totaling $8.8 million, relating to 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.
Reclassifications - Certain reclassifications were made to the prior period
financial statements in order to conform to the current period presentation.
<PAGE>
WESTMED VENTURE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
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, 1998, the Partnership has a $6.1 million net realized
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 to 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. No venture capital fees were incurred during the
quarter ended September 30, 1998, however, the Partnership incurred venture
capital fees of $5,677 for the nine months ended September 30, 1998. Cumulative
venture capital fees incurred from inception to September 30, 1998 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. Classification of Investments
As of September 30, 1998, 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 $ 3,585,271 $ 1,752,316 40.33%
Preferred Stock 53,030 9,662 0.22%
Debt Securities 7,500 7,500 0.17%
---------------- --------------- -------
$ 3,645,801 $ 1,769,478 40.72%
================ =============== ======
Country/Geographic Region
Eastern U.S. $ 951,457 $ 170,112 3.92%
Midwestern U.S. 558,008 1,174,151 27.01%
Western U.S. 549,508 191,950 4.42%
United Kingdom 1,586,828 233,265 5.37%
---------------- --------------- -------
$ 3,645,801 $ 1,769,478 40.72%
================ =============== ======
Industry
Biotechnology $ 2,136,336 $ 425,215 9.79%
Medical Devices 500,000 157,500 3.62%
Medical Services 558,008 1,174,151 27.01%
Nutritional Products 451,457 12,612 0.30%
---------------- --------------- -------
$ 3,645,801 $ 1,769,478 40.72%
================ =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
6. Subsequent Events
Subsequent to September 30, 1998, the Partnership sold 105,000 common shares of
UroCor, Inc. for $525,445; 138,833 common shares of Cortex Pharmaceuticals, Inc.
for $68,755; and 18,903 ordinary shares of Xenova Group plc for $12,516.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
At September 30, 1998, the Partnership held $2,449,759 in cash and cash
equivalents, including $1,986,222 in short-term securities with maturities of
less than one year and $460,942 in an interest-bearing cash account. For the
three and nine months ended September 30, 1998, the Partnership earned interest
from such investments of $24,566 and $68,481, 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.
During the quarter ended September 30, 1998, the Partnership continued the
liquidation of its portfolio investments. As discussed below, during the three
month period, the Partnership sold certain investments for net proceeds totaling
$994,336, of which $180,252 was a receivable at September 30, 1998 and collected
in October 1998.
It is anticipated that funds needed to cover the Partnership's future operating
expenses 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, 1998, the Partnership had a
$661,607 net realized gain from operations and a $62,896 net realized loss from
operations, respectively. For the three and nine months ended September 30,
1997, the Partnership had a $787,241 net realized loss from operations and a
$1,839,496 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 and other
income less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the three and nine
months ended September 30, 1998, the Partnership had a net realized gain from
portfolio investments of $708,144 and $90,848, respectively. During the quarter
ended September 30, 1998, the Partnership sold the following securities in the
public market: 40,000 common shares of UroCor, Inc. for $177,492, realizing a
gain of $28,354; 2,000 common shares of Cortex Pharmaceuticals, Inc. for $2,689,
realizing a loss of $4,871; 2,500 ordinary shares of Xenova Group plc for
$2,760, realizing a loss of $25,375; and its remaining 16,248 common shares of
Watson Pharmaceuticals, Inc. for $811,395, realizing a gain of $710,036.
During the first half of 1998, the Partnership received a liquidating cash
distribution of $30,107 from Argonaut Medical, Inc., resulting in no gain or
loss, and sold its investment in Exocell, Inc. for net proceeds of $150,000,
compared to the cost basis of $767,296, for a realized loss of $617,296.
For the three months and nine months ended September 30, 1997, the Partnership
had a net realized loss from portfolio investments of $773,969 and a net
realized gain from portfolio investments of $2,007,923, respectively. 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, 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 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.
Investment Income and Expenses - Net investment loss for the three months ended
September 30, 1998 and 1997 was $46,537 and $13,272, respectively. The increase
in net investment loss for the 1998 period compared to the 1997 period primarily
resulted from a $40,891 decrease in investment income offset by a $7,626
decrease in operating expenses. The decrease in investment income primarily
resulted from a $62,763 decrease in interest income from short-term investments
due to the reduced amount of funds available for such investments during the
1998 period as compared to the same period in 1997. Additionally, investment
income for the three months ended September 30, 1997 was reduced by $21,872 due
to the write-off of accrued interest relating to the promissory note due from
Aprogenex. The decrease in operating expenses includes a $13,038 decrease in the
management fee, as discussed below, offset by slight increases in professional
fees, mailing and printing and miscellaneous expenses for the 1998 period
compared to the 1997 period.
Net investment loss for the nine months ended September 30, 1998 and 1997 was
$153,744 and $168,427, respectively. The decrease in net investment loss for the
1998 period compared to the 1997 period includes an $84,362 decrease in
operating expenses partially offset by a $69,679 decrease in investment income.
The decrease in investment income primarily resulted from the reduced amount of
funds available for short-term investments as discussed above. The decrease in
operating expenses includes an $84,701 decrease in the management fee, as
discussed below, and an $11,258 decrease in insurance expense due to reduced
liability insurance premiums offset by slight increases in professional fees,
mailing and printing and miscellaneous expenses for the 1998 period compared to
the 1997 period.
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, net of selling commissions and organizational
expenses, reduced by capital distributed. Such fee is determined and payable
quarterly. For the three months ended September 30, 1998 and 1997, the
management fee was $21,835 and $34,873, respectively. For the nine months ended
September 30, 1998 and 1997, the management fee was $79,043 and $163,744,
respectively. The reduced management fee for the 1998 periods compared to the
1997 periods reflects the reduced net asset value of the Partnership, primarily
resulting from the liquidation of certain portfolio investments during 1997 and
the subsequent cash distribution paid to Partners in October 1997. The reduced
management fee also reflects the lower fair value of certain portfolio
investments as of September 30, 1998 compared to September 30, 1997. The
management fee is expected to continue to decline in future periods as the
Partnership's remaining portfolio investments are liquidated and subsequent
distributions are paid 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 dividend income from portfolio investments and
proceeds from the sale of portfolio investments.
Unrealized Gains and Losses and Changes in Unrealized Appreciation of
Investments - For the nine months ended September 30, 1998, the Partnership had
a $609,664 unfavorable change to net unrealized depreciation resulting from the
net downward revaluation of its publicly held portfolio investments due to the
lower public market price of such securities at the end of the period.
Additionally, $148,364 of net unrealized gain was transferred to realized gain,
resulting from portfolio liquidations completed during the period as discussed
above. As a result, the Partnership had a total unfavorable change to net
unrealized depreciation of investments of $758,028 for the nine month period
ended September 30, 1998.
For the nine months ended September 30, 1997, the Partnership had a $638,655
unfavorable change to net unrealized depreciation resulting from the net
downward revaluation of certain portfolio investments. Additionally, $1,715,664
of net unrealized gain was transferred to realized gain resulting from portfolio
liquidations completed during the period, as discussed above. As a result, the
Partnership had a total unfavorable change to net unrealized depreciation of
investments of $2,354,319 for the nine month period ended September 30, 1997.
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.
As of September 30, 1998, the Partnership's net assets were $4,345,126,
reflecting a decrease of $820,924 from net assets of $5,166,050 as of December
31, 1997. This decrease was comprised of the $758,028 unfavorable change to net
unrealized depreciation of investments and the $62,896 net realized loss from
operations for the nine month period ended September 30, 1998.
As of September 30, 1997, the Partnership's net assets were $6,939,711,
reflecting a decrease of $6,058,437 from $12,998,148 as of December 31, 1996.
This decrease was the result of the $5,543,614 cash distribution accrued as of
September 30, 1997 and the $514,823 decrease in net assets from operations for
the nine month period ended September 30, 1997. The net decrease in net assets
from operations was comprised of the $2,354,319 unfavorable change to net
unrealized depreciation offset by the $1,839,496 net realized gain from
operations for the period.
As of September 30, 1998 and December 31, 1997, the net asset value per $500
Unit, including an allocation of net unrealized appreciation or depreciation of
portfolio investments, was $64 and $76, 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.
Year 2000 Issue
The Year 2000 ("Y2K") concern arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create erroneous results.
The impact of the Y2K concern on the Partnership's operations is currently being
assessed.
The Management Company is responsible to provide or arrange for the provision of
administrative services necessary to support the Partnership's operations. The
Management Company has arranged for Palmeri Fund Administrators, Inc. (the
"Administrator") to provide certain administrative and accounting services for
the Partnership, including maintenance of the books and records of the
Partnership, maintenance of the Limited Partner database, issuance of financial
reports and tax information to Limited Partners and processing distribution
payments to Limited Partners. Fees charged by the Administrator are paid
directly by the Management Company.
The Administrator is currently assessing its computer hardware and software
systems, specifically as they relate to the operations of the Partnership. As
part of this investigation of potential Y2K problems, the Administrator has
contracted with an outside computer service provider to examine all of the
Administrator's computer hardware and software applications, to identify any Y2K
concerns. This review and evaluation is in process and is expected to be
completed by May 1999. If Y2K problems are identified, the Administrator will
purchase, install and test the necessary software patches and new computer
hardware to ensure that all of its computer systems are Y2K compliant. This
correction phase, if required, is expected to be completed by September 1999.
Additionally, the Administrator has contacted the outside service providers used
to assist the Administrator or the Management Company with the administration of
the Partnership's operations to ascertain whether these entities are addressing
the Y2K issue within their own operation. There can be no guarantee that the
Administrator's systems or that systems of other companies providing services to
the Partnership will be corrected in a timely manner. The estimated costs to the
Partnership, relating to the investigation or correction of Y2K problems
affecting the Partnership's operations, are expected to be nominal.
Finally, the Y2K issue is a global concern that may affect all business
entities, including the Partnership's portfolio companies. The General Partner
is continuing to assess the impact of Y2K concerns affecting its portfolio
companies. However, the extent to which any potential Y2K problems could affect
the valuations of these companies is presently unknown.
<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.
No matter was submitted to a vote of security holders during the quarter covered
by this report.
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/ Gerald A. Rothstein
Gerald A. Rothstein
Vice President and Principal Executive Officer
By: /s/ Ann Oliveri Fusco
Ann Oliveri Fusco
Vice President and Principal Financial
and Accounting Officer
Date: March 4, 1999
<PAGE>
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 3,645,801
<INVESTMENTS-AT-VALUE> 1,769,478
<RECEIVABLES> 182,493
<ASSETS-OTHER> 53,765
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,455,495
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 110,369
<TOTAL-LIABILITIES> 110,369
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 66,929
<SHARES-COMMON-PRIOR> 66,929
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,876,323)
<NET-ASSETS> 4,345,126
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 68,481
<OTHER-INCOME> 0
<EXPENSES-NET> 222,225
<NET-INVESTMENT-INCOME> (153,744)
<REALIZED-GAINS-CURRENT> 90,848
<APPREC-INCREASE-CURRENT> (758,028)
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (820,924)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 4,755,588
<PER-SHARE-NAV-BEGIN> 76.42
<PER-SHARE-NII> (2.27)
<PER-SHARE-GAIN-APPREC> (9.88)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 64.27
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
