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, 1994
Commission file number 33-21281
WESTMED VENTURE PARTNERS 2, L.P.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 13-3473015
(State of organization) (I.R.S. Employer Identification No.)
Oppenheimer Tower, World Financial Center
New York, New York 10281
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (212) 667-7000
Not applicable
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
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INDEX
WESTMED VENTURE PARTNERS 2, L.P.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of September 30, 1994 (Unaudited) and December 31, 1993
Schedule of Portfolio Investments as of September 30, 1994 (Unaudited)
Statements of Operations for the Three and Nine Months Ended September 30, 1994
and 1993 (Unaudited)
Statements of Cash Flows for the Nine Months Ended September 30, 1994 and 1993
(Unaudited)
Statement of Changes in Partners' Capital for the Nine Months Ended September
30, 1994 (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.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
WESTMED VENTURE PARTNERS 2, L.P.
BALANCE SHEETS
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September 30, 1994 December 31,
(Unaudited) 1993
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ASSETS
Portfolio investments, at fair value
(cost $8,364,551 at September 30, 1994 and $6,980,811
at December 31, 1993) - Notes 2 and 4 $ 6,373,264 $ 5,067,177
Cash and cash equivalents 6,965,921 8,474,632
Other assets 40,374 13,522
------ ------
TOTAL ASSETS $ 13,379,559 $ 13,555,331
= ========== = ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 12,657 $ 33,528
Due to Managing General Partner - Note 4 75,823 75,071
Due to Independent General Partners - Note 4 11,250 15,000
------ ------
Total liabilities 99,730 123,599
------ -------
Partners' Capital:
Managing General Partner 132,798 134,317
Limited Partners (38,727 Units) 13,147,031 13,297,415
---------- ----------
Total Partners' capital 13,279,829 13,431,732
---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 13,379,559 $ 13,555,331
= ========== = ==========
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See notes to financial statements.
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WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
SEPTEMBER 30, 1994
ACTIVE PORTFOLIO INVESTMENTS:
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Initial Investment
Company / Position Date Cost Fair Value
<S> <C> <C> <C>
Gliatech, Inc.
500,000 shares of Convertible Preferred Stock Feb. 1992 $ 802,919 $ 802,919
100,000 shares of Preferred Stock 159,090 159,090
Warrant to purchase 100,000 shares of Preferred Stock
at $1.50, exercisable from 12/30/94 to 7/29/99 0 0
- -
962,009 962,009
------- -------
Hepatix, Inc.
668,346 shares of Preferred Stock Jan. 1992 1,091,913 1,891,913
- - --------------------------------- --------- --------- ---------
IVF America, Inc.(1)
211,672 shares of Common Stock Mar. 1989 2,322,426 160,818
Warrant to purchase 18,340 shares of Common Stock
at $10.34 per share, expiring 7/31/96 0 0
------------------------------------- - -
KeraVision, Inc.
171,821 shares of Preferred Stock Nov. 1992 530,300 530,300
- - --------------------------------- --------- ------- -------
La Jolla Pharmaceutical Company(1)
100,383 shares of Common Stock Nov. 1991 678,579 199,511
25,076 warrants to purchase 12,538 shares of Common
Stock at $6 per share, expiring 6/3/99 0 5,755
Warrant to purchase 5,015 shares of Common Stock
at $5 per share, expiring 6/3/99 0 0
- -
678,579 205,266
------- -------
Sennes Drug Innovations, Inc.(A)*
2,750,000 shares of Preferred Stock June 1993 1,175,579 1,175,579
412,500 shares of Common Stock 4,375 4,375
----- -----
1,179,954 1,179,954
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Synaptic Pharmaceutical Corporation
432,870 shares of Convertible Preferred Stock June 1991 797,167 797,167
- - --------------------------------------------- --------- ------- -------
Targeted Genetics, Inc.(1)
158,731 shares of Common Stock June 1992 802,203 645,837
- - ------------------------------ --------- ------- -------
TOTALS FROM ACTIVE PORTFOLIO INVESTMENTS $ 8,364,551 $ 6,373,264
= ========= = =========
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WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - CONTINUED
SEPTEMBER 30, 1994
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(B)
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Cost Realized Loss Return
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TOTAL FROM LIQUIDATED PORTFOLIO
INVESTMENTS $ 5,292,628 $ (2,909,856) $ 2,382,772
= ========= = =========== = =========
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
TOTALS FROM ACTIVE AND LIQUIDATED
PORTFOLIO INVESTMENTS $ 13,657,179 $ (4,901,143) $ 8,756,036
= ========== = =========== = =========
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(1) Public company
* Company may be deemed an affiliated person of the Partnership as such
term is defined in the Investment Company Act of 1940.
(A) During the quarter, AGIS Pharmaceuticals, Inc. changed its name to
Sennes Drug Innovations, Inc.
(B) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through September 30, 1994.
See notes to financial statements.
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WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
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INVESTMENT INCOME AND EXPENSES
Income:
Interest from short-term investments $ 77,865 $ 67,773 $ 201,313 $ 211,752
Interest and dividend income from portfolio
investments (232) 4,405 1,260 7,430
---- ----- ----- -----
Totals 77,633 72,178 202,573 219,182
------ ------ ------- -------
Expenses:
Management fee - Note 4 66,733 66,079 206,270 211,107
Professional fees 10,613 9,375 18,212 32,929
General and administrative expenses 15,535 17,698 40,880 56,941
Independent General Partners' fees - Note 4 3,750 3,750 11,250 11,250
Miscellaneous - - 211 -
- - --- -
Totals 96,631 96,902 276,823 312,227
------ ------ ------- -------
NET INVESTMENT LOSS (18,998) (24,724) (74,250) (93,045)
Net change in unrealized appreciation or
depreciation of investments (310,132) (470,241) (77,653) (814,952)
-------- -------- ------- --------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS
(allocable to Partners) - Note 3 $ (329,130) $ (494,965) $ (151,903) $ (907,997)
= ======== = ======== = ======== = ========
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See notes to financial statements.
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WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
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1994 1993
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CASH FLOWS USED FOR OPERATING ACTIVITIES
Net investment loss $ (74,250) $ (93,045)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Increase (decrease) in payables (23,869) 63,701
Increase in other assets (26,852) (43,289)
------- -------
Cash used for operating activities (124,971) (72,633)
-------- -------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Purchase of portfolio investments (1,383,740) (904,195)
---------- --------
Decrease in cash and cash equivalents (1,508,711) (976,828)
Cash and cash equivalents at beginning of period 8,474,632 9,534,741
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,965,921 $ 8,557,913
= ========= = =========
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See notes to financial statements.
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WESTMED VENTURE PARTNERS 2, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
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Managing
General Limited
Partner Partners Total
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Balance at beginning of period $ 134,317 $ 13,297,415 $ 13,431,732
Allocation of net decrease in net assets
resulting from operations - Note 3 (1,519) (150,384) (151,903)
------ -------- --------
Balance at end of period $ 132,798 $ 13,147,031(A) $ 13,279,829
= ======= = ========== = ==========
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(A) The net asset value per unit of limited partnership interest, including
an allocation of net unrealized depreciation of investments, was $339 at
September 30, 1994. 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.
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WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Purpose
WestMed Venture Partners 2, L.P. (the "Partnership") was formed under Delaware
law in April 1988. The Partnership operates as a business development company
under the Investment Company Act of 1940, as amended. The Partnership is a
closed-end partnership and accordingly its units of limited partnership interest
("Units") are not redeemable by the Partnership. A total of 38,727 Units were
sold to Limited Partners at $500 per Unit.
The general partners of the Partnership include three individuals (the
"Independent General Partners") and the managing general partner, WestMed
Venture Management 2, L.P. (the "Managing General Partner" and collectively with
the Independent General Partners, the "General Partners"), a Delaware limited
partnership. 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. Messrs. Sommer and Wachtler are principally responsible for managing
the investments of 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, a registered investment
advisor and Futures Commission Merchant 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.
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 is scheduled to terminate on December
31, 1998. However, the General Partners can extend the term for up to two
additional two-year periods, if they determine that such extensions are in the
best interest of the Partnership.
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 average closing public market price for the last
five trading days of each quarter 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
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WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
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 clearly is no longer reflective of fair value.
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.
3. Allocations of Partnership Profits and Losses
Pursuant to the Partnership's agreement of limited partnership (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 (the "Priority
Return") equal to 6% per annum, simple interest, on their total Adjusted
Invested Capital; i.e., original capital contributions reduced by previous
distributions. 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 is 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, 1994, the Partnership had a
$2.7 million net realized loss from its venture capital investments.
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. The
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WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Partnership incurred venture capital fees of $79,000 and $53,000 for the nine
months ended September 30, 1994 and 1993, respectively. Cumulative venture
capital fees incurred from inception to September 30, 1994 totaled $774,000.
Pursuant to a management agreement between the Partnership and the Managing
General Partner (the "Management Agreement"), the Managing General Partner
performs, or arranges for others to perform, 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.
For services rendered to the Partnership, each of the three 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.
5. Interim Financial Statements
In the opinion of the Managing General Partner, the unaudited financial
statements as of September 30, 1994, and for the three and nine month periods
then ended, reflect all adjustments necessary for the fair presentation of the
results of the interim periods.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
During the three months ended September 30, 1994, the Partnership invested
$159,000 (including venture capital fees totaling $9,000) in one existing
portfolio company. From its inception through September 30, 1994, the
Partnership had invested an aggregate of $13.7 million in ten portfolio
companies (including acquisition costs and venture capital fees totaling
$873,000). At September 30, 1994, the Partnership has invested approximately
78.8% of its original $17.3 million of net proceeds received from the offering
of Units.
At September 30, 1994, the Partnership held $7 million in cash and short-term
investments as follows: $6.5 million in short-term securities with maturities of
less than one year and $515,000 in an interest-bearing cash account. Such
investments provide the Partnership with the liquidity necessary to make
investments in venture situations as opportunities for investment arise. The
Partnership earned $78,000 and $201,000 of interest on such investments for the
three and nine months ended September 30, 1994, 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. It is
anticipated that funds needed to cover the Partnership's future investments and
operating expenses will be obtained from existing cash reserves, interest earned
from its short-term investment portfolio and proceeds realized from the sale of
portfolio investments.
Results of Operations
Investment Income and Expenses - For the three months ended September 30, 1994
and 1993, the Partnership had a net investment loss (investment income less
operating expenses) of $19,000 and $25,000, respectively. The reduced net
investment loss for the 1994 period compared to the 1993 period primarily is a
result of an increase in interest earned from short-term investments during the
1994 period. Interest earned from short-term investments for the three months
ended September 30, 1994 and 1993 was $78,000 and $68,000, respectively. The
increase in interest from short-term investments primarily was a result of an
increase in short-term interest rates during the 1994 period compared to the
1993 period.
Net investment loss for the nine months ended September 30, 1994 and 1993 was
$74,000 and $93,000, respectively. The decrease in net investment loss for the
1994 period compared to the 1993 period was due to a decrease in legal fees and
other operating expenses.
The management fee paid to the Managing General Partner under the management
agreement between the Partnership and the Managing General Partner (the
"Management Agreement") for the three months ended September 30, 1994 and 1993
was $67,000 and $66,000, respectively. The management fee for the nine months
ended September 30, 1994 and 1993 was $206,000 and $211,000, respectively. 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.
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Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Portfolio Investments - For the nine months ended September 30,
1994, the Partnership had a net unrealized loss from its portfolio investments
of $78,000, resulting from the net downward revaluation of its portfolio
investments for the nine month period.
For the nine months ended September 30, 1993, the Partnership had an $815,000
net unrealized loss from its portfolio investments, primarily resulting from the
downward revaluation of its investment in IVF America, Inc. for the nine month
period.
Net Assets - At September 30, 1994, the Partnership's net assets were $13.3
million, a decrease of $152,000 from $13.4 million at December 31, 1993. This
decrease resulted from the $78,000 net unrealized loss and the $74,000 net
investment loss for the nine month period.
At September 30, 1993, the Partnership's net assets were $13.9 million, a
decrease of $908,000 from $14.8 million at December 31, 1992. This decrease
resulted from the $815,000 net unrealized loss and the $93,000 net investment
loss for the nine month period.
The net asset value per $500 Unit, including an allocation of net unrealized
depreciation of investments, at September 30, 1994 and December 31, 1993 was
$339 and $343, 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.
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.
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Item 5. Other Information.
On July 29, 1994, the Partnership purchased 100,000 preferred shares and a
warrant to purchase 100,000 preferred shares of Gliatech, Inc. for $150,000. The
Partnership paid a $9,090 venture capital fee to the Managing General Partner
relating to this investment.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
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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 2, L.P.
By: WestMed Venture Management 2, L.P.
The Managing General Partner
By: MEDICAL VENTURE HOLDINGS, INC.
General Partner
By: /s/ Howard S. Wachtler
Howard S. Wachtler
Executive Vice President
By: /s/ Philippe L. Sommer
Philippe L. Sommer
Executive Vice President and Principal
Financial and Accounting Officer
Date: November 11, 1994
