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, 1996
Commission file number 33-21281
WESTMED VENTURE PARTNERS 2, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 13-3473015
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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
===============================================================================
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 2, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of September 30, 1996 (Unaudited) and December 31, 1995
Schedule of Portfolio Investments as of September 30, 1996 (Unaudited)
Statements of Operations for the Three and Nine Months Ended September 30, 1996
and 1995 (Unaudited)
Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Statement of Changes in Partners' Capital for the Nine Months Ended
September 30, 1996 (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 2, L.P.
BALANCE SHEETS
<TABLE>
September 30, 1996 December 31,
(Unaudited) 1995
ASSETS
Portfolio investments, at fair value
(cost $9,138,368 at September 30, 1996 and $8,961,656
<S> <C> <C> <C> <C> <C> <C>
at December 31, 1995) - Notes 2 and 4 $ 6,788,732 $ 6,050,203
Cash and cash equivalents 4,985,938 6,226,065
Accrued interest receivable 1,804 12,331
Prepaid expenses 42,213 35,891
--------------- ----------------
TOTAL ASSETS $ 11,818,687 $ 12,324,490
=============== ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 99,079 $ 55,929
Due to Managing General Partner - Note 4 119,428 61,268
Due to Independent General Partners - Note 4 7,500 15,000
--------------- ----------------
Total liabilities 226,007 132,197
--------------- ----------------
Partners' Capital:
Managing General Partner 115,927 121,923
Limited Partners (38,727 Units) 11,476,753 12,070,370
--------------- ----------------
Total Partners' capital 11,592,680 12,192,293
--------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 11,818,687 $ 12,324,490
=============== ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
September 30, 1996
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Gliatech, Inc.(A)
<C> <C> <C> <C>
124,210 shares of Common Stock Feb. 1992 $ 962,009 $ 1,044,470
- -------------------------------------------------------------------------------------------------------------------------------
Hepatix, Inc.*(B)
1,484,123 shares of Preferred Stock Jan. 1992 1,558,181 1,484,123
- -------------------------------------------------------------------------------------------------------------------------------
Integramed America, Inc.(A)(C)
211,672 shares of Common Stock Mar. 1989 2,322,426 461,138
- -------------------------------------------------------------------------------------------------------------------------------
KeraVision, Inc.(A)
68,728 shares of Common Stock Nov. 1992 530,300 1,030,920
- -------------------------------------------------------------------------------------------------------------------------------
La Jolla Pharmaceutical Company(A)
100,383 shares of Common Stock Nov. 1991 678,579 440,440
25,076 warrants to purchase 12,538 shares of Common
Stock at $6 per share, expiring 6/3/99 0 12,705
Warrant to purchase 5,015 shares of Common Stock
at $5 per share, expiring 6/3/99 0 0
-------------- ---------------
678,579 453,145
- -------------------------------------------------------------------------------------------------------------------------------
Sennes Drug Innovations, Inc.(D)*
2,750,000 shares of Preferred Stock June 1993 1,175,579 293,894
412,500 shares of Common Stock 4,375 1,094
$39,976 10% Promissory Note due 9/25/97 42,399 21,200
-------------- ---------------
1,222,353 316,188
- -------------------------------------------------------------------------------------------------------------------------------
Synaptic Pharmaceutical Corporation(A)
96,395 shares of Common Stock June 1991 797,167 1,096,493
- -------------------------------------------------------------------------------------------------------------------------------
Targeted Genetics, Inc.(A)
225,395 shares of Common Stock June 1992 1,067,353 902,255
Warrant to purchase 16,666 shares of Common Stock
at $4.68 per share, expiring 7/31/97 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Totals from Active Portfolio Investments $ 9,138,368 $ 6,788,732
==================================
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
September 30, 1996
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(E)
<TABLE>
Cost Realized Loss Return
<S> <C> <C> <C>
Total from Liquidated Portfolio Investments $ 6,265,683 $ (4,025,721) $ 2,239,962
==========================================================
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
Totals from Active and Liquidated Portfolio
Investments $ 15,404,051 $ (6,375,357) $ 9,028,694
==========================================================
</TABLE>
(A) Public company
(B) During the quarter, in connection with a financial restructuring of
Hepatix, Inc., the Partnership invested an additional $969,478 in Hepatix
and exchanged its $491,986 convertible note and accrued interest of $950
for 1,484,123 shares of the company's preferred stock. The Partnership paid
the Managing General Partner $58,750 in venture capital fees relating to
this additional investment in Hepatix. Additionally, the Partnership
wrote-off the cost of its 668,346 common shares of Hepatix, realizing a
loss of $1,025,168.
(C) During the quarter, the Partnership's warrant to purchase 18,340 common
shares of Integramed America, Inc. expired unexercised.
(D) During the quarter, the Partnership completed a $39,976 follow-on
investment in Sennes Drug Innovations, Inc., acquiring a 10% promissory
note due 9/25/97. The Partnership paid the Managing General Partner $2,423
in venture capital fees relating to this investment.
(E) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through September 30, 1996.
* 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 2, L.P.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- --------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C> <C>
Interest from short-term investments $ 75,410 $ 96,450 $ 222,723 $ 294,400
Interest and dividend income from portfolio
investments (19,596) 3,170 (8,825) 3,383
-------------- ------------- -------------- -------------
Totals 55,814 99,620 213,898 297,783
------------- ------------- ------------- -------------
Expenses:
Management fee - Note 4 58,255 64,429 183,668 199,149
Professional fees 26,262 15,550 82,562 39,624
Mailing and printing 3,702 8,513 15,583 19,887
Insurance expense 15,512 16,037 51,685 47,120
Custodial fees 1,183 1,753 3,413 5,193
Independent General Partners' fees - Note 4 2,500 3,750 9,877 11,250
Miscellaneous 158 60 3,372 1,113
------------- ------------- ------------- -------------
Totals 107,572 110,092 350,160 323,336
------------- ------------- ------------- -------------
NET INVESTMENT LOSS (51,758) (10,472) (136,262) (25,553)
Net realized loss from portfolio investments (1,025,168) - (1,025,168) -
------------- ------------- ---------- -------------
NET REALIZED LOSS FROM OPERATIONS (1,076,926) (10,472) (1,161,430) (25,553)
Net change in unrealized appreciation or
depreciation of investments 1,073,094 (577,899) 561,817 (334,492)
------------- ------------- ------------- -------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS
(allocable to Partners) - Note 3 $ (3,832) $ (588,371) $ (599,613) $ (360,045)
============== ============= ============== =============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 1996
<TABLE>
1996 1995
-------------- ---------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C>
Net investment loss $ (136,262) $ (25,553)
Adjustments to reconcile net investment loss to cash used for
operating activities:
(Increase) decrease in accrued interest receivable 10,527 (4,383)
Increase in prepaid expenses (6,322) (22,934)
Increase in accounts payable 93,810 31,349
-------------- ---------------
Cash used for operating activities (38,247) (21,521)
--------------- ---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Purchase of portfolio investments (1,201,880) (684,321)
--------------- ---------------
Decrease in cash and cash equivalents (1,240,127) (705,842)
Cash and cash equivalents at beginning of period 6,226,065 6,969,849
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,985,938 $ 6,264,007
============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
For the Nine Months Ended September 30, 1996
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at beginning of period $ 121,923 $ 12,070,370 $ 12,192,293
Net decrease in net assets resulting
from operations - Note 3 (5,996) (593,617) (599,613)
-------------- ---------------- -----------------
Balance at end of period $ 115,927 $ 11,476,753 $ 11,592,680
============= =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized depreciation of investments, was $296
at September 30, 1996. 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 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 ("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 2, 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.
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 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
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 is no longer reflective of 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 $2.3
million at September 30, 1996, which was recorded for financial statement
purposes, was not recognized for tax purposes. Additionally, from inception to
September 30, 1996, other timing differences totaling $2.3 million, primarily
relating to 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.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 (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 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, 1996, the Partnership had a
$3.8 million net loss from its venture capital investments, including $240,000
of interest and other income from portfolio 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 investment. The Partnership incurred venture capital fees of
$61,173 for the three months ended September 30, 1996. Cumulative venture
capital fees incurred from inception to September 30, 1996 totaled $882,000.
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 2, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
5. Classification of Investments
As of September 30, 1996, the Partnership's portfolio investments were
categorized by type and geographic region as follows:
All of the Partnership's portfolio companies are in the health care industry.
<TABLE>
Type of Investments Cost Fair Value % of Net Assets*
- ------------------- --------------- -------------- ----------------
<S> <C> <C> <C>
Common Stock $ 6,362,209 $ 4,989,515 43.04%
Preferred Stock 2,733,760 1,778,017 15.34%
Debt Securities 42,399 21,200 .18%
--------------- -------------- ----------
$ 9,138,368 $ 6,788,732 58.56%
=============== ============== ==========
Country/Geographic Region
United States $ 9,138,368 $ 6,788,732 58.56%
=============== ============== ==========
</TABLE>
* Percentage of net assets is based on fair value.
6. Subsequent Event - Cash Distribution
Subsequent to the end of the quarter, on November 12, 1996, the General Partners
approved a cash distribution to Partners totaling $3,012,100. Limited Partners
will receive $2,981,979, or $77 per Unit, and the General Partners will receive
$30,121. The distribution will be paid in January 1997 to Limited Partners of
record on December 31, 1996.
7. Interim Financial Statements
In the opinion of the Managing General Partner, the unaudited financial
statements as of September 30 1996, 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
In September 1996, the Partnership made follow-on investments totaling $1.1
million (including venture capital fees of $61,173) in two existing portfolio
companies. From its inception through September 30, 1996, the Partnership had
invested an aggregate of $15.4 million in ten portfolio companies (including
acquisition costs and venture capital fees totaling $981,000), representing
approximately 83% of the original $17.3 million of net proceeds to the
Partnership.
At September 30, 1996, the Partnership held $5.0 million in cash and cash
equivalents: $4.8 million in short-term securities with maturities of less than
one year and $213,000 in an interest-bearing cash account. Such investments
provide the Partnership with the liquidity necessary to make new investments in
venture situations, as opportunities arise, and to make follow-on investments in
existing portfolio companies when required. The Partnership earned $75,000 and
$223,000 of interest from its short-term investments for the three and nine
months ended September 30, 1996, respectively. Interest earned from short-term
investments in future periods is subject to fluctuations in short-term interest
rates and changes in amounts available for investment in such securities.
Subsequent to the end of the quarter, on November 12, 1996, the General Partners
approved a cash distribution to Partners totaling $3,012,100. Limited Partners
will receive $2,981,979, or $77 per Unit, and the General Partners will receive
$30,121. The distribution will be paid in January 1997 to Limited Partners of
record on December 31, 1996.
It is anticipated that funds needed to cover the Partnership's future
investments and operating expenses will be obtained from existing cash reserves,
interest and other investment income and from proceeds received from the sale of
portfolio investments.
Results of Operations
For the three and nine months ended September 30, 1996, the Partnership had a
net realized loss from operations of $1.1 million and $1.2 million,
respectively. For the three and nine months ended September 30, 1995, the
Partnership had a net realized loss from operations of $10,000 and $26,000,
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 and nine
months ended September 30, 1996, the Partnership had a $1 million net realized
loss from its portfolio investments. In September 1996, Hepatix, Inc. completed
a post-bankruptcy financing and recapitalization. As a result, the Partnership
wrote-off its $1,025,000 investment in the company's common stock.
The Partnership had no realized gains or losses from its portfolio investments
for the three and nine months ended September 30, 1995.
Investment Income and Expenses - For the three months ended September 30, 1996
and 1995, the Partnership had a net investment loss (investment income less
operating expenses) of $52,000 and $10,000, respectively. The increase in net
investment loss for the 1996 period compared to the same period in 1995 included
a $23,000 decrease in income earned from portfolio investments resulting from
the write-off of accrued interest receivable on promissory notes due from
Hepatix. Additionally contributing to the increase in net investment loss was a
$21,000 decrease in interest earned from short-term investments, which resulted
from reduced interest rates and a decrease in funds available for investment in
such securities during the 1996 period. The decline in funds available for
investment in short-term securities primarily was due to follow-on investments
made in existing portfolio companies.
Net investment loss for the nine months ended September 30, 1996 and 1995 was
$136,000 and $26,000, respectively. The increase in net investment loss for the
1996 period includes a $72,000 decrease in interest from short-term investments,
primarily resulting from reduced interest rates and a decrease in funds
available for investment in such securities during the 1996 period and a $12,000
decrease in income from portfolio investments primarily due to the write-off of
Hepatix accrued interest, as discussed above. Also contributing to the increase
in net investment loss for the 1996 period compared to the same period in 1995
was a $43,000 increase in professional fees, primarily due to increased legal
fees relating to the preparation of a proxy statement in connection with the
Special Meeting of Limited Partners held on June 21, 1996. Partially offsetting
the increase in legal fees was a $15,000 reduction in the management fee, as
discussed below.
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 (1) the net
assets of the Partnership or (2) 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 paid quarterly. The compensation of the Sub-Manager is paid
directly by the Managing General Partner. The management fee for the three
months ended September 30, 1996 and 1995 was $58,000 and $64,000, respectively.
For the nine months ended September 30, 1996 and 1995, the management fee was
$184,000 and $199,000, respectively. The decrease in the management fee for the
1996 periods compared to the same periods in 1995, was due to a decrease in the
net asset value of the Partnership for the respective 1996 periods compared to
the 1995 periods. 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 and other investment income and from
proceeds received from the sale of portfolio investments.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Portfolio Investments - For the nine months ended September 30,
1996, the Partnership had a $463,000 net unrealized loss, resulting from the net
downward revaluation of its portfolio investments. Additionally, $1,025,000 of
unrealized loss was transferred to realized loss due to the partial write-off of
the Partnership's investment in Hepatix, as discussed above. The $1,025,000
transfer from unrealized loss to realized loss, partially offset by the $463,000
additional unrealized loss, resulted in a $562,000 increase in net unrealized
appreciation of investments for the nine month period.
For the nine months ended September 30, 1995, the Partnership had a $334,000 net
unrealized loss resulting from the net downward revaluation of its
publicly-traded securities. As a result, net unrealized appreciation of
investments decreased by $334,000 for the nine month period.
Net Assets - At September 30, 1996, the Partnership's net assets were $11.6
million, reflecting a decrease of $600,000 from $12.2 million at December 31,
1995. This decrease resulted from the $1.2 million net realized loss from
operations partially offset by the $562,000 increase in unrealized appreciation
of investments for the nine month period.
At September 30, 1995, the Partnership's net assets were $12.8 million,
reflecting a decrease of $360,000 from $13.1 million at December 31, 1994. This
decrease resulted from the $334,000 net unrealized loss from investments and the
$26,000 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, 1996 and December 31, 1995 was
$296 and $312, 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.
Not applicable.
Item 5. Other Information.
During the quarter, in connection with a financial restructuring of Hepatix,
Inc., the Partnership invested an additional $969,478 in Hepatix and exchanged
its $491,986 convertible note and accrued interest thereon totaling $950 for
1,484,123 shares of the company's preferred stock. The Partnership paid the
Managing General Partner $58,750 in venture capital fees relating to this
additional investment in Hepatix. Additionally, the Partnership wrote-off the
cost of its 668,346 common shares of Hepatix, realizing a loss of $1,025,168.
During the quarter, the Partnership completed a $39,976 follow-on investment in
Sennes Drug Innovations, Inc., acquiring a 10% promissory note due 9/25/97. The
Partnership paid the Managing General Partner $2,423 in venture capital fees
relating to this investment.
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 2, L.P.
By: WestMed Venture Management 2, 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, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTMED
VENTURE PARTNERS 2, L.P.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 9,138,368
<INVESTMENTS-AT-VALUE> 6,788,372
<RECEIVABLES> 1,804
<ASSETS-OTHER> 42,213
<OTHER-ITEMS-ASSETS> 4,985,938
<TOTAL-ASSETS> 11,818,687
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 226,007
<TOTAL-LIABILITIES> 226,007
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 38,727
<SHARES-COMMON-PRIOR> 38,727
<ACCUMULATED-NII-CURRENT> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,349,636)
<NET-ASSETS> 11,592,680
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 213,898
<OTHER-INCOME> 0
<EXPENSES-NET> 350,160
<NET-INVESTMENT-INCOME> (136,262)
<REALIZED-GAINS-CURRENT> (1,025,168)
<APPREC-INCREASE-CURRENT> 561,817
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (505,803)
<ACCUMULATED-NII-PRIOR> 0
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</TABLE>
