SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended September 30, 1997
Commission file number 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
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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 2, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of September 30, 1997 (Unaudited) and December 31, 1996
Schedule of Portfolio Investments as of September 30, 1997 (Unaudited)
Statements of Operations for the Three and Nine Months Ended September 30, 1997
and 1996 (Unaudited)
Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Statement of Changes in Partners' Capital for the Nine Months Ended September
30, 1997 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
WESTMED VENTURE PARTNERS 2, L.P.
BALANCE SHEETS
<TABLE>
September 30,
1997 December 31,
(Unaudited) 1996
ASSETS
Portfolio investments, at fair value (cost $10,071,696 at
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1997 and $9,138,368 at December 31, 1996) $ 7,945,342 $ 6,585,790
Cash and cash equivalents 636,844 4,876,135
Receivable from security sold 150,575 -
Accrued interest receivable 4,764 2,377
Other assets 44,282 29,710
--------------- -----------------
TOTAL ASSETS $ 8,781,807 $ 11,494,012
=============== =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ - $ 3,012,100
Accounts payable and accrued expenses 94,489 106,263
Due to Managing General Partner 43,399 41,828
Due to Independent General Partners 7,500 10,000
--------------- -----------------
Total liabilities 145,388 3,170,191
--------------- -----------------
Partners' Capital:
Managing General Partner 86,364 83,238
Limited Partners (38,727 Units) 8,550,055 8,240,583
--------------- -----------------
Total Partners' capital 8,636,419 8,323,821
--------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 8,781,807 $ 11,494,012
=============== =================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
September 30, 1997
Active Portfolio Investments:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Initial Investment
Company / Position Date Cost Fair Value
Abtox, Inc.
<C> <C> <C> <C>
454,545 shares of Preferred Stock Mar. 1997 $ 1,060,600 $ 1,060,600
- -------------------------------------------------------------------------------------------------------------------------------
Gliatech, Inc.(A)
124,210 shares of Common Stock Feb. 1992 962,009 1,240,547
- -------------------------------------------------------------------------------------------------------------------------------
Hepatix, Inc.*
1,484,123 shares of Preferred Stock Jan. 1992 1,558,181 1,484,123
- -------------------------------------------------------------------------------------------------------------------------------
Integramed America, Inc.(A)
211,672 shares of Common Stock Mar. 1989 2,322,426 410,400
- -------------------------------------------------------------------------------------------------------------------------------
KeraVision, Inc.(A)
68,728 shares of Common Stock Nov. 1992 530,300 575,597
- -------------------------------------------------------------------------------------------------------------------------------
La Jolla Pharmaceutical Company(A)
100,383 shares of Common Stock Nov. 1991 678,579 501,915
25,076 warrants to purchase 12,538 shares of Common
Stock at $6.00 per share, expiring 6/3/99 0 18,807
Warrant to purchase 5,015 shares of Common Stock
at $5.00 per share, expiring 6/3/99 0 0
--------------- ---------------
678,579 520,722
- -------------------------------------------------------------------------------------------------------------------------------
Sennes Drug Innovations, Inc.*
2,750,000 shares of Preferred Stock June 1993 1,175,579 293,895
412,500 shares of Common Stock 4,375 1,094
$39,976 10% Promissory Note 42,399 21,200
--------------- ---------------
1,222,353 316,189
- -------------------------------------------------------------------------------------------------------------------------------
Synaptic Pharmaceutical Corporation(A)(B)
81,395 shares of Common Stock June 1991 669,895 1,098,833
- -------------------------------------------------------------------------------------------------------------------------------
Targeted Genetics, Inc.(A)
225,395 shares of Common Stock June 1992 1,067,353 1,225,698
Warrant to purchase 16,666 shares of Common Stock
at $4.68 per share, expiring 1/31/98 0 12,633
--------------- ---------------
1,067,353 1,238,331
- -------------------------------------------------------------------------------------------------------------------------------
Totals from Active Portfolio Investments $ 10,071,696 $ 7,945,342
=============== ===============
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
September 30, 1997
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(C)
<TABLE>
Cost Realized Loss Return
<S> <C> <C> <C>
Totals from Liquidated Portfolio Investments $ 6,392,955 $ (3,927,823) $ 2,465,132
=============== ================= ===============
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
Totals from Active and Liquidated Portfolio
Investments $ 16,464,651 $ (6,054,177) $ 10,410,474
=============== ================= ===============
</TABLE>
(A) Public company
(B) During the quarter ended September 30, 1997, the Partnership sold 15,000
common shares of Synaptic Pharmaceutical Corporation for $225,170,
realizing a gain of $97,898.
(C) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through September 30, 1997.
* 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,
1997 1996 1997 1996
------------- ------------- ------------- --------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C> <C>
Interest from short-term investments $ 6,320 $ 75,410 $ 42,940 $ 222,723
Interest and dividend income from portfolio
investments 1,122 (19,596) 3,117 (8,825)
-------------- ------------ ------------- -------------
Totals 7,442 55,814 46,057 213,898
-------------- ------------ ------------- -------------
Expenses:
Management fee 43,399 58,255 122,545 183,668
Professional fees 31,886 26,262 65,396 82,562
Mailing and printing 3,620 3,702 16,314 15,583
Insurance expense 15,915 15,512 43,437 51,685
Custodial fees 627 1,183 2,139 3,413
Independent General Partners' fees 2,500 2,500 7,500 9,877
Miscellaneous 0 158 250 3,372
-------------- ------------ ------------- -------------
Totals 97,947 107,572 257,581 350,160
-------------- ------------ ------------- -------------
NET INVESTMENT LOSS (90,505) (51,758) (211,524) (136,262)
Net realized gain (loss) from portfolio investments 97,898 (1,025,168) 97,898 (1,025,168)
-------------- ------------ ------------- ---------
NET REALIZED GAIN (LOSS) FROM
OPERATIONS 7,393 (1,076,926) (113,626) (1,161,430)
Net change in unrealized appreciation or
depreciation of investments 1,106,597 1,073,094 426,224 561,817
-------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS
(allocable to Partners) $ 1,113,990 $ (3,832) $ 312,598 $ (599,613)
============== ============ ============= =============
</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,
<TABLE>
1997 1996
-------------- ---------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C>
Net investment loss $ (211,524) $ (136,262)
Adjustments to reconcile net investment loss to cash used for
operating activities:
(Increase) decrease in accrued interest receivable and other assets (16,959) 4,205
(Decrease) increase in accounts payable (12,703) 93,810
-------------- ---------------
Cash used for operating activities (241,186) (38,247)
-------------- ---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Purchase of portfolio investments (1,060,600) (1,201,880)
Net proceeds from sale of portfolio investment 74,595 -
-------------- ---------------
Cash used for investing activities (986,005) (1,201,880)
-------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distribution to Partners (3,012,100) -
-------------- ---------------
Decrease in cash and cash equivalents (4,239,291) (1,240,127)
Cash and cash equivalents at beginning of period 4,876,135 6,226,065
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 636,844 $ 4,985,938
============== ===============
</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, 1997
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at beginning of period $ 83,238 $ 8,240,583 $ 8,323,821
Net increase in net assets resulting
from operations 3,126 309,472 312,598
------------ --------------- ----------------
Balance at end of period $ 86,364 $ 8,550,055(A) $ 8,636,419
============ =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized depreciation of investments, was $221
at September 30, 1997. Such per Unit amount is based on average allocations
to all limited partners and does not reflect specific limited partner
allocations, which are determined by the original closing date associated
with the units of limited partnership interest held by each limited
partner.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 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.
On July 22, 1997, CIBC Wood Gundy Securities Corp., the broker dealer subsidiary
of the Canadian Imperial Bank of Commerce, entered into a definitive agreement
to acquire Oppenheimer Holdings, Inc., the parent of OPCO. On November 3, 1997,
the transaction was consummated and the new name of OPCO is CIBC Oppenheimer
Corp. The limited partnership interest in the Managing General Partner that was
previously held by Oppenheimer Holdings, Inc., is now held by CIBC Oppenheimer
Corp.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments, consisting of companies engaged in
the health care industry. The Partnership 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.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
2. Summary of Significant Accounting Policies
Valuation of Investments - Portfolio investments are carried at fair value as
determined quarterly by the Managing General Partner under the supervision of
the Independent General Partners. The fair value of publicly-held portfolio
securities is adjusted to the closing public market price for the last trading
day of the accounting period discounted for sales restrictions. Factors
considered in the determination of an appropriate discount include, underwriter
lock-up or Rule 144 trading restrictions, insider status where the Partnership
either has a representative serving on the board of directors of the portfolio
company under consideration or is greater than a 5% shareholder thereof, and
other liquidity factors such as the size of the Partnership's position in a
given company compared to the trading history of the public security.
Privately-held portfolio securities are carried at cost until significant
developments affecting the portfolio company provide a basis for change in
valuation. The fair value of private securities is adjusted (i) to reflect
meaningful third-party transactions in the private market and (ii) to reflect
significant progress or slippage in the development of the company's business
such that cost 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 $2.1
million at September 30, 1997, which was recorded for financial statement
purposes, has not been recognized for tax purposes. Additionally, from inception
to September 30, 1997, other timing differences totaling $2.2 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) - 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 (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, 1997, the Partnership had a
$3.7 million net loss from its venture capital investments, including $244,000
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
$60,601 for the nine month period ended September 30, 1997. Cumulative venture
capital fees incurred from inception to September 30, 1997 totaled $942,000.
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) - continued
5. Litigation
On January 17, 1996, WestMed Venture Partners 2, L.P., and Philippe Sommer, were
named in an action filed in Harris County, Texas by James Kelly and Norman L.
Sussman. A variety of other individuals and entities were named in that action
as well (the "Action"). The plaintiffs in that action assert six causes of
action against all defendants, including violations of the securities laws, and
other common law claims, including fraudulent inducement, fraud, wrongful
sequestrations, and civil conspiracy. All of those causes of action arise out of
the Partnership's investment, with other venture capital funds, in Hepatix,
Inc., a company founded to develop and pursue approval of an extracorporeal
liver assist device. The plaintiffs in that action were the founders of Hepatix.
The Action was subsequently removed to Federal District Court in Houston and the
defendants, on October 15, 1996, moved to dismiss the action against WestMed
Venture Partners 2, L.P. and Mr. Sommer. That motion is still pending. WestMed
Venture Partners 2, L.P. and Mr. Sommer believe the allegations are without
merit and intend to vigorously defend the matter.
6. Classification of Investments
As of September 30, 1997, the Partnership's investments were categorized as
follows:
<TABLE>
Percentage of
Type of Investments Cost Fair Value Net Assets*
- ------------------- ---------------- -------------- -----------
<S> <C> <C> <C>
Common Stock $ 6,234,937 $ 5,085,524 58.88%
Preferred Stock 3,794,360 2,838,618 32.87%
Debt Securities 42,399 21,200 0.24%
---------------- -------------- ---------
$ 10,071,696 $ 7,945,342 91.99%
================ ============== =========
Country/Geographic Region
Eastern U.S. $ 2,992,321 $ 1,509,233 17.47%
Midwestern U.S. 2,022,609 2,301,147 26.64%
Western U.S. 3,834,413 3,818,773 44.22%
Southwestern U.S. 1,222,353 316,189 3.66%
---------------- -------------- ----------
Total $ 10,071,696 $ 7,945,342 91.99%
================ ============== ==========
Industry
Biotechnology $ 5,660,789 $ 5,475,222 63.39%
Medical Devices 2,088,481 2,059,720 23.85%
Medical Services 2,322,426 410,400 4.75%
---------------- -------------- ---------
$ 10,071,696 $ 7,945,342 91.99%
================ ============== =========
</TABLE>
* Based on fair value as a percentage of net assets.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
At September 30, 1997, the Partnership held $636,800 in cash and cash
equivalents: $299,300 in short-term securities with maturities of less than one
year and $337,500 in an interest-bearing cash account. The Partnership earned
$6,300 and $42,900 of interest from its short-term investments for the three and
nine months ended September 30, 1997, 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.
During the quarter ended September 30, 1997, the Partnership sold 15,000 common
shares of Synaptic Pharmaceutical Corporation for $225,200, of which $150,600
was a receivable at September 30, 1997 and collected subsequent to the end of
the quarter.
The Partnership made no new or follow-on investments during the three month
period ended September 30, 1997. From its inception through September 30, 1997,
the Partnership had invested an aggregate of $16.5 million (including
acquisition costs and venture capital fees totaling $1,041,500), representing
approximately 95% of the original $17.3 million of net proceeds to the
Partnership.
Results of Operations
For the three and nine months ended September 30, 1997, the Partnership had a
net realized gain from operations of $7,400 and a net realized loss from
operations of and $113,600, respectively. 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. 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, 1997, the Partnership had a $97,900 net realized gain
from its portfolio investments resulting from the sale in August and September
1997, of 15,000 shares of Synaptic Pharmaceutical Corporation common stock in
the public market for $225,200.
For the three and nine months ended September 30, 1996, the Partnership had a
$1.0 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.
Investment Income and Expenses - For the three months ended September 30, 1997
and 1996, the Partnership had a net investment loss (investment income less
operating expenses) of $90,500 and $51,800, respectively. The increase in net
investment loss for the 1997 period compared to the same period in 1996 resulted
from a $48,400 decrease in investment income partially offset by a $9,600
decrease in operating expenses. The decrease in investment income primarily
resulted from a decrease in interest earned from short-term investments due to a
reduced amount of funds available for investment in such securities during the
1997 period compared to the same period in 1996. Amounts invested in short-term
investments declined during the 1997 period primarily due to the $3.0 million
cash distribution paid to Partners in January 1997 and the $1.1 million
investment in Abtox, Inc. completed in March 1997. Partially offsetting the
decrease in interest from short-term investments was an increase in interest and
dividend income from portfolio investments for the 1997 period due mainly to the
write-off, during 1996, of accrued interest relating to promissory notes due
from Hepatix, Inc. The decrease in operating expenses primarily resulted from a
decrease in the management fee, as discussed below.
Net investment loss for the nine months ended September 30, 1997 and 1996 was
$211,500 and $136,300, respectively. The increase in net investment loss for the
1997 period includes a $179,800 decrease in interest from short-term
investments, primarily resulting from a decrease in funds available for
investment in such securities during the 1997 period, as discussed above.
Partially offsetting this increase was an $11,900 increase in income from
portfolio investments primarily due to the write-off of Hepatix accrued
interest, also discussed above. The $167,900 decrease in investment income was
partially offset by a $92,600 decrease in operating expenses, primarily
resulting from a $61,100 decrease in the management fee, as discussed below, and
a $17,200 reduction in professional fees for the 1997 period compared to the
same period in 1996. Professional fees for the 1996 period include legal fees
relating to the preparation of a proxy statement in connection with the Special
Meeting of Limited Partners held on June 21, 1996. Professional fees for the
1996 period also include increased outside accounting fees due to certain
adjustments to accrued audit and tax fees for the 1996 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 (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 management fee for the three months ended
September 30, 1997 and 1996 was $43,400 and $58,200, respectively. For the nine
months ended September 30, 1997 and 1996, the management fee was $122,500 and
$183,600, respectively. The reduced management fee is due to a decrease in the
Partnership's net asset value for the 1997 periods compared to the same periods
in 1996, primarily due to the $3.0 million cash distribution paid to Partners in
January 1997. 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 earned from short-term investments,
interest and dividend income form portfolio investments, and 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,
1997, the Partnership recorded a $495,800 net unrealized gain resulting from the
net upward revaluation of its publicly-traded portfolio investments.
Additionally, $69,600 of unrealized gain was transferred to realized gain due to
the sale of 15,000 common shares of Synaptic Pharmaceutical, as discussed above.
As a result, the Partnership had a $426,200 increase in net unrealized
appreciation of investments for the nine month period.
For the nine months ended September 30, 1996, the Partnership recorded a
$463,400 net unrealized loss, resulting from the net downward revaluation of its
portfolio investments. Additionally, $1,025,200 of unrealized loss was
transferred to realized loss due to the partial write-off of the Partnership's
investment in Hepatix, as discussed above. As a result, the Partnership had a
$561,800 increase in net unrealized appreciation of investments for the nine
month period.
Net Assets - For the nine months ended September 30, 1997, the Partnership had a
$312,600 net increase in net assets from operations, comprised of the $426,200
increase in unrealized appreciation of investments exceeding the $113,600 net
realized loss from operations for the period. As a result, the Partnership's net
assets increased to $8.6 million at September 30, 1997 from $8.3 million at
December 31, 1996.
For the nine months ended September 30, 1996, the Partnership had a $599,600 net
decrease in net assets from operations, comprised of the $561,800 increase in
unrealized appreciation of investments offset by the $1,161,400 net realized
loss from operations for the period. As a result, the Partnership's net assets
decreased to $11.5 million at September 30, 1996 from $12.1 million at December
31, 1995.
The net asset value per $500 Unit, including an allocation of the net unrealized
depreciation of investments was $221 and $213 at September 30, 1997 and December
31, 1996, 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.
On January 17, 1996, WestMed Venture Partners 2, L.P., and Philippe Sommer, were
named in an action filed in Harris County, Texas by James Kelly and Norman L.
Sussman. A variety of other individuals and entities were named in that action
as well (the "Action"). The plaintiffs in that action assert six causes of
action against all defendants, including violations of the securities laws, and
other common law claims, including fraudulent inducement, fraud, wrongful
sequestrations, and civil conspiracy. All of those causes of action arise out of
the Partnership's investment, with other venture capital funds, in Hepatix,
Inc., a company founded to develop and pursue approval of an extracorporeal
liver assist device. The plaintiffs in that action were the founders of Hepatix.
The Action was subsequently removed to Federal District Court in Houston and the
defendants, on October 15, 1996, moved to dismiss the action against WestMed
Venture Partners 2, L.P. and Mr. Sommer. That motion is still pending. WestMed
Venture Partners 2, L.P. and Mr. Sommer believe the allegations are without
merit and intend to vigorously defend the matter.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
A special meeting (the "Meeting") of the Limited Partners of the Partnership was
held on September 30, 1997. The Meeting was held for the following purposes: (i)
to approve or disapprove a new management agreement between the Managing General
Partner and the Partnership ("Proposal 1") and (ii) to approve or disapprove a
new sub-management agreement between the Managing General Partner and the
Sub-Manager ("Proposal 2"). The number of votes cast for, against and withheld
for Proposal 1 was 18,617, 1,473 and 1,304, respectively. The number of votes
cast for, against and withheld for Proposal 2 was 18,420, 1,644 and 1,330,
respectively.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTMED VENTURE PARTNERS 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, 1997
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 10,071,696
<INVESTMENTS-AT-VALUE> 7,945,342
<RECEIVABLES> 155,339
<ASSETS-OTHER> 681,126
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,781,807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 145,388
<TOTAL-LIABILITIES> 145,388
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 38,727
<SHARES-COMMON-PRIOR> 38,727
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,126,354)
<NET-ASSETS> 8,636,419
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46,057
<OTHER-INCOME> 0
<EXPENSES-NET> 257,581
<NET-INVESTMENT-INCOME> (211,524)
<REALIZED-GAINS-CURRENT> 97,898
<APPREC-INCREASE-CURRENT> 426,224
<NET-CHANGE-FROM-OPS> 312,598
<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> 312,598
<ACCUMULATED-NII-PRIOR> 0
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<AVERAGE-NET-ASSETS> 8,480,120
<PER-SHARE-NAV-BEGIN> 213
<PER-SHARE-NII> (5)
<PER-SHARE-GAIN-APPREC> 13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 221
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
