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 June 30, 2000
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.)
CIBC Oppenheimer Tower, World Financial Center
New York, New York 10281
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 667-7000
Not applicable
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ------------------
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of June 30, 2000 (Unaudited) and December 31, 1999
Statements of Operations for the Three and Six Months Ended June 30, 2000 and
1999 (Unaudited)
Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999
(Unaudited)
Statement of Changes in Partners' Capital for the Six Months Ended June 30, 2000
(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>
<S> <C> <C> <C> <C> <C> <C>
June 30, 2000 December 31,
(Unaudited) 1999
----------------- ----------------
ASSETS
Portfolio investment at fair value (cost of $0 as of December 31, 1999) $ - $ 0
Cash and cash equivalents 1,435,360 4,867,693
Receivable from security sold - 5,743
Accrued interest receivable 2,546 1,205
Prepaid insurance 8,712 22,289
--------------- ---------------
TOTAL ASSETS $ 1,446,618 $ 4,896,930
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ - $ 4,342,118
Accounts payable and accrued expenses 34,373 40,445
Due to Managing General Partner 18,504 2,572
Due to Independent General Partners 5,000 -
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Total liabilities 57,877 4,385,135
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Partners' Capital:
Managing General Partner 13,888 5,119
Limited Partners (38,727 Units) 1,374,853 506,676
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Total Partners' capital 1,388,741 511,795
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,446,618 $ 4,896,930
=============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------------- ------------- --------------- -----------
INVESTMENT INCOME AND EXPENSES
Income:
Interest from short-term investments $ 5,996 $ 39,086 $ 28,710 $ 73,223
------------ ------------- ------------ -------------
Expenses:
Management fee 6,979 23,867 9,504 49,120
Professional fees 15,950 17,269 30,433 32,043
Insurance expense 6,788 8,370 13,577 16,648
Mailing and printing 4,032 5,253 9,621 10,862
Independent General Partners' fees 2,500 2,500 5,000 5,000
Custodial fees 142 498 233 1,121
Other - 795 63 908
------------ ------------- ------------ -------------
Total investment expenses 36,391 58,552 68,431 115,702
------------ ------------- ------------ -------------
NET INVESTMENT LOSS (30,395) (19,466) (39,721) (42,479)
Realized gain (loss) from portfolio investments 916,667 (105,297) 916,667 (68,788)
------------ ------------- ------------ -------------
NET REALIZED GAIN (LOSS)
FROM OPERATIONS 886,272 (124,763) 876,946 (111,267)
Change in unrealized depreciation
of portfolio investments - (150,631) - (729,121)
------------ ------------- ------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 886,272 $ (275,394) $ 876,946 $ (840,388)
============ ============= ============ =============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30,
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
2000 1999
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CASH FLOWS USED FOR OPERATING ACTIVITIES
Net investment loss $ (39,721) $ (42,479)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Decrease in accrued interest receivable and other assets 12,236 16,938
Increase (decrease) in payables 14,860 (7,989)
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Cash used for operating activities (12,625) (33,530)
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CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Proceeds from sale of portfolio investments 922,410 531,920
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Cash provided from investing activities 922,410 531,920
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CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distribution paid to Partners (4,342,118) -
-------------- ---------------
Cash used for financing activities (4,342,118) -
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(Decrease) increase in cash and cash equivalents (3,432,333) 498,390
Cash and cash equivalents at beginning of period 4,867,693 3,076,472
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,435,360 $ 3,574,862
============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
For the Six Months Ended June 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Managing
General Limited
Partner Partners Total
----------- -------------- -------------
Balance as of December 31, 1999 $ 5,119 $ 506,676 $ 511,795
Net increase in net assets from operations 8,769 868,177 876,946
----------- -------------- -------------
Balance as of June 30, 2000 $ 13,888 $ 1,374,853 $ 1,388,741
=========== ============== =============
</TABLE>
(A) The net asset value per $500 unit of limited partnership interest was
approximately $35 as of June 30, 2000.
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 to operate as a business development company under the
Investment Company Act of 1940, as amended. The Partnership made its final cash
distribution and terminated on July 31, 2000. The Partnership was a closed-end
partnership and accordingly its units of limited partnership interest ("Units")
were not redeemable. 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 Partnership's
objective was to achieve long-term capital appreciation from its portfolio of
venture capital investments, consisting of companies engaged in the health care
industry.
The general partners of the Partnership included 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 was
Medical Venture Holdings, Inc., a Delaware corporation affiliated with CIBC
Oppenheimer Corp. ("Opco"). Opco was the successor corporation to Oppenheimer &
Co., Inc., following the acquisition and subsequent merger of Oppenheimer & Co.,
Inc. and CIBC Wood Gundy Corp. in November 1997. Opco is a subsidiary of
Canadian Imperial Bank of Commerce. The limited partners of the Managing General
Partner were Opco, MVP Holdings, Inc. and BSW, Inc., a Delaware corporation
owned by John A. Balkoski, Philippe L. Sommer and Howard S. Wachtler. Alsacia
Venture Management, Inc. (the "Sub-Manager"), a corporation controlled by
Philippe L. Sommer, served as the sub-manager of the Partnership pursuant to a
sub-management agreement between the Managing General Partner and the
Sub-Manager. The Sub-Manager had been retained by the Managing General Partner
to assist the Managing General Partner in the performance of certain of its
duties to the Partnership.
2. Summary of Significant Accounting Policies
Valuation of Investments - Portfolio investments were valued quarterly by the
Managing General Partner under the supervision of the Independent General
Partners. Publicly held portfolio securities were valued at the closing public
market price on the valuation date discounted for sales restrictions. Factors
considered in the determination of an appropriate discount included, underwriter
lock-up or Rule 144 trading restrictions, insider status where the Partnership
either had a representative serving on the board of directors of the portfolio
company under consideration or was 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 were carried at cost until significant developments
affecting the portfolio company provided a basis for change in valuation. The
fair value of private securities was 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.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of America
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.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
Investment Transactions - Investment transactions were recorded on the accrual
method. For portfolio investments, transactions were recorded on the date the
Partnership obtains an enforceable right to demand the securities or payment
thereof. Realized gains and losses on investments sold were 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 considered 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. From inception to June 30, 2000, other
timing differences totaling $3.3 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.
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 June 30, 2000, the Partnership had an $8.6
million net realized loss from its venture capital investments, including
approximately $240,000 of interest and other income from portfolio investments.
4. Related Party Transactions
Pursuant to the Partnership Agreement, the Managing General Partner
received a one-time venture capital fee equal to 5% of the gross proceeds from
the sale of Units. Such fee was incurred as portfolio investments were made in
the proportion of the cost of each portfolio investment to the net proceeds from
the sale of Units. Venture capital fees incurred were recorded as a cost of
acquiring the portfolio investment. The Partnership incurred no venture capital
fees for the six months ended June 30, 2000. Cumulative venture capital fees
incurred from inception to June 30, 2000 totaled approximately $964,000.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner was responsible for the
management, administrative and certain investment advisory services necessary
for the operation of the Partnership. For such services, the Managing General
Partner received 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 was
determined and paid quarterly. The compensation of the Sub-Manager was paid
directly by the Managing General Partner.
The Managing General Partner also provided certain shareholder services and
database management support for the Limited Partners of the Partnership. For
such services, the Managing General Partner charged the Partnership $4,500 per
quarter. This amount was paid to the Managing General Partner in addition to the
regular management fee discussed above.
For services rendered to the Partnership, each of the two Independent General
Partners received a $5,000 annual fee and reimbursement for all out-of-pocket
expenses relating to attendance at meetings of the General Partners.
5. Portfolio Investments
In June 2000, the Partnership's warrant to purchase 5,015 shares of LaJolla
Pharmaceutical Company expired, unexercised.
As previously disclosed, in September 1998, the Partnership liquidated its
investment in Sennes Drug Innovations, Inc. as part of a litigation settlement
involving Sennes and certain shareholders, including the Partnership, against
Baylor College of Medicine. As a result of certain claims pursued by parties to
the settlement agreement, the Partnership received an additional and final cash
settlement payment totaling $916,667 in May 2000.
As of June 30, 2000, all of the Partnership's portfolio investments had been
liquidated. The cost of such liquidated investments was $16,842,427, compared to
a return of $8,209,508.
6. Subsequent Event - Termination and Final Cash Distribution
In July 2000, the General Partners approved the final terminating cash
distribution totaling $1,274,079 to be paid to Partners on July 31, 2000.
Limited Partners received $1,261,338, or $32.57 per $500 Unit and the Managing
General Partner received $12,741.
7. Interim Financial Statements
In the opinion of the Managing General Partner, the unaudited financial
statements as of June 30, 2000, and for the six-month period then ended, reflect
all adjustments necessary for the fair presentation of the results of the
interim period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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Liquidity and Capital Resources
The Partnership invests its idle cash balances in short-term securities with
maturities of less than one year and in an interest bearing cash account. As of
June 30, 2000, the Partnership held $1,435,360 in an interest bearing cash
account. For the three months and six months ended June 30, 2000, the
Partnership earned interest from its short-term investments and interest bearing
cash account of $5,996 and $28,710, respectively.
As previously disclosed, in September 1998, the Partnership liquidated its
investment in Sennes Drug Innovations, Inc. as part of a litigation settlement
involving Sennes and certain shareholders, including the Partnership, against
Baylor College of Medicine. As a result of certain claims pursued by parties to
the settlement agreement, the Partnership received an additional and final cash
settlement payment totaling $916,667 in May 2000.
As of June 30, 2000, all of the Partnership's portfolio investments had been
liquidated. The cost of such liquidated investments was $16,842,427, compared to
a return of $8,209,508.
In July 2000, the General Partners approved the final terminating cash
distribution totaling $1,274,079 to be paid to Partners on July 31, 2000.
Limited Partners received $1,261,338, or $32.57 per $500 Unit and the Managing
General Partner received $12,741. Cumulative cash distributions paid to Partners
from inception of the Partnership through July 31, 2000 total $8,905,914,
including $8,816,855 to the Limited Partners, or approximately $228 per Unit,
and $89,059 to the Managing General Partner.
Results of Operations
For the three and six months ended June 30, 2000, the Partnership had a net
realized gain from operations of $886,272 and $876,946, respectively. For the
three and six months ended June 30, 1999, the Partnership had a net realized
loss from operations of $124,763 and $111,267, respectively. Net realized gain
or loss from operations is comprised of (i) net realized gain or loss from
portfolio investments and (ii) net investment income or loss (interest and
dividend income less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the three and six
months ended June 30, 2000, the Partnership had a net realized gain of $916,667
from the receipt of the final litigation settlement involving the Sennes Drug
Innovations, Inc., as discussed above.
For the three and six months ended June 30, 1999, the Partnership had a net
realized loss of $105,297 and $68,788, respectively, from the sale of certain
portfolio investments. During the quarter ended June 30, 1999, the Partnership
sold the following portfolio securities in the public market: 26,000 common
shares of KeraVision, Inc. for $268,568, realizing a gain of $67,954; 20,000
common shares of La Jolla Pharmaceutical Company for $22,946, realizing a loss
of $138,808; and 10,000 common shares of Targeted Genetics, Inc. for $16,095,
realizing a loss of $34,443. During the first quarter of 1999, the Partnership
sold an additional 10,000 common shares of KeraVision, Inc. for $113,668
realizing a gain of $36,509.
Investment Income and Expenses - For the three months ended June 30, 2000 and
1999, the Partnership had a net investment loss of $30,395 and $19,466,
respectively. The $10,929 unfavorable change in net investment loss for the 2000
period compared to the same period in 1999 was comprised of a $33,090 decrease
in investment income offset by a $22,161 decrease in operating expenses. The
decrease in investment income resulted from a decrease in income from short-term
investments due to the reduced amount of cash invested in such securities during
the three months ended June 30, 2000 compared to the same period in 1999. The
reduced operating expenses primarily resulted from a $16,888 decrease in the
management fee, as discussed below, and a $5,273 net decrease in other operating
expenses for the 2000 period compared to the same period in 1999, primarily due
to reductions in professional fees and insurance expense incurred during the
wind-up period.
For the six months ended June 30, 2000 and 1999, the Partnership had a net
investment loss of $39,721 and $42,479, respectively. The $2,758 favorable
change in net investment loss for the six months ended June 30, 2000 compared to
the same period in 1999 was comprised of a $47,271 decrease in operating
expenses offset by a $44,513 decrease in investment income. The decrease in
investment income resulted from a decrease in income from short-term investments
due to the reduced amount of cash invested in such securities during the six
months ended June 30, 2000 compared to the same period in 1999. The reduction in
operating expenses primarily resulted from a $39,616 decrease in the management
fee, as discussed below, and a $7,655 net decrease in other operating expenses
for the 2000 period compared to the same period in 1999, primarily due to
reductions in professional fees and insurance expense incurred during the
wind-up period.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner is responsible for the management,
administrative and certain investment advisory services necessary for the
operation of the Partnership. For such services, the Managing General Partner
receives a management fee at the annual rate of 2% of the lesser of the net
assets of the Partnership or the net contributed capital of the Partnership;
i.e., gross capital contributions to the Partnership, net of selling commissions
and organizational expenses, reduced by capital distributed. Such fee is
determined and paid quarterly. For the three months ended June 30, 2000 and
1999, the management fee was $6,979 and $23,867, respectively. For the six
months ended June 30, 2000 and 1999, the management fee was $9,504 and $49,120,
respectively. The decline in the management fee for the 2000 period compared to
the 1999 period reflects the reduced net asset value of the Partnership,
resulting from the continued liquidation of the Partnership's portfolio
investments and subsequent cash distribution to Partners.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Portfolio Investments - The Partnership had no changes to
unrealized appreciation or depreciation of investments for the six months ended
June 30, 2000.
For the six months ended June 30, 1999, the Partnership had a $729,121
unfavorable change in net unrealized depreciation of investments. During the
six-month period, the Partnership reduced the fair value of its remaining
portfolio investments by $612,061 due to the net downward revaluation of its
publicly-traded securities as of the end of the period. Additionally, during the
period, $117,060 was transferred from unrealized gain to realized gain in
connection with the sale of certain portfolio investments, as discussed above.
Net Assets - As of June 30, 2000, the Partnership's net assets were $1,388,741,
reflecting an increase of $876,946 from net assets of $511,795 as of December
31, 1999. This change represents the $876,946 net realized gain from operations
for the six-month period. As discussed above, the Partnership made its final
terminating cash distribution totaling $1,274,079 to be paid to Partners on July
31, 2000.
As of June 30, 1999, the Partnership's net assets were $4,749,511, reflecting a
decrease of $840,388 from net assets of $5,589,899 as of December 31, 1998. This
change represents the decrease in net assets resulting from operations for the
six-month period, comprised of the $729,121 unfavorable change in net unrealized
depreciation of investments and the $111,267 net realized loss from operations
for the six month period.
As of June 30, 2000 and December 31, 1999, the net asset value per $500 Unit,
including an allocation of net unrealized depreciation of investments was $35
and $13, 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.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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Not applicable.
Item 2. Changes in Securities.
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Not applicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matter was submitted to a vote of security holders during the quarter covered
by this report.
Item 5. Other Information.
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
(27) Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTMED VENTURE PARTNERS 2, L.P.
By: WestMed Venture Management 2, L.P.
The Managing General Partner
By: MEDICAL VENTURE HOLDINGS, INC.
General Partner
By: /s/ Gerald A. Rothstein
Gerald A. Rothstein
President and Principal Executive Officer
By: /s/ Ann Oliveri Fusco
Ann Oliveri Fusco
Vice President and Principal Financial
and Accounting Officer
Date: August 14, 2000
