FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal period ended September 30, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-17526
EQUUS CAPITAL PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0264305
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2929 ALLEN PARKWAY, SUITE 2500
HOUSTON, TEXAS 77019-2120
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (713) 529-0900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERS' INTERESTS
(Title of Class)
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 / /
As of September 30, 1995, 12,278 units ("Units") of limited partners'
interests in the Partnership were held by non-affiliates of the registrant. The
net asset value of a Unit at September 30, 1995 was $895.14. There is no
established market for such Units.
Documents incorporated by reference: None.
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
(A Delaware Limited Partnership)
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Assets, Liabilities and Partners' Capital
- September 30, 1995 and December 31, 1994.................. 1
Statements of Operations
- For the three months ended September 30, 1995 and 1994.... 2
- For the nine months ended September 30, 1995 and 1994..... 3
Statements of Changes in Partners' Capital
- For the nine months ended September 30, 1995.............. 4
- For the nine months ended September 30, 1994.............. 5
Statements of Cash Flows
- For the nine months ended September 30, 1995 and 1994..... 6
Selected Per Unit Data and Ratios
- For the nine months ended September 30, 1995 and 1994..... 8
Schedule of Enhanced Yield Investments
- September 30, 1995........................................ 9
Notes to Financial Statements............................ 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................. 18
SIGNATURE........................................................... 18
-ii-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
1995 1994
----------- -----------
ASSETS
Enhanced yield investments, at fair
value (cost of $10,295,672 and $10,716,507,
respectively) .................................. $11,438,768 $11,876,797
Temporary cash investments, at cost
which approximates fair value .................. 62,899 13,589
Cash ............................................. 3,587 5,676
Accounts receivable .............................. 8,030 --
Accrued interest receivable ...................... 71,992 80,060
----------- -----------
Total assets ........................... $11,585,276 $11,976,122
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable ............................... $ 3,700 $ 44,050
Note payable ................................... 425,000 1,300,000
----------- -----------
Total liabilities ...................... 428,700 1,344,050
----------- -----------
Commitments and contingencies
Partners' capital:
Managing partner ............................... 134,115 128,870
Independent general partners ................... 3,276 3,127
Limited partners (12,310 Units
issued and outstanding) ...................... 11,019,185 10,500,075
----------- -----------
Total partners' capital ................ 11,156,576 10,632,072
----------- -----------
Total liabilities and
partners' capital ...................... $11,585,276 $11,976,122
=========== ===========
The accompanying notes are an integral part of these financial statements.
-1-
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
---------- -----------
Investment income:
Income (loss) from enhanced yield investments ...... $ 38,447 $ (98,586)
Interest from temporary cash investments ........... 1,093 2,299
---------- -----------
Total investment income (loss) ................... 39,540 (96,287)
---------- -----------
Expenses:
Management fee ..................................... 58,495 60,998
Interest expense ................................... 22,701 6,054
Independent general partners fees .................. 14,265 15,750
Mailing and printing expenses ...................... 8,246 7,064
Administrative fees ................................ 5,280 5,280
Professional fees .................................. 2,875 2,700
---------- -----------
Total expenses ................................... 111,862 97,846
---------- -----------
Net investment loss .................................. (72,322) (194,133)
---------- -----------
Realized gain on sale of enhanced
yield investment ................................... 726,667 --
---------- -----------
Unrealized appreciation of enhanced yield investments:
End of period ...................................... 1,143,096 767,718
Beginning of period ................................ 632,370 1,366,108
---------- -----------
Increase (decrease) in unrealized appreciation ... 510,726 (598,390)
---------- -----------
Total increase (decrease) in partners'
capital from operations ........................ $1,165,071 $ (792,523)
========== ===========
The accompanying notes are an integral part of these financial statements.
-2-
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
----------- -----------
Investment income:
Income from enhanced yield investments ....... $ 159,711 $ 52,362
Interest from temporary cash investments ..... 2,321 8,750
----------- -----------
Total investment income .................... 162,032 61,112
----------- -----------
Expenses:
Management fee ............................... 176,347 187,334
Deferred incentive fee ....................... -- (235,494)
Interest expense ............................. 82,645 20,475
Independent general partners fees ............ 45,765 45,750
Mailing and printing expenses ................ 12,665 21,382
Administrative fees .......................... 15,840 15,855
Professional fees ............................ 13,746 12,706
----------- -----------
Total expenses ............................. 347,008 68,008
----------- -----------
Net investment loss ............................ (184,976) (6,896)
----------- -----------
Realized gain on sale of enhanced
yield investment ............................. 726,674 --
----------- -----------
Unrealized appreciation of enhanced yield
investments:
End of period ................................ 1,143,096 767,718
Beginning of period .......................... 1,160,290 2,065,781
----------- -----------
Decrease in unrealized appreciation ........ (17,194) (1,298,063)
----------- -----------
Total increase (decrease) in partners'
capital from operations .................. $ 524,504 $(1,304,959)
=========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1994 ..................... $ 10,632,072 $ 128,870 $ 3,127 $ 10,500,075
------------ ------------ ------------ ------------
Investment activities:
Investment income ..................... 162,032 1,620 46 160,366
Expenses .............................. 347,008 3,470 99 343,439
------------ ------------ ------------ ------------
Net investment loss ................ (184,976) (1,850) (53) (183,073)
Realized gain on
sale of enhanced
yield investment ...................... 726,674 7,267 207 719,200
Decrease in unrealized
appreciation of
enhanced yield
investments ........................... (17,194) (172) (5) (17,017)
------------ ------------ ------------ ------------
Net increase in
partners' capital ..................... 524,504 5,245 149 519,110
------------ ------------ ------------ ------------
Partners' capital,
September 30, 1995 .................... $ 11,156,576 $ 134,115 $ 3,276 $ 11,019,185
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1993 ......................... $ 11,638,278 $ 146,332 $ 3,411 $ 11,488,535
------------ ------------ ------------ ------------
Investment activities:
Investment income ......................... 61,112 611 17 60,484
Expenses .................................. 68,008 (680) 19 67,309
------------ ------------ ------------ ------------
Net investment loss ..................... (6,896) (69) (2) (6,825)
Decrease in unrealized appre-
ciation of enhanced
yield investments ......................... (1,298,063) (20,380) (367) (1,277,316)
------------ ------------ ------------ ------------
Net decrease in partners'
capital ................................... (1,304,959) (20,449) (369) (1,284,141)
------------ ------------ ------------ ------------
Partners' capital,
September 30, 1994 ........................ $ 10,333,319 $ 125,883 $ 3,042 $ 10,204,394
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Interest and dividends received ..................... $ 170,100 $ 154,800
Cash paid to management company,
general partners and suppliers .................... (395,388) (341,926)
----------- -----------
Net cash used by operating activities .............. (225,288) (187,126)
----------- -----------
Cash flows from investing activities:
Purchases of enhanced yield investments ............. (365,260) (1,053,372)
Sale and redemption of enhanced yield investments ... 820,819 --
Repayments of enhanced yield investments ............ 691,950 376,164
----------- -----------
Net cash provided (used) by investing activities ... 1,147,509 (677,208)
----------- -----------
Cash flows from financing activities:
Advances from bank .................................. 506,500 500,000
Repayments to bank .................................. (1,381,500) (100,000)
----------- -----------
Net cash provided (used) by financing activities ... (875,000) 400,000
----------- -----------
Net increase (decrease) in cash and cash equivalents .. 47,221 (464,334)
Cash and cash equivalents at
beginning of period ................................. 19,265 594,839
----------- -----------
Cash and cash equivalents at end
of period ........................................... $ 66,486 $ 130,505
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Reconciliation of increase (decrease) in partners' capital from operations to
net cash used by operating activities:
Increase (decrease) in partners' capital from operations ....................... $ 524,504 $(1,304,959)
Adjustments to reconcile increase (decrease) in partners' capital from
operations to net cash used by operating activities: Realized gain on sale
of enhanced yield
investment ............................................................ (726,674) --
Decrease in unrealized appreciation
of enhanced yield investments ......................................... 17,194 1,298,063
Increase in accounts receivable .......................................... (8,030) --
Decrease in accrued interest receivable .................................. 8,068 93,688
Decrease in accounts payable ............................................. (40,350) (38,424)
Decrease in deferred incentive fee ....................................... -- (235,494)
----------- -----------
Net cash used by operating activities .......................................... $ (225,288) $ (187,126)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
EQUUS CAPITAL PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
------- -------
Investment income ..................................... $ 13.03 $ 4.91
Expenses .............................................. 27.90 5.47
------- -------
Net investment loss ................................... (14.87) (0.56)
Realized gain on sale of enhanced
yield investment ................................... 58.42 --
Decrease in unrealized appreciation
of enhanced yield investments ...................... (1.38) (103.76)
------- -------
Net increase (decrease) in partners' capital from
operations ......................................... 42.17 (104.32)
Partners' capital, beginning of period ................ 852.97 933.27
------- -------
Partners' capital, end of period ...................... $ 895.14 $ 828.95
======= =======
Ratio of expenses to average partners' capital ........ 3.19% (0.62)%
Ratio of net investment loss to average
partners' capital .................................. (1.70) (0.06)%
Ratio of total increase (decrease) in partners' capital
from operations to average partners' capital ....... 4.82% (11.84)%
The accompanying notes are an integral part of these financial statements.
-8-
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DATE OF
PORTFOLIO COMPANY INITIAL INVESTMENT COST FAIR VALUE
<S> <C> <C> <C>
Artegraft, Inc. January 1993
- 12% senior term promissory note,
due 1994-1997 $ 284,200 $ 284,200
- 12% junior term promissory note,
due 1997 250,000 250,000
- Warrant to buy up to 1,000 shares of
common stock at $.01 per share
through December 31, 2002 10 63,325
- Warrant to buy up to 4,000 shares
of common stock at $25 per share
through December 31, 2002 40 186,675
Champion Healthcare Corporation (AMEX - CHC) April 1991
- 52,752 shares of common stock 46,463 353,771
- 831,177 shares of Series A convertible
preferred stock 831,177 1,200,331
- 10,538 shares of Series B convertible
preferred stock 124,356 124,356
- 1,300 shares of Series C convertible
preferred stock 23,400 23,400
- Warrants to buy up to 1,894 shares of
common stock at $5.90 per share through
June 1, 1999 - -
CMC Holdings, Inc. November 1992
- 74,000 shares of common stock 74,000 -
- 148,000 shares of Series A cumulative
preferred stock 148,000 -
- 11% subordinated debentures, due 1997-1999 1,776,000 -
- 12% promissory note, due 1997-1999 400,000 260,000
- 8% promissory notes, due 1996 40,000 40,000
Drypers Corporation (NASDAQ - DYPR) July 1991
- 224,344 shares of common stock 1,309,000 681,625
- Warrants to buy up to 1,357
shares of common stock at $4
per share through June 30, 1998 - -
The accompanying notes are an integral part of these financial statements.
-9-
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
(CONTINUED)
DATE OF
PORTFOLIO COMPANY INITIAL INVESTMENT COST FAIR VALUE
Garden Ridge Corporation (NASDAQ - GRDG) July 1992
- 52,688 shares of common stock $ 144,705 $ 1,392,708
Independent Gas Company Holdings, Inc. February 1991
- 14,962 shares of common stock 20,447 20,447
- 1,281 shares of 9% Series A preferred stock 1,284,530 1,284,530
- 170 shares of Series C preferred stock 170,000 170,000
- 10% bridge loan, due 1995 45,100 45,100
Industrial Equipment Rentals, Inc. June 1993
- 91,115 shares of common stock 911 911
- 2,685 shares of 6% cumulative junior
preferred stock 268,500 268,500
- 12% subordinated debenture, due 2003 538,889 538,889
Maxim Technologies, Inc. March 1991
- 59,875 shares of common stock 15,781 1,800,000
- 2,200,000 shares of 10% cumula-
tive convertible preferred stock 1,500,000 2,200,000
Medifit of America, Inc. September 1992
- 190,476 shares of Series D preferred
stock 1,000,000 250,000
- Warrant to buy up to 9,054 shares
of common stock at $3.75 per share
through January 1, 1998 163 -
- Warrant to buy up to 76,379 shares
of common stock at $.01 per share
through January 1, 1998 - -
--------------- ------------
Total $10,295,672 $11,438,768
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-10-
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
(CONTINUED)
Substantially all of the Partnership's Enhanced Yield Investments are
restricted from public sale without prior registration under the Securities Act
of 1933. The Partnership negotiates certain aspects of the method and timing of
the disposition of the Partnership's Enhanced Yield Investments in each
portfolio company, including registration rights and related costs. In
connection with the investments in Champion Healthcare Corporation, CMC
Holdings, Inc., Independent Gas Company Holdings, Inc., Industrial Equipment
Rentals, Inc., Maxim Technologies, Inc. and Medifit of America, Inc., rights
have been obtained to demand the registration of such securities under the
Securities Act of 1933, providing certain conditions are met. The Partnership
does not expect to incur significant costs, including costs of any such
registration, in connection with the future disposition of its portfolio
securities.
As defined in the Investment Company Act of 1940, the Partnership is
considered to have controlling interest in CMC Holdings, Inc., Industrial
Equipment Rentals, Inc. and Maxim Technologies, Inc. The fair value of the
Partnership's investments in Champion Healthcare Corporation, Drypers
Corporation and Garden Ridge Corporation include discounts from the closing
market price of $364,392, $33,472 and $148,416 to reflect the effects of
restrictions on the sale of such securities at September 30, 1995. Income was
earned in the amount of $60,921 and $2,145 for the nine months ended September
30, 1995, and 1994, respectively, on Enhanced Yield Investments of companies in
which the Partnership has a controlling interest.
As defined in the Investment Company Act of 1940, all of the
Partnership's investments are in eligible Enhanced Yield Investments. The
Partnership provides significant managerial assistance to all of the Portfolio
Companies in which it has invested except Artegraft, Inc. and Medifit of
America, Inc. The Partnership provides significant managerial assistance to
Portfolio Companies that comprise 91% of the total value of the Enhanced Yield
Investments.
The accompanying notes are an integral part of these financial statements.
-11-
EQUUS CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(1) ORGANIZATION AND BUSINESS PURPOSE
Equus Capital Partners, L.P. (the "Partnership"), a Delaware limited
partnership, completed the sale of 12,310 units of limited partners' interest
("Units") to over 1,400 limited partners as of December 31, 1990. Each Unit
required a capital contribution to the Partnership of $1,000 less applicable
selling commission discounts and may not be sold, transferred or assigned
without the consent of Equus Capital Corporation, a Delaware corporation (the
"Managing Partner"), which consent may not be unreasonably withheld.
Subscriptions for Units were first accepted at the initial closing on October 6,
1989, and subsequent quarterly closings were held through the final closing
effective December 31, 1990.
The Partnership seeks to achieve current income and capital
appreciation principally by making investments in securities consisting
primarily of subordinated debt and related equity securities issued by companies
to raise capital or in connection with leveraged buyouts or recapitalizations
("Enhanced Yield Investments"). The Partnership has elected to be treated as a
business development company under the Investment Company Act of 1940, as
amended. The Partnership will terminate no later than December 31, 1999, subject
to the right of the Independent General Partners to extend the term for up to
four additional years if they determine that such extension is in the best
interest of the Partnership.
(2) MANAGEMENT
The Partnership has four general partners, consisting of the Managing
Partner and three independent, individual general partners (the "Independent
General Partners"). As compensation for services rendered to the Partnership,
each Independent General Partner receives an annual fee of $15,000 and a fee of
$1,500 for each meeting of the Independent General Partners attended. Pursuant
to the Partnership agreement, the Managing Partner has made a general partner's
capital contribution to the Partnership of $125,316, or approximately one
percent of the Partnership's contributed capital, and each Independent General
Partner has made a capital contribution of $1,000.
The Partnership has entered into a management agreement with Equus
Capital Management Corporation, a Delaware corporation (the "Management
Company"). Pursuant to such agreement, the Management Company performs certain
management and administrative services necessary for the operation of the
Partnership. The Management Company receives a management fee at an annual rate
equal to 2.5% of the available capital and is payable quarterly in arrears. In
addition, the Management Company will receive an incentive fee equal to 10% of
the Partnership's cumulative distributions from Enhanced Yield Investments
(excluding returns of capital) over the life of the Partnership, subject to
payment of a priority return to the limited partners. No deferred incentive fees
were recorded in 1995. During the nine months ended September 30, 1994, the
Partnership reversed the accrual of all deferred incentive fees, due to an
increase in the accrued priority return and a decrease in net unrealized
appreciation on Enhanced Yield Investments, resulting in a reduction of
investment expense in the amount of $235,494 in the Statements of Operations for
such period. The Management Company also receives
-12-
compensation for providing certain administrative services to the Partnership on
terms determined by the Independent General Partners as being no less favorable
to the Partnership than those obtainable from competent unaffiliated parties.
Officers of the Management Company also receive and retain fees for serving on
the Boards of Directors of certain portfolio companies. The Management Company
also has management agreements with the Managing Partner and Equus II
Incorporated ("EQS"), a Delaware corporation, and with Equus Equity Appreciation
Fund, L.P. ("EEAF"), a Delaware limited partnership.
The Managing Partner is controlled by the Management Company which in
turn is controlled by a privately owned corporation. The Managing Partner is
also the managing general partner of EEAF and is a subordinated investment
advisor to EQS.
(3) SIGNIFICANT ACCOUNTING POLICIES
Valuation of Investments - Enhanced Yield Investments are carried at
fair value with the net change in unrealized appreciation or depreciation
included in the determination of partners' capital. Investments in companies
whose securities are publicly traded are valued at their quoted market price at
the balance sheet date, less a discount to reflect the effects of restrictions
on the sale of such securities, if applicable. Cost is used to approximate fair
value until significant developments affecting an Enhanced Yield Investment
provide a basis for use of an appraisal valuation. Thereafter, Enhanced Yield
Investments are carried at appraised values as determined quarterly by the
Managing Partner, subject to the approval of the Independent General Partners.
The fair value of debt securities, which are generally held to maturity, are
determined on the basis of the terms of the debt securities and the financial
condition of the issuer. Because of the inherent uncertainty of the valuation of
Enhanced Yield Investments which do not have readily ascertainable market
values, the Managing Partner's estimate of fair value may significantly differ
from the fair value that would have been used had a ready market existed for
such investments. Appraised values do not reflect brokers' fees, other normal
selling costs or management incentive fees which might become payable on
disposition of such investments. Such management incentive fees are recorded in
total in the Partnership's Financial Statements. (See Note 2).
Investment Transactions - Investment transactions are recorded on the
accrual method. Realized gains and losses on investments sold are computed on a
specific identification basis.
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.
Cash Flows - For purposes of the Statements of Cash Flows, the
Partnership considers all highly liquid temporary cash investments purchased
with an original maturity of three months or less to be cash equivalents.
(4) ALLOCATIONS AND DISTRIBUTIONS
The Partnership's cumulative net distributions from Enhanced Yield
Investments in excess of returns of capital will be shared in proportion to the
partners' capital contributions until the limited partners have received a
priority return, and thereafter are designed so that such distributions
generally will ultimately be shared 80% by the general and limited partners in
proportion to their capital contributions, 10% by the Managing Partner as an
incentive distribution and 10% by the Management Company as an incentive fee.
The priority return of $3,927,111 and $2,960,698 at September 30, 1995 and
December 31, 1994, respectively, is equal to the cumulative, non-compounded
return on the average
-13-
daily amount of the gross capital contributions represented by Enhanced Yield
Investments ranging from 10 to 12% per annum, depending on the date of the
original contribution, less amounts previously distributed related to such
return. For financial reporting purposes, net unrealized appreciation or
depreciation is allocated to the partners' capital accounts as if it were
realized.
Income from any source other than Enhanced Yield Investments is
generally allocated to the partners in proportion to the partners' capital
contributions. Indirect expenses of the Partnership are allocated between
Enhanced Yield Investments and Temporary Investments on a pro rata basis based
on the average assets from each type of investment.
Subject to certain provisions in the Partnership agreement, net
investment income and losses and capital gains and losses on investments are
generally allocated between the general partners and the limited partners on the
same basis as cash distributions.
(5) TEMPORARY CASH INVESTMENTS
Temporary cash investments, which represent the short-term utilization
of cash prior to investment in Enhanced Yield Investments, distributions to the
partners or payment of expenses and the note payable, consisted of money market
accounts earning interest at 3.93% at September 30, 1995.
(6) ENHANCED YIELD INVESTMENTS
The Partnership made follow-on investments of $365,260 in Enhanced
Yield Investments of three companies during the nine months ended September 30,
1995.
On May 9, 1995, Garden Ridge Corporation effected a 4.5-for-1 stock
split of its outstanding common stock in connection with an initial public
offering ("IPO") of its common stock. The number of shares held by the
Partnership has been adjusted to reflect such stock split. In connection with
the stock split, the Partnership received $7 for a fractional share which was
recorded as a realized capital gain. Subsequent to the IPO, Garden Ridge
Corporation redeemed $88,812 in preferred stock and repaid the $529,913 in
subordinated debt held by the Partnership. In September 1995, the Partnership
sold 24,000 shares of Garden Ridge Corporation for $732,000 realizing a capital
gain of $726,667.
In the nine months ended September 30, 1994, the Partnership made
follow-on investments of $1,053,372 in Enhanced Yield Investments of three
companies.
(7) NOTE PAYABLE
On March 31, 1994, the Partnership entered into a $1,500,000 revolving
line of credit note payable with a bank. On March 31, 1995, the line of credit
was increased to $1,750,000. This prime rate line of credit is used to fund the
Partnership's follow-on investments. On September 30, 1995, the line of credit
was decreased to $750,000. The prime rate was 8.75% at September 30, 1995. On
September 30, 1995 and December 31, 1994, the Partnership had $425,000 and
$1,300,000, respectively, outstanding under such line of credit, which is due
September 30, 1996. The line of credit is secured by the Partnership's
investment in Drypers Corporation and Champion Healthcare Corporation. The
average daily balance outstanding on such line of credit during the nine months
ended September 30, 1995 was $1,058,695.
-14-
(8) COMMITMENTS AND CONTINGENCIES
The Partnership has committed to invest, under certain circumstances,
an additional $60,000 in CMC Holdings, Inc.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The initial closing of the sale of units of limited partners' interests
("Units") was completed on October 6, 1989, and additional quarterly closings
were held through December 31, 1990. The Partnership's total contributed capital
was $12,435,691, consisting of $12,307,375 (net of $2,625 in selling commission
discounts on sales to affiliates) for 12,310 Units from 1,428 limited partners,
$125,316 from the Managing Partner and $3,000 from the Independent General
Partners. Net proceeds to the Partnership, after payment of selling commissions
and wholesale marketing assistance fees of $1,228,375 and payment of $615,500 as
reimbursement of offering costs, were $10,591,816.
At September 30, 1995, the Partnership had $11,438,768 in Enhanced
Yield Investments of nine companies, and had committed to invest up to an
additional $60,000 in the Enhanced Yield Investments of one existing Portfolio
Company under certain conditions.
At September 30, 1995, the Partnership had $66,486 invested in cash and
temporary cash investments, consisting of money market securities. In order to
allow Follow-on Investments in Enhanced Yield Investments when such
opportunities arise, the Partnership may utilize proceeds from existing Enhanced
Yield Investments or borrowings. The Partnership has a $750,000, prime rate,
revolving line of credit with a bank, to be used to fund Follow-on Investments
and pay operating costs and expenses. The Partnership had $425,000 and
$1,300,000 outstanding under such line of credit at September 30, 1995 and
December 31, 1994, respectively, which is due on September 30, 1996. Management
believes that temporary cash investments, proceeds from existing Enhanced Yield
Investments and the revolving line of credit provide the Partnership with the
liquidity necessary to pay for operating costs and expenses and for certain
Follow-on Investments.
Net investment income and the proceeds from the sale of Enhanced Yield
Investments are distributed to the extent such amounts are not reserved for
payment of expenses and contingencies or used to make Follow-on Investments in
Enhanced Yield Investments of existing portfolio companies.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
Net investment loss after all expenses amounted to $184,976 and $6,896
for the nine months ended September 30, 1995 and 1994, respectively. The change
from 1994 was primarily due to the reversal of $235,494 of deferred incentive
fees recorded in 1994. The Partnership earned $159,711 and $52,362 in income
from Enhanced Yield Investments during the nine months ended September 30, 1995
and 1994, respectively. The lower balance in 1994 was due primarily to the write
off of $178,560 in accrued interest due from CMC Holdings, Inc. as of September
30, 1994. In addition, a decrease in 1995 in the amounts invested in Enhanced
Yield Investments bearing current yields and a reserve against the accrued
interest receivable related to the Partnership's investment in one portfolio
company decreased the income from Enhanced Yield Investments in 1995.
The Management Company receives a management fee equal to 2.5% of the
Available Capital, as defined. Such fee amounted to $176,347 and $187,334 for
the nine months ended September 30, 1995, and 1994, respectively. The Management
Company is also allocated an incentive fee equal to
-16-
10% of the Partnership's cumulative distributions from Enhanced Yield
Investments (excluding returns of capital) over the life of the Partnership,
subject to payment of a priority return to the limited partners. The cumulative
accrued priority return amounted to $3,927,111 and $2,960,698 at September 30,
1995 and December 31, 1994, respectively. No deferred incentive fees were
recorded in 1995. During 1994, the Partnership reversed the accrual of all
deferred incentive fees, due to an increase in the accrued priority return and a
decrease in net unrealized appreciation of Enhanced Yield Investments, resulting
in a reduction of investment expense in the amount of $235,494 in the Statements
of Operations for the nine months ended September 30, 1994. Management fees and
other expenses incurred directly by the Partnership are paid with funds provided
from operations.
REALIZED CAPITAL GAIN
During September 1995, the Partnership sold 24,000 shares of Garden
Ridge Corporation common stock for $732,000 and realized a net capital gain of
$726,667. In addition, in connection with a Garden Ridge Corporation stock split
in May 1995, the Partnership received $7 for a fractional share which was
recorded as a realized capital gain.
UNREALIZED GAINS ON ENHANCED YIELD INVESTMENTS
Unrealized appreciation of Enhanced Yield Investments decreased by
$17,194 during the nine months ended September 30, 1995. Such net decrease
resulted from the increase of $3,056,105 in the estimated fair value of Enhanced
Yield Investments of two companies, the decrease of $2,926,632 in the estimated
fair value of Enhanced Yield Investments of three companies and the transfer of
$146,667 from unrealized appreciation to realized capital gains due to the sale
of Enhanced Yield Investments in one company.
Unrealized appreciation of Enhanced Yield Investments decreased
$1,298,063 during the nine months ended September 30, 1994. Such net decrease
resulted from the increase of $66,875 in the estimated fair value of Enhanced
Yield Investments in one company and the decrease of $1,364,938 in the estimated
fair value of Enhanced Yield Investments of two companies.
DISTRIBUTIONS
The Partnership made no cash distributions during the nine months ended
September 30, 1995 or 1994. Cumulative cash distributions to limited partners
from inception to September 30, 1995, were $873,297, or $75.53 per weighted
average number of Units outstanding.
ENHANCED YIELD INVESTMENTS
The Partnership made follow-on investments of $365,260 in Enhanced Yield
Investments of three companies during the nine months ended September 30, 1995.
In May 1995, the Partnership acquired 250 shares of Maxim Technologies, Inc.
("MTI") common stock for $250. MTI was set up to be the holding company of
HIHUSA, Inc. and Maxim Engineers, Inc. ("Maxim"). The partnership then exchanged
its 15,531 shares of common stock and 1,500,000 shares of preferred stock of
Maxim for 59,625 shares of common stock and 2,200,000 shares of preferred stock
of MTI.
-17-
In the first and third quarters of 1995, the Partnership advanced
$275,000 and $40,000, respectively to CMC Holdings, Inc. in exchange for 12% and
8% promissory notes, respectively. In June 1995, the Partnership exercised its
warrants and acquired 7,501 shares of Garden Ridge Corporation for $50,010.
During the nine months ended September 30, 1994, the Partnership made
follow-on investments of $1,053,372 in three companies.
Of the companies in which the Partnership has investments at September
30, 1995, only Champion Healthcare Corporation, Drypers Corporation and Garden
Ridge Corporation are publicly held. The others each have a small number of
shareholders and do not generally make financial information available to the
public. However, each company's operations and financial information are
reviewed by the General Partners to determine the proper valuation of the
Partnership's investment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Partnership during the
period for which this report is filed.
SIGNATURE
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.
Date: November 10, 1995 EQUUS CAPITAL PARTNERS, L.P.
By: Equus Capital Corporation
Managing General Partner
\S\ NOLAN LEHMANN
Nolan Lehmann
President and Principal Financial
and Accounting Officer
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER
ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 66,486
<SECURITIES> 11,438,768
<RECEIVABLES> 80,022
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,585,276
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,585,276
<CURRENT-LIABILITIES> 428,700
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 11,156,576
<TOTAL-LIABILITY-AND-EQUITY> 11,585,276
<SALES> 0
<TOTAL-REVENUES> 1,276,933
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 89,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,701
<INCOME-PRETAX> 1,165,701
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,165,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,165,071
<EPS-PRIMARY> 93.70
<EPS-DILUTED> 93.70
</TABLE>
