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 June 30, 1996
[ ] 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
of incorporation or organization) Identification No.)
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 June 30, 1996, 12,227 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 June 30, 1996 was $1,060.74. 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
- June 30, 1996 and December 31, 1995..............................1
Statements of Operations
- For the three months ended June 30, 1996 and 1995................2
- For the six months ended June 30, 1996 and 1995..................3
Statements of Changes in Partners' Capital
- For the six months ended June 30, 1996...........................4
- For the six months ended June 30, 1995...........................5
Statements of Cash Flows
- For the three months ended June 30, 1996 and 1995................6
Selected Per Unit Data and Ratios
- For the six months ended June 30, 1996 and 1995..................8
Schedule of Enhanced Yield Investments
- June 30, 1996...................................................9
Notes to Financial Statements..................................12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................16
SIGNATURE.....................................................................17
-ii-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
1996 1995
----------- -----------
ASSETS
Enhanced yield investments, at fair
value (cost of $8,994,770 and $9,152,957,
respectively) ................................ $12,514,888 $13,486,398
Temporary cash investments, at cost
which approximates fair value ................ 637,801 --
Cash ........................................... 3,140 19,407
Accounts receivable ............................ -- 100
Accrued interest receivable .................... 66,209 67,045
----------- -----------
Total assets ......................... $13,222,038 $13,572,950
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable ............................. $ 5,700 $ 36,300
Due to management company .................... -- 49,833
Note payable ................................. -- 400,000
----------- -----------
Total liabilities .................... 5,700 486,133
----------- -----------
Commitments and contingencies
Partners' capital:
Managing partner ............................. 154,713 153,417
Independent general partners ................. 3,860 3,824
Limited partners (12,310 Units
issued and outstanding) .................... 13,057,765 12,929,576
----------- -----------
Total partners' capital .............. 13,216,338 13,086,817
----------- -----------
Total liabilities and
partners' capital .................... $13,222,038 $13,572,950
=========== ===========
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 JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- ---------
Investment income:
Income from enhanced yield investments ............. $ 34,943 $ 70,125
Interest from temporary cash investments ........... 5,942 913
----------- ---------
Total investment income .......................... 40,885 71,038
----------- ---------
Expenses:
Management fee ..................................... 49,307 58,740
Interest expense ................................... 3,929 30,287
Independent general partner fees ................... 15,750 15,750
Mailing and printing expenses ...................... 8,027 (7,106)
Administrative fees ................................ 5,262 5,280
Professional fees .................................. 4,021 7,384
----------- ---------
Total expenses ................................... 86,296 110,335
----------- ---------
Net investment loss .................................. (45,411) (39,297)
----------- ---------
Realized gain on sale of enhanced
yield investment ................................... 1,041,510 7
Unrealized appreciation of enhanced yield investments:
End of period ...................................... 3,520,118 632,370
Beginning of period ................................ 4,168,274 691,587
----------- ---------
Decrease in unrealized appreciation .............. (648,156) (59,217)
----------- ---------
Total increase (decrease) in partners'
capital from operations ........................ $ 347,943 $ (98,507)
=========== =========
The accompanying notes are an integral part of these financial statements.
-2-
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- ---------
Investment income:
Income from enhanced yield investments ......... $ 70,492 $ 121,264
Interest from temporary cash investments ....... 6,203 1,228
----------- -----------
Total investment income ...................... 76,695 122,492
----------- -----------
Expenses:
Management fee ................................. 98,948 117,853
Interest expense ............................... 13,204 59,944
Independent general partners fees .............. 31,500 31,500
Mailing and printing expenses .................. 14,587 4,419
Administrative fees ............................ 10,522 10,560
Professional fees .............................. 6,600 10,870
----------- -----------
Total expenses ............................... 175,361 235,146
----------- -----------
Net investment income (loss) ..................... (98,666) (112,654)
----------- -----------
Realized gain on sale of enhanced
yield investment ............................... 1,041,510 7
----------- -----------
Unrealized appreciation of enhanced yield investments:
End of period .................................. 3,520,118 632,370
Beginning of period ............................ 4,333,441 1,160,290
----------- -----------
Decrease in unrealized appreciation .......... (813,323) (527,920)
----------- -----------
Total increase (decrease) in partners'
capital from operations .................... $ 129,521 $ (640,567)
=========== ===========
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 SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
------------ --------- ------- ------------
<S> <C> <C> <C> <C>
Partners' capital, December 31, 1995 ................................... $ 13,086,817 $ 153,417 $ 3,824 $ 12,929,576
------------ --------- ------- ------------
Investment activities:
Investment income .................................................... 76,695 767 22 75,906
Expenses ............................................................. 175,361 1,754 50 173,557
------------ --------- ------- ------------
Net investment loss .................................................. (98,666) (987) (28) (97,651)
Realized gain on sale of enhanced yield investment ..................... 1,041,510 10,416 295 1,030,799
Decrease in unrealized appreciation of enhanced yield investments ...... (813,323) (8,133) (231) (804,959)
------------ --------- ------- ------------
Net increase in partners' capital ...................................... 129,521 1,296 36 128,189
------------ --------- ------- ------------
Partners' capital, June 30, 1996 ....................................... $ 13,216,338 $ 154,713 $ 3,860 $ 13,057,765
============ ========= ======= ============
</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 SIX MONTHS ENDED JUNE 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 .................................................... 122,492 1,225 35 121,232
Expenses ............................................................. 235,146 2,352 67 232,727
------------ --------- ------- ------------
Net investment loss .................................................... (112,654) (1,127) (32) (111,495)
Realized gain on sale of enhanced yield investment ..................... 7 -- -- 7
Decrease in unrealized appreciation of enhanced yield investments ...... (527,920) (5,279) (150) (522,491)
------------ --------- ------- ------------
Net decrease in partners' capital ...................................... (640,567) (6,406) (182) (633,979)
------------ --------- ------- ------------
Partners' capital, June 30, 1995 ....................................... $ 9,991,505 $ 122,464 $ 2,945 $ 9,866,096
============ ========= ======= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- ---------
Cash flows from operating activities:
Interest and dividends received .................. $ 77,531 $ 129,113
Cash paid to management company,
general partners and suppliers ................. (255,794) (274,896)
----------- ---------
Net cash used by operating activities .......... (178,263) (145,783)
----------- ---------
Cash flows from investing activities:
Purchases of enhanced yield investments .......... (29,943) (325,260)
Sale and redemption of enhanced yield investments 1,179,840 88,819
Repayments of enhanced yield investments ......... 49,900 675,349
----------- ---------
Net cash provided by investing activities ...... 1,199,797 438,908
----------- ---------
Cash flows from financing activities:
Advances from bank ............................... 115,000 394,500
Repayments to bank ............................... (515,000) (681,500)
----------- ---------
Net cash used by financing activities .......... (400,000) (287,000)
----------- ---------
Net increase in cash and cash equivalents .......... 621,534 6,125
Cash and cash equivalents at
beginning of period .............................. 19,407 19,265
----------- ---------
Cash and cash equivalents at end
of period ........................................ $ 640,941 $ 25,390
=========== =========
The accompanying notes are an integral part of these financial statements.
-6-
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<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$ ................................ 129,521 $(640,567)
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 ..................................... (1,041,510) (7)
Decrease in unrealized appreciation of enhanced yield investments ...................... 813,323 527,920
Increase in accounts receivable ........................................................ -- (8,030)
Decrease in accrued interest receivable ................................................ 836 14,651
Decrease in accounts payable ........................................................... (30,600) (39,750)
Decrease in due to management company .................................................. (49,833) --
----------- ---------
Net cash used by operating activities ...................................................... $ (178,263) $(145,783)
=========== =========
</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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Investment income ............................................................................ $ 6.17 $ 9.85
Expenses ..................................................................................... 14.10 18.91
--------- -------
Net investment loss .......................................................................... (7.93) (9.06)
Realized gain on sale of enhanced yield investment ........................................... 83.74 --
Decrease in unrealized appreciation of enhanced yield investments ............................ (65.40) (42.44)
--------- -------
Net increase (decrease) in partners' capital from operations ................................. 10.41 (51.50)
Partners' capital, beginning of period ....................................................... 1,050.33 852.97
--------- -------
Partners' capital, end of period ............................................................. $1,060.74 $801.47
========= =======
Ratio of expenses to average partners' capital ............................................... 1.31% 2.29%
Ratio of net investment loss to average partners' capital .................................... (0.75)% (1.09)%
Ratio of total increase (decrease) in partners' capital from operations to
average partners' capital .................................................................. 0.99% (6.23)%
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
JUNE 30, 1996
(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 ................................................. $ 209,500 $ 209,500
-12% junior term promissory note ................................................. 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
-335,649 shares of common stock .................................................. 1,157,724 3,404,976
-1,300 shares of Series C convertible preferred stock ............................ 23,400 23,400
Drypers Corporation (NASDAQ - DYPR) ................................................ July 1991
-224,344 shares of common stock .................................................. 1,309,000 673,453
-Warrants to buy up to 1,357 shares of common stock at $4 per share through
June 30, 1998 ................................................................. -- --
E-B Holdings, Inc. ................................................................. December 1995
-740 shares of common stock ...................................................... 684,500 --
-12% promissory note ............................................................. 400,000 260,000
-8% promissory notes ............................................................. 110,000 110,000
Garden Ridge Corporation (NASDAQ - GRDG) ........................................... July 1992
-57,376 shares of common stock ................................................... 6,375 1,405,282
Independent Gas Company Holdings, Inc. ............................................. February 1991
-16,267 shares of common stock ................................................... 20,447 20,447
-1,281 shares of 9% Series A preferred stock ..................................... 1,284,530 1,284,530
-215 shares of Series C preferred stock .......................................... 215,000 215,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
-9-
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
June 30, 1996
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Date Of
Portfolio Company Initial Investment Cost Fair Value
- ----------------- ------------------ ---------- ---------
<S> <C> <C> <C>
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 ................................................. 538,889 538,889
MaxTech Holdings, Inc. ........................................................ March 1991
(formerly Maxim Engineers, Inc.)
-59,875 shares of common stock .............................................. 15,781 1,400,000
-2,200,000 shares of 10% cumulative 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 --
-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 ................................................................... $8,994,770 $12,514,888
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-10-
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
JUNE 30, 1996
(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, E-B
Holdings, Inc., Independent Gas Company Holdings, Inc., Industrial Equipment
Rentals, Inc., MaxTech Holdings, 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 E-B Holdings, Inc., Industrial
Equipment Rentals, Inc. and MaxTech Holdings, 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 $413,031, $55,665 and $43,462 to reflect the effects of
restrictions on the sale of such securities at June 30, 1996. Such discounts
total $512,158 or $41.19 per unit. Income was earned in the amount of $40,211
and $40,550 for the six months ended June 30, 1996 and 1995, 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 94% 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
JUNE 30, 1996 AND 1995
(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 1,428 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 acquisitions 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. Payment of incentive fees
is subject to the payment of $4,797,833 in cumulative accrued priority returns
owed to limited partners at June 30, 1996 (See Note 4). The Management Company
also receives 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. Certain officers of the Managing Partner serve as
directors of Portfolio Companies, and receive and retain fees in consideration
for such service. 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.
-12-
The Managing Partner is a wholly-owned subsidiary of 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
Interim Financial Statements - The financial statements included herein
have been prepared without audit and include all adjustments which management
considers necessary for a fair presentation.
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 as
of the respective balance sheet dates, less a discount to reflect the estimated
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 values 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.
Fluctuations in the quoted market prices of investments in companies
whose securities are publicly-traded are recorded in the period in which they
occur. Subsequent to June 30, 1996, the value of the Partnership's investment
declined due to decreases in the quoted market prices of such securities.
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 $4,797,833 and $4,241,362 at June 30, 1996 and December
31, 1995, respectively, is equal to the cumulative, non-compounded return on the
average 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
-13-
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 Cash Investments on a pro-rata basis
based on the average assets from each type of investment.
(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, consisted of money market accounts earning
interest from 4.5% to 4.81% at June 30, 1996.
(6) ENHANCED YIELD INVESTMENTS
The Partnership made follow-on investments of $29,943 in Enhanced Yield
Investments of two Portfolio Companies during the six months ended June 30,
1996.
The Partnership made follow-on investments of $325,260 in Enhanced
Yield Investments of three Portfolio Companies during the six months ended June
30, 1995.
(7) NOTE PAYABLE
On March 31, 1994, the Partnership entered into a $1,500,000 revolving
line of credit note payable with a bank. The line of credit was increased to
$1,750,000 in March 1995, and then reduced to $750,000 in September 1995. This
prime rate line of credit is used to fund the Partnership's follow-on
investments. The prime rate was 8.25% at June 30, 1996. On June 30, 1996 and
December 31, 1995, the Partnership had no balance and $400,000, 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 six months ended June 30, 1996 and 1995, was $311,126
and $1,303,332, respectively.
(8) COMMITMENTS AND CONTINGENCIES
The Partnership has committed to invest, under certain circumstances,
up to an additional $40,000 in E-B Holdings, Inc. The temporary cash
investments, proceeds from existing Enhanced Yield Investments and revolving
line of credit provide the Partnership with the liquidity necessary to pay
operating expenses of the Partnership as well as make certain follow-on
Investments.
(9) SUBSEQUENT EVENTS
During July 1996, the Partnership, in connection with its commitment
discussed above, advanced an additional $10,000 to E-B Holdings, Inc. under an
8% promissory note.
-14-
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 June 30, 1996, the Partnership had $8,994,770 (at cost) invested in
Enhanced Yield Investments of nine companies, and had committed to invest up to
an additional $40,000 in the Enhanced Yield Investments of one existing
Portfolio Company under certain conditions.
At June 30, 1996, the Partnership had $640,941 in cash and temporary
cash investments. 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 for
Follow-on Investments. At June 30, 1996, the Partnership had no balance
outstanding under such line of credit, 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 operating expenses of the
Partnership as well as make 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
existing Enhanced Yield Investments.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
Net investment loss after all expenses amounted to $98,666 and $112,654
for the six months ended June 30, 1996 and 1995, respectively. The Partnership
earned $70,492 and $121,264 in income from Enhanced Yield Investments during the
six months ended June 30, 1996 and 1995, respectively. The decrease in 1996 was
due to a decrease in the amounts invested in Enhanced Yield Investments bearing
current yields.
The Management Company receives a management fee at an annual rate
equal to 2.5% of the Available Capital, as defined, and is paid quarterly in
arrears. Such fee amounted to $98,948 and $117,853 for the six months ended June
30, 1996 and 1995, respectively. The Management Company is also allocated 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.
The cumulative accrued priority return amounted to $4,797,833 and $4,241,362 at
June 30, 1996 and December 31, 1995, respectively. Management fees and other
expenses incurred directly by the Partnership are paid with funds provided from
operations.
-15-
UNREALIZED GAINS ON ENHANCED YIELD INVESTMENTS
Unrealized appreciation of Enhanced Yield Investments decreased by
$813,323 during the six months ended June 30, 1996. Such net decrease resulted
from the increase of $2,257,147 in the estimated fair value of Enhanced Yield
Investments of three companies, the decrease of $2,400,000 in the estimated fair
value of Enhanced Yield Investments of one company and the transfer of $670,470
from unrealized appreciation to realized gain on sale of enhanced yield
investment.
Unrealized appreciation of Enhanced Yield Investments decreased by
$527,920 during the six months ended June 30, 1995. Such net decrease resulted
from the increase of $1,295,600 in the estimated fair value of Enhanced Yield
Investments of two companies and the decrease of $1,823,520 in the estimated
fair value of Enhanced Yield Investments of three companies.
DISTRIBUTIONS
The Partnership made no cash distributions during the three months
ended June 30, 1996 and 1995. Cumulative cash distributions to limited partners
from inception to June 30, 1996, were $873,297, or $75.53 per weighted average
number of Units outstanding.
ENHANCED YIELD INVESTMENTS
The Partnership made follow-on investments of $29,943 in Enhanced Yield
Investments of one company during the six months ended June 30, 1996. In January
1996, the Partnership advanced $20,000 to E-B Holdings, Inc. in exchange for an
8% promissory note. In May 1996, the Partnership exercised its option to buy
1,894 shares of Champion Healthcare Corporation common stock for $9,943. On June
28, 1996, Garden Ridge Corporation completed a 2 for 1 split.
During the six months ended June 30, 1995, the Partnership made
follow-on investments of $325,260 in three companies.
Of the companies in which the Partnership has investments at June 30,
1996, 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.
SUBSEQUENT EVENTS
During July 1996, the Partnership advanced an additional $10,000 to E-B
Holdings, Inc. under an 8% promissory note.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)EXHIBITS
None
-16-
(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: August 9, 1996 EQUUS CAPITAL PARTNERS, L.P.
By: Equus Capital Corporation
Managing General Partner
\s\ NOLAN LEHMANN
Nolan Lehmann
President and Principal Financial
and Accounting Officer
-17-
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