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, 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 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, 1996, 12,187 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, 1996 was $985.76. 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, 1996 and December 31, 1995.....................1
Statements of Operations
- For the three months ended September 30, 1996 and 1995.......2
- For the nine months ended September 30, 1996 and 1995........3
Statements of Changes in Partners' Capital
- For the nine months ended September 30, 1996.................4
- For the nine months ended September 30, 1995.................5
Statements of Cash Flows
- For the nine months ended September 30, 1996 and 1995........6
Selected Per Unit Data and Ratios
- For the nine months ended September 30, 1996 and 1995........8
Schedule of Enhanced Yield Investments
- September 30, 1996...........................................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
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
1996 1995
----------- -----------
ASSETS
Enhanced yield investments, at fair
value (cost of $9,025,163 and $9,152,957,
respectively) .................................. $11,636,721 $13,486,398
Temporary cash investments, at cost
which approximates fair value .................. 578,733 --
Cash ............................................. 6,580 19,407
Accounts receivable .............................. -- 100
Accrued interest receivable ...................... 67,331 67,045
----------- -----------
Total assets ........................... $12,289,365 $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 ............................... 145,386 153,417
Independent general partners ................... 3,596 3,824
Limited partners (12,310 Units outstanding) .... 12,134,683 12,929,576
----------- -----------
Total partners' capital ................ 12,283,665 13,086,817
----------- -----------
Total liabilities and
partners' capital ...................... $12,289,365 $13,572,950
=========== ===========
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
Investment income:
Income from enhanced yield investments ....... $ 43,496 $ 38,447
Interest from temporary cash investments ..... 7,951 1,093
----------- -----------
Total investment income .................... 51,447 39,540
----------- -----------
Expenses:
Management fee ............................... 49,024 58,495
Interest expense ............................. -- 22,701
Independent general partner fees ............. 15,750 14,265
Mailing and printing expenses ................ 3,654 8,246
Administrative fees .......................... 5,261 5,280
Professional fees ............................ 1,871 2,875
----------- -----------
Total expenses ............................. 75,560 111,862
----------- -----------
Net investment loss ............................ (24,113) (72,322)
----------- -----------
Realized gain on sale of enhanced
yield investment ............................. -- 726,667
Unrealized appreciation of enhanced
yield investments:
End of period ................................ 2,611,558 1,143,096
Beginning of period .......................... 3,520,118 632,370
----------- -----------
Increase (decrease) in unrealized
appreciation ............................. (908,560) 510,726
----------- -----------
Total increase (decrease) in partners'
capital from operations .................. $ (932,673) $ 1,165,071
=========== ===========
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
Investment income:
Income from enhanced yield investments ....... $ 113,988 $ 159,711
Interest from temporary cash investments ..... 14,154 2,321
----------- -----------
Total investment income .................... 128,142 162,032
----------- -----------
Expenses:
Management fee ............................... 147,971 176,347
Interest expense ............................. 13,204 82,645
Independent general partners fees ............ 47,250 45,765
Mailing and printing expenses ................ 18,241 12,665
Administrative fees .......................... 15,784 15,840
Professional fees ............................ 8,471 13,746
----------- -----------
Total expenses ............................. 250,921 347,008
----------- -----------
Net investment loss ............................ (122,779) (184,976)
----------- -----------
Realized gain on sale of enhanced
yield investment ............................. 1,041,510 726,674
----------- -----------
Unrealized appreciation of enhanced
yield investments:
End of period ................................ 2,611,558 1,143,096
Beginning of period .......................... 4,333,441 1,160,290
----------- -----------
Decrease in unrealized appreciation ........ (1,721,883) (17,194)
----------- -----------
Total increase (decrease) in partners'
capital from operations .................. $ (803,152) $ 524,504
=========== ===========
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
------------ --------- ------- ------------
Partners' capital,
December 31, 1995 ....... $ 13,086,817 $ 153,417 $ 3,824 $ 12,929,576
------------ --------- ------- ------------
Investment activities:
Investment income ....... 128,142 1,281 37 126,824
Expenses ................ 250,921 2,509 72 248,340
------------ --------- ------- ------------
Net investment loss ..... (122,779) (1,228) (35) (121,516)
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 ....... (1,721,883) (17,219) (488) (1,704,176)
------------ --------- ------- ------------
Net decrease in partners'
capital ................. (803,152) (8,031) (228) (794,893)
------------ --------- ------- ------------
Partners' capital,
September 30, 1996 ...... $ 12,283,665 $ 145,386 $ 3,596 $ 12,134,683
============ ========= ======= ============
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
------------ --------- ------- ------------
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 decrease in
partners' capital ....... 524,504 5,245 149 519,010
------------ --------- ------- ------------
Partners' capital,
September 30, 1995 ...... $ 11,156,576 $ 134,115 $ 3,276 $ 11,019,185
============ ========= ======= ============
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
Cash flows from operating activities:
Interest and dividends received ................. $ 120,063 $ 170,100
Cash paid to management company,
general partners and suppliers ................ (331,354) (395,388)
----------- -----------
Net cash used by operating activities ......... (211,291) (225,288)
----------- -----------
Cash flows from investing activities:
Purchases of enhanced yield investments ......... (77,443) (365,260)
Sale and redemption of enhanced yield investments 1,179,840 820,819
Repayments of enhanced yield investments ........ 74,800 691,950
----------- -----------
Net cash provided by investing activities ..... 1,177,197 1,147,509
----------- -----------
Cash flows from financing activities:
Advances from bank .............................. 115,000 506,500
Repayments to bank .............................. (515,000) (1,381,500)
----------- -----------
Net cash used by financing activities ......... (400,000) (875,000)
----------- -----------
Net increase in cash and cash equivalents ......... 565,906 47,221
Cash and cash equivalents at
beginning of period ............................. 19,407 19,265
----------- -----------
Cash and cash equivalents at end
of period ....................................... $ 585,313 $ 66,486
=========== ===========
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(CONTINUED)
1996 1995
----------- ---------
Reconciliation of increase (decrease) in
partners' capital from operations to
net cash used by operating activities:
Increase (decrease) in partners' capital
from operations ............................. $ (803,152) $ 524,504
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) (726,674)
Decrease in unrealized appreciation
of enhanced yield investments ............... 1,721,883 17,194
Increase in accounts receivable ............... -- (8,030)
Decrease (increase) in accrued
interest receivable ......................... (286) 8,068
Interest received in the form of enhanced
yield investment ............................ (7,793) --
Decrease in accounts payable .................. (30,600) (40,350)
Decrease in due to management company ......... (49,833) --
----------- ---------
Net cash used by operating activities .............. $ (211,291) $(225,288)
=========== =========
The accompanying notes are an
integral part of these financial statements.
-7-
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
--------- -------
Investment income .................................... $ 10.30 $ 13.03
Expenses ............................................. 20.17 27.90
--------- -------
Net investment loss .................................. (9.87) (14.87)
Realized gain on sale of enhanced
yield investment .................................. 83.74 58.42
Decrease in unrealized appreciation
of enhanced yield investments ..................... (138.44) (1.38)
--------- -------
Net increase (decrease) in partners' capital from
operations ........................................ (64.57) 42.17
Partners' capital, beginning of period ............... 1,050.33 852.97
--------- -------
Partners' capital, end of period ..................... $ 985.76 $895.14
========= =======
Ratio of expenses to average partners' capital ....... 1.98% 3.19%
Ratio of net investment loss to average
partners' capital ................................. (0.97)% (1.70)%
Ratio of total increase (decrease) in
partners' capital from operations to
average partners' capital ......................... (6.34)% 4.82%
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
SEPTEMBER 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 $ 184,600 $ 184,600
- 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
Drypers Corporation (NASDAQ - DYPR) July 1991
- 224,344 shares of common stock 1,309,000 804,678
- 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 notes 565,293 425,293
Garden Ridge Corporation (NASDAQ - GRDG) July 1992
- 57,376 shares of common stock 6,375 953,087
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
Industrial Equipment Rentals, Inc. June 1993
- 91,115 shares of common stock 911 200,000
- 2,685 shares of 6% cumulative junior
preferred stock 268,500 268,500
- 12% subordinated debenture 538,889 538,889
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Date Of
Portfolio Company Initial Investment Cost Fair Value
----------------- ------------------ ---- ----------
<S> <C> <C> <C>
MaxTech Holdings, Inc. March 1991
- 59,875 shares of common stock $ 15,781 $ 1,000,000
- 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 -
- 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 - -
Paracelsus Healthcare Corporation (NYSE - PLS) April 1991
- 338,249 shares of common stock 1,181,124 3,041,697
----------- ------------
Total $9,025,163 $11,636,721
========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
SEPTEMBER 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 E-B Holdings, Inc., Independent Gas Company
Holdings, Inc., Industrial Equipment Rentals, Inc., MaxTech Holdings, Inc.,
Medifit of America, Inc. and Paracelsus Healthcare Corporation, 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 Drypers Corporation, Garden Ridge Corporation and
Paracelsus Healthcare Corporation include discounts from the closing market
price of $92,698, $29,477 and $383,075 to reflect the effects of restrictions on
the sale of such securities at September 30, 1996. Such discounts total $505,250
or $40.63 per unit. Income was earned in the amount of $69,566 and $60,921 for
the nine months ended September 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., Medifit of America,
Inc. and Paracelsus Healthcare Corporation. The Partnership provides significant
managerial assistance to Portfolio Companies that comprise 68% of the total
value of the Enhanced Yield Investments.
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 is fully
invested and can only make follow-on investments in existing portfolio
companies. 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 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 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 $5,076,042 in cumulative accrued priority returns
owed to limited partners at September 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
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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.
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 of other investments 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 September 30, 1996 and as of November 12, 1996, the value
of the Partnership's investments declined approximately 15% 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
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<PAGE>
incentive fee. The priority return of $5,076,042 and $4,241,362 at September 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 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 4.85% at September 30, 1996.
(6) ENHANCED YIELD INVESTMENTS
The Partnership made follow-on investments of $85,236 in Enhanced Yield
Investments of two Portfolio Companies during the nine months ended September
30, 1996, including the conversion of $7,793 of accrued interest receivable into
a new note receivable. In addition, the Partnership realized capital gains of
$1,041,510 from the sale of enhanced yield investments during the nine months
ended September 30, 1996.
The Partnership made follow-on investments of $325,260 in Enhanced
Yield Investments of three Portfolio Companies during the nine months ended
September 30, 1995. In addition, the Partnership realized capital gains of
$726,674 from the sale of enhanced yield investments during the nine months
ended September 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 September 30, 1996. On September 30,
1996 and December 31, 1995, the Partnership had no balance and $400,000,
respectively, outstanding under such line of credit, which expired on September
30, 1996. The line of credit was secured by the Partnership's investment in
Drypers Corporation and Paracelsus Healthcare Corporation. The average daily
balance outstanding on such line of credit during the nine months ended
September 30, 1996 and 1995, was $206,661 and $1,058,695, respectively.
(8) COMMITMENTS AND CONTINGENCIES
Management believes the temporary cash investments and proceeds from
existing Enhanced Yield Investments provide the Partnership with the liquidity
necessary to pay operating expenses of the Partnership as well as make certain
follow-on investments.
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<PAGE>
(9) SUBSEQUENT EVENTS
On November 6, 1996, the Partnership declared a distribution of $25 per
Unit payable on or before December 1, 1996, to Unit holders of record as of
November 15, 1996.
-15-
<PAGE>
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, 1996, the Partnership had $9,025,163 (at cost)
invested in Enhanced Yield Investments of nine companies, and had no commitments
to invest additional amounts in the Enhanced Yield Investments of any Portfolio
Company.
At September 30, 1996, the Partnership had $585,313 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. Management believes that
temporary cash investments and proceeds from existing Enhanced Yield Investments
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. On November 6, 1996, the Partnership
declared a distribution of $25 per Unit payable on or before December 1, 1996,
to unitholders of record as of November 15, 1996.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
Net investment loss after expenses amounted to $122,779 and $184,976
for the nine months ended September 30, 1996 and 1995, respectively. The
Partnership earned $113,988 and $159,711 in income from Enhanced Yield
Investments during the nine months ended September 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 $147,971 and $176,347 for the nine months ended
September 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 $5,076,042
and $4,241,362 at September 30, 1996 and December 31, 1995, respectively.
Management fees and other expenses incurred directly by the Partnership are paid
with funds provided from operations.
-16-
<PAGE>
UNREALIZED GAINS ON ENHANCED YIELD INVESTMENTS
Unrealized appreciation of Enhanced Yield Investments decreased by
$1,721,883 during the nine months ended September 30, 1996. Such net decrease
resulted from the increase of $1,840,460 in the estimated fair value of Enhanced
Yield Investments of four companies, the decrease of $2,891,873 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
$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 on company.
DISTRIBUTIONS
The Partnership made no cash distributions during the nine months ended
September 30, 1996 and 1995. Cumulative cash distributions to limited partners
from inception to September 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 $85,236 in Enhanced Yield
Investments of two company during the nine months ended September 30, 1996.
During 1996, the Partnership advanced $67,500 to E-B Holdings, Inc. in exchange
for 12% promissory notes. In May 1996, the Partnership exercised its option to
buy 1,894 shares of Champion Healthcare Corporation ("CHC") common stock for
$9,943. On June 28, 1996, Garden Ridge Corporation completed a 2 for 1 split. In
addition, the Partnership extended certain promissory notes due from E-B
Holdings, Inc. and rolled $7,793 of accrued interest on such notes into the new
notes.
In August 1996, CHC was merged into Paracelsus Healthcare Corporation
("PLS"). The Partnership received one share of PLS common stock for each share
of CHC common stock and two shares of PLS common stock for each share of CHC
preferred stock.
During the nine months ended September 30, 1995, the Partnership made
follow-on investments of $325,260 in three companies.
Of the companies in which the Partnership has investments at September
30, 1996, only Drypers Corporation, Garden Ridge Corporation and Paracelsus
Healthcare 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
On November 6, 1996, the Partnership declared a distribution of $25 per
Unit payable on or before December 1, 1996, to unitholders of record as of
November 15, 1996.
-17-
<PAGE>
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 13, 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
-18-
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