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, 1997
[ ] 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, 1997, 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, 1997 was $878.67. 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, 1997 and December 31, 1996....................1
Statements of Operations
- For the three months ended September 30, 1997 and 1996......2
For the nine months ended September 30, 1997 and 1996 ........3
Statements of Changes in Partners' Capital
- For the nine months ended September 30, 1997 ...............4
- For the nine months ended September 30, 1996 ...............5
Statements of Cash Flows
- For the nine months ended September 30, 1997 and 1996.......6
Selected Per Unit Data and Ratios
- For the nine months ended September 30, 1997 and 1996 ......8
Schedule of Enhanced Yield Investments
- September 30, 1997 ........................................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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
1997 1996
----------- -----------
Assets
Enhanced yield investments, at fair value
(cost of $8,157,162 and $9,015,263, respectivel $10,615,474 $ 9,741,584
Temporary cash investments, at cost which
approximates fair value ....................... 279,130 230,049
Cash ............................................... 7,679 10,927
Accrued interest receivable ........................ 59,990 72,314
----------- -----------
Total assets ............................. $10,962,273 $10,054,874
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable .............................. $ 10,500 $ 43,100
----------- -----------
Total liabilities ........................ 10,500 43,100
----------- -----------
Commitments and contingencies
Partners' capital:
Managing partner .............................. 132,067 122,667
Independent general partners .................. 3,228 2,952
Limited partners (12,310 Units issued
and outstanding) ............................ 10,816,478 9,886,155
----------- -----------
Total partners' capital .................. 10,951,773 10,011,774
----------- -----------
Total liabilities and partners' capital .. $10,962,273 $10,054,874
=========== ===========
The accompanying notes are an
integral part of these financial statements.
1
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investment income:
Income from enhanced yield investments .......... $ 4,397 $ 43,496
Interest from temporary cash investments ........ 8,904 7,951
----------- -----------
Total investment income .................... 13,301 51,447
----------- -----------
Expenses:
Management fee .................................. 43,640 49,024
Independent general partner fees and expenses ... 13,889 15,750
Mailing and printing expenses ................... 6,185 3,654
Administrative fees ............................. 5,179 5,261
Professional fees ............................... 2,057 1,871
----------- -----------
Total expenses ............................. 70,950 75,560
----------- -----------
Net investment loss .................................. (57,649) (24,113)
----------- -----------
Realized gain on sale of enhanced yield investment ... 1,652,394 --
----------- -----------
Unrealized appreciation of enhanced yield investments:
End of period ................................... 2,458,312 2,611,558
Beginning of period ............................. 3,106,631 3,520,118
----------- -----------
Decrease in unrealized appreciation ........ (648,319) (908,560)
----------- -----------
Total increase (decrease) in partners'
capital from operations ................. $ 946,426 $ (932,673)
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
2
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Investment income:
Income from enhanced yield investments ............ $ 255,181 $ 113,988
Interest from temporary cash investments .......... 17,225 14,154
---------- -----------
Total investment income ...................... 272,406 128,142
---------- -----------
Expenses:
Management fee .................................... 140,640 147,971
Interest expense .................................. -- 13,204
Independent general partner fees and expenses ..... 44,264 47,250
Mailing and printing expenses ..................... 14,272 18,241
Administrative fees ............................... 15,536 15,784
Professional fees ................................. 14,508 8,471
---------- -----------
Total expenses ............................... 229,220 250,921
---------- -----------
Net investment income (loss) ........................... 43,186 (122,779)
---------- -----------
Realized gain on sale of enhanced yield investment ..... 1,652,394 1,041,510
---------- -----------
Unrealized appreciation of enhanced yield investments:
End of period ..................................... 2,458,312 2,611,558
Beginning of period ............................... 726,321 4,333,441
---------- -----------
Increase (decrease) in unrealized appreciation 1,731,991 (1,721,883)
---------- -----------
Net increase (decrease) in partners' capital
from operations ........................... $3,427,571 $ (803,152)
========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
3
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
------------ --------- ------- ------------
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1996 .............. $ 10,011,774 $ 122,667 $ 2,952 $ 9,886,155
------------ --------- ------- ------------
Investment activities:
Investment income .............. 272,406 2,724 77 269,605
Expenses ....................... 229,220 2,292 65 226,863
------------ --------- ------- ------------
Net investment income ............. 43,186 432 12 42,742
Realized gain on sale of
enhanced yield investment ...... 1,652,394 16,524 469 1,635,401
Increase in unrealized appreciation
of enhanced yield investments .. 1,731,991 17,320 491 1,714,190
Distributions to partners ......... (2,487,572) (24,876) (696) (2,462,000)
------------ --------- ------- ------------
Net increase in partners' capital . 939,999 9,400 276 930,323
------------ --------- ------- ------------
Partners' capital,
September 30, 1997 ............. $ 10,951,773 $ 132,067 $ 3,228 $ 10,816,478
============ ========= ======= ============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
4
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(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 ................................... 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 investment ........................ (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
============ ========= ======= ============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
5
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Interest and dividends received ................... $ 284,730 $ 120,063
Cash paid to management company, general partners
and suppliers .................................. (261,820) (331,354)
----------- -----------
Net cash provided (used) by operating activities 22,910 (211,291)
----------- -----------
Cash flows from investing activities:
Purchases of enhanced yield investments ........... -- (77,443)
Sale and redemption of enhanced yield investments . 1,921,806 1,179,840
Repayments of enhanced yield investments .......... 588,689 74,800
----------- -----------
Net cash provided by investing activities ...... 2,510,495 1,177,197
----------- -----------
Cash flows from financing activities:
Distributions to partners ......................... (2,487,572) --
Advances from bank ................................ -- 115,000
Repayments to bank ................................ -- (515,000)
----------- -----------
Net cash used by financing activities .......... (2,487,572) (400,000)
----------- -----------
Net increase in cash and cash equivalents .............. 45,833 565,906
Cash and cash equivalents at beginning of period ....... 240,976 19,407
----------- -----------
Cash and cash equivalents at end of period ............. $ 286,809 $ 585,313
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
6
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Reconciliation of net increase (decrease)
in partners' capital from operations to
net cash provided (used) by operating activities:
Net increase (decrease) in partners' capital
from operations ......................................... $ 3,427,571 $ (803,152)
Adjustments to reconcile net increase (decrease) in
partners' capital from operations to net cash
provided (used) by operating activities:
Realized gain on sale of enhanced yield investment ........ (1,652,394) (1,041,510)
Decrease (increase) in unrealized appreciation of
enhanced yield investments ............................ (1,731,991) 1,721,883
Decrease (increase) in accrued interest receivable ....... 12,324 (286)
Interest received in the form of enhanced yield investment -- (7,797)
Decrease in accounts payable .............................. (32,600) (30,600)
Decrease in due to management company ..................... -- (49,833)
----------- -----------
Net cash provided (used) by operating activities ............... $ 22,910 $ (211,291)
=========== ===========
</TABLE>
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, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Investment income ................................................ $ 21.90 $ 10.30
Expenses ......................................................... 18.43 20.17
--------- ---------
Net investment income (loss) ..................................... 3.47 (9.87)
Realized gain on sale of enhanced yield investment ............... 132.85 83.74
Increase (decrease) in unrealized appreciation of
enhanced yield investments .................................... 139.25 (138.44)
--------- ---------
Net increase (decrease) in partners' capital from operations ..... 275.57 (64.57)
Distributions to partners ........................................ (200.00) --
--------- ---------
Net increase (decrease) in partners' capital ..................... 75.57 (64.57)
Partners' capital, beginning of period ........................... 803.10 1,050.33
--------- ---------
Partners' capital, end of period ................................. $ 878.67 $ 985.76
========= =========
Ratio of expenses to average partners' capital ................... 2.19% 1.98%
Ratio of net investment income (loss) to average partners' capital 0.41% (0.97)%
Ratio of total increase (decrease) in partners' capital
from operations to average partners' capital ................ 32.77% (6.34)%
</TABLE>
The accompanying notes are an
integral part of these financial statements.
8
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
SEPTEMBER 30, 1997
(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 ........... $ 109,900 $ 109,900
- 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 $17.50 per share
through December 31, 2002 ................ 40 186,675
Drypers Corporation (NASDAQ - DYPR) ........... July 1991
- 224,344 shares of common stock ............ 1,309,000 1,727,309
- Warrants to buy up to 2,246
shares of common stock at $2.41 per share
through June 30, 1998 .................... -- 7,334
E-B Holdings, Inc. ............................ December 1995
- 740 shares of common stock ................ 684,500 --
- 12% promissory notes ...................... 580,293 440,293
Garden Ridge Corporation (NASDAQ - GRDG) ...... July 1992
- 57,376 shares of common stock ............. 6,375 813,950
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
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
SEPTEMBER 30, 1997
(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 2,296,711
---------- -----------
Total .................................. $8,157,162 $10,615,474
========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
10
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
SEPTEMBER 30, 1997
(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., 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 a controlling interest in Drypers Corporation, E-B Holdings,
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 $58,503, $25,174
and $71,032 to reflect the estimated effects of restrictions on the sale of such
securities at September 30, 1997. Such discounts total $154,709 or $12.44 per
unit. Income was earned in the amount of $221,233 and $60,921 for the nine
months ended September 30, 1997 and 1996, 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 Medifit of America, Inc. and Paracelsus Healthcare
Corporation. The Partnership provides significant managerial assistance to
Portfolio Companies that comprise 78% of the total value of the Enhanced Yield
Investments.
The accompanying notes are an
integral part of these financial statements.
11
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(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.
The Partnership seeks to achieve current income and capital appreciation
principally by making investments in "mezzanine" securities, consisting
primarily of subordinated debt or preferred stock combined with equity
participations in common stock or rights to acquire common stock, and
subsequently disposing of such investments ("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 received an annual fee of $15,000, which was
reduced to $13,500 effective April 1, 1997, 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 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
$4,194,415 in cumulative accrued priority returns owed to limited partners at
September 30, 1997 (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 Equus II Incorporated
("EQS"), a Delaware corporation, and with Equus Equity Appreciation Fund L.P.
("EEAF"), a Delaware limited partnership.
12
<PAGE>
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.
(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 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, 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. Such management incentive fees, if any, 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 $4,194,415 at September 30, 1997, 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
13
<PAGE>
allocated between Enhanced Yield Investments and Temporary Cash 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 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, consisted of money market accounts earning
interest at 4.5% at September 30, 1997.
(6) ENHANCED YIELD INVESTMENTS
During the nine months ended September 30, 1997, the Partnership made no
investments. On August 1, 1997, the Partnership sold its investment in
Industrial Equipment Rentals, Inc. for $2,460,695 realizing a capital gain of
$1,652,394 on the sale. In addition, under certain circumstances the Fund could
receive an additional $231,676 in proceeds from the sale, which was deposited
into an escrow account. Such additional amount would be recognized as additional
capital gains when received. 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.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's total contributed capital was $12,435,691, consisting of
$12,307,375 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 and offering costs, were $10,591,816.
At September 30, 1997, the Partnership had $8,157,162 (at cost) invested
in Enhanced Yield Investments of eight companies, and total partner's capital of
$10,951,773.
At September 30, 1997, the Partnership had $286,809 in cash and temporary
cash investments. The Partnership intends to make no new 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.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
Net investment income (loss) after all expenses amounted to $43,186 and
$(122,779) for the nine months ended September 30, 1997 and 1996, respectively.
The Partnership earned $255,181 and $113,988 in income from Enhanced Yield
Investments during the nine months ended September 30, 1997 and 1996,
respectively. The increase in 1997 was due primarily to the receipt of $161,132
in dividend income from the Enhanced Yield Investment in one Company.
The Management Company receives a management fee at an annual rate equal
to 2.5% of the Available Capital, as defined, which is paid quarterly in
arrears. Such fee amounted to $140,640 and $147,971 for the nine months ended
September 30, 1997 and 1996, 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 $4,194,415
at September 30, 1997. Management fees and other expenses incurred directly by
the Partnership are paid with funds provided from operations.
REALIZED GAINS ON SALE OF ENHANCED YIELD INVESTMENTS
On August 1, 1997, the Partnership sold its investment in Industrial
Equipment Rentals, Inc. for $2,460,695 realizing a capital gain of $1,652,394.
In addition, under certain circumstances the Fund could receive an additional
$231,676 in proceeds from the sale, which was deposited into an escrow account.
Such additional amount would be recognized as additional capital gains when
received.
15
<PAGE>
UNREALIZED GAINS ON ENHANCED YIELD INVESTMENTS
Unrealized appreciation of Enhanced Yield Investments increased by
$1,731,991 during the nine months ended September 30, 1997. Such increase
resulted from the increase in the estimated fair value of Enhanced Yield
Investments of three companies and the transfer of $674,089 from unrealized
appreciation to realized gains on the sale of enhanced yield investment.
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 the sale of one
enhanced yield investment.
DISTRIBUTIONS
The Partnership made cash distributions of $2,487,572, including $200 per
Unit to limited partners, during the nine months ended September 30, 1997. The
Partnership made no cash distributions during the nine months ended September
30, 1996. Cumulative cash distributions to limited partners from inception to
September 30, 1997, were $3,643,047, or $300.53 per weighted average number of
Units outstanding.
ENHANCED YIELD INVESTMENTS
The Partnership made no investments during the nine months ended September
30, 1997 and made follow-on investments of $85,236 in Enhanced Yield Investments
of two companies during the nine months ended September 30, 1996.
Of the companies in which the Partnership has investments at September 30,
1997, 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.
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.
16
<PAGE>
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 12, 1997 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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<PERIOD-END> SEP-30-1997
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