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 quarterly period ended March 31, 2000
[_] 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 March 31, 2000, 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 March 31, 2000 was $397.18. 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
- March 31, 2000 and December 31, 1999...................... 1
Statements of Operations
- For the three months ended March 31, 2000 and 1999........ 2
Statements of Changes in Partners' Capital
- For the three months ended March 31, 2000................. 3
- For the three months ended March 31, 1999................. 4
Statements of Cash Flows
- For the three months ended March 31, 2000 and 1999........ 5
Selected Per Unit Data and Ratios
- For the three months ended March 31, 2000 and 1999........ 7
Schedule of Enhanced Yield Investments
- March 31, 2000............................................ 8
Notes to Financial Statements............................... 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 15
SIGNATURE ............................................................... 15
ii
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Enhanced yield investments, at fair value
(cost of $4,883,677 and $4,861,568, respectively) .... $4,619,894 $4,808,431
Temporary cash investments, at cost which
approximates fair value .............................. 293,126 679,253
Cash ...................................................... 9,315 4,219
Accounts receivable ....................................... -- 315,036
Accrued interest receivable ............................... 53,983 43,293
---------- ----------
Total assets .................................... $4,976,318 $5,850,232
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable ..................................... $ 13,300 $ 56,800
---------- ----------
Total liabilities ............................... 13,300 56,800
---------- ----------
Commitments and contingencies
Partners' capital:
Managing partner ..................................... 72,180 80,484
Independent general partners ......................... 1,545 1,778
Limited partners (12,310 Units issued and outstanding) 4,889,293 5,711,170
---------- ----------
Total partners' capital ......................... 4,963,018 5,793,432
---------- ----------
Total liabilities and partners' capital ......... $4,976,318 $5,850,232
========== ==========
</TABLE>
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 MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
--------- ---------
Investment income:
Income from enhanced yield investments .......... $ 32,800 $ 24,494
Interest from temporary cash investments ........ 10,907 3,809
--------- ---------
Total investment income .................... 43,707 28,303
--------- ---------
Expenses:
Management fee .................................. 19,195 21,500
Independent general partner fees ................ 9,750 14,625
Mailing and printing expenses ................... 3,976 4,053
Administrative fees ............................. 5,018 5,029
Professional fees ............................... 3,643 3,520
--------- ---------
Total expenses ............................. 41,582 48,727
--------- ---------
Net investment income (loss) ......................... 2,125 (20,424)
--------- ---------
Unrealized appreciation (depreciation) of enhanced
yield investments:
End of period ................................... (263,783) (403,845)
Beginning of period ............................. (53,137) 23,366
--------- ---------
Decrease in unrealized appreciation ........ (210,646) (427,211)
--------- ---------
Net decrease in partners' capital
from operations ......................... $(208,521) $(447,635)
========= =========
The accompanying notes are an
integral part of these financial statements.
2
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1999 .............. $ 5,793,432 $ 80,484 $ 1,778 $ 5,711,170
----------- ----------- ----------- -----------
Investment activities:
Investment income .............. 43,707 437 13 43,257
Expenses ....................... 41,582 416 12 41,154
----------- ----------- ----------- -----------
Net investment income ....... 2,125 21 1 2,103
Decrease in unrealized appreciation
of enhanced yield investments .. (210,646) (2,106) (60) (208,480)
Distributions to partners ......... (621,893) (6,219) (174) (615,500)
----------- ----------- ----------- -----------
Net decrease in partners' capital . (830,414) (8,304) (233) (821,877)
----------- ----------- ----------- -----------
Partners' capital,
March 31, 2000 ................. $ 4,963,018 $ 72,180 $ 1,545 $ 4,889,293
=========== =========== =========== ===========
</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 THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNER PARTNERS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1998 .............. $ 5,595,176 $ 78,501 $ 1,722 $ 5,514,953
----------- ----------- ----------- -----------
Investment activities:
Investment income .............. 28,303 283 8 28,012
Expenses ....................... 48,727 487 14 48,226
----------- ----------- ----------- -----------
Net investment loss ......... (20,424) (204) (6) (20,214)
Decrease in unrealized appreciation
of enhanced yield investments .. (427,211) (4,272) (121) (422,818)
----------- ----------- ----------- -----------
Net decrease in partners' capital . (447,635) (4,476) (127) (443,032)
----------- ----------- ----------- -----------
Partners' capital,
March 31, 1999 ................. $ 5,147,541 $ 74,025 $ 1,595 $ 5,071,921
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
4
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Investment income received .............................. $ 16,643 $ 23,689
Cash paid to management company, general partners
and suppliers ........................................ (75,081) (79,947)
--------- ---------
Net cash used by operating activities ................ (58,438) (56,258)
--------- ---------
Cash flows from investing activities:
Purchase of enhanced yield investments .................. -- (112,500)
Proceeds of sale of enhanced yield investments .......... 290,000 44,566
Repayments of enhanced yield investments ................ 9,300 27,900
--------- ---------
Net cash provided (used) by investing activities ..... 299,300 (40,034)
--------- ---------
Cash flows from financing activities:
Distributions to partners ............................... (621,893) --
--------- ---------
Net cash used in financing activities ................ (621,893) --
--------- ---------
Net decrease in cash and cash equivalents .................... (381,031) (96,292)
Cash and cash equivalents at beginning of period ............. 683,472 339,608
--------- ---------
Cash and cash equivalents at end of period ................... $ 302,441 $ 243,316
========= =========
</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 THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Reconciliation of net decrease in partners' capital from
operations to net cash used by operating activities:
Net decrease in partners' capital from operations ....... $(208,521) $(447,635)
Adjustments to reconcile net decrease in partners'
capital from operations to net cash used
by operating activities:
Decrease in unrealized appreciation
of enhanced yield investments ....................... 210,646 427,211
Increase in accrued interest receivable ................. (10,690) (4,614)
Decrease in accounts payable ............................ (33,500) (31,220)
Decrease in accounts receivable ......................... 5,736 --
Income received in the form of enhanced yield investments (22,109) --
--------- ---------
Net cash used by operating activities ........................ $ (58,438) $ (56,258)
========= =========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
6
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
-------- --------
Investment income .................................... $ 3.51 $ 2.28
Expenses ............................................. 3.34 3.92
-------- --------
Net investment income (loss) ......................... 0.17 (1.64)
Decrease in unrealized appreciation of
enhanced yield investments ...................... (16.94) (34.35)
-------- --------
Net decrease in partners' capital from operations .... (16.77) (35.99)
Distribution to partners ............................. (50.00) --
-------- --------
Net decrease in partners' capital .................... (66.77) (35.99)
Partners' capital, beginning of period ............... 463.95 448.01
-------- --------
Partners' capital, end of period ..................... $ 397.18 $ 412.02
======== ========
Ratio of expenses to average partners' capital ....... 0.78% 0.91%
Ratio of net investment income (loss) to average
partners' capital ............................... 0.04% (0.38)%
Ratio of net decrease in partners' capital from
operations to average partners' capital ......... (3.89)% (8.37)%
The accompanying notes are an
integral part of these financial statements.
7
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
DATE OF
PORTFOLIO COMPANY INITIAL INVESTMENT COST FAIR VALUE
- ----------------- ------------------ ----------- ----------
<S> <C> <C> <C>
Artegraft, Inc. January 1993
- 12% junior term promissory note $ 110,500 $ 110,500
- 9% demand promissory note 59,309 59,309
- 7% demand promissory note 702,500 702,500
- Warrant to buy up to 1,000 shares of
common stock at $.01 per share
through December 31, 2002 10 --
- Warrant to buy up to 4,000 shares
of common stock at $17.50 per share
through December 31, 2002 40 --
Drypers Corporation (NASDAQ - DYPR) July 1991
- 226,590 shares of common stock 1,314,413 432,771
MaxTech Holdings, Inc. March 1991
- 59,875 shares of common stock 15,781 340,000
- 2,200,000 shares of 10% cumulative
convertible preferred stock 1,500,000 2,860,000
Paracelsus Healthcare Corporation (NYSE - PLS) April 1991
- 540,481 shares of common stock 1,181,124 114,814
----------- ----------
Total $ 4,883,677 $4,619,894
=========== ==========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
8
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
MARCH 31, 2000
(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 investment in MaxTech Holdings, 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 and MaxTech
Holdings, Inc. The fair value of the Partnership's investments in Drypers
Corporation and Paracelsus Healthcare Corporation include discounts from the
closing market price of $13,385 and $3,551 to reflect the estimated effects of
restrictions on the sale of such securities at March 31, 2000. Such discounts
total $16,936 or $1.36 per unit. For the three months ended March 31, 2000 and
1999, respectively, there was no income earned on the 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.
The accompanying notes are an
integral part of these financial statements.
9
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(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 was scheduled to
terminate by December 31, 1999, subject to the right of the Independent General
Partners (as defined below) to extend the term for up to four additional years
if they determine that such extension is in the best interest of the
Partnership. At a meeting in November 1999, the Independent General Partners
extended the termination date to December 31, 2000.
(2) MANAGEMENT
The Partnership has three general partners, consisting of the Managing
Partner and two independent, individual general partners (the "Independent
General Partners"). There were originally three Independent General Partners,
but one died in 1999 and has not been replaced. As compensation for services
rendered to the Partnership, each Independent General Partner receives an annual
fee of $13,500, and a fee of $1,500 for each meeting of the Independent General
Partners attended and reimbursement of all out-of-pocket expenses relating to
attendance at such meetings. 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 the incentive
fees is subject to the payment of $3,799,551 in cumulative accrued priority
returns owed to limited partners at March 31, 2000 (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 Management Company 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
10
<PAGE>
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.
(3) SIGNIFICANT ACCOUNTING POLICIES
Valuation of Investments - Enhanced Yield Investments are carried at fair
value with the net change in unrealized appreciation or depreciation included in
the determination of partners' capital. Investments in companies whose
securities are publicly-traded are valued at their quoted market price, 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. (See Note 2).
Investment Transactions - Investment transactions are recorded on the
accrual method. Realized gains and losses on investments sold are computed on a
specific identification basis.
Income Taxes - No provision for income taxes has been made since all
income and losses are allocable to the partners for inclusion in their
respective tax returns.
Cash Flows - For purposes of the Statements of Cash Flows, the Partnership
considers all highly liquid temporary cash investments purchased with an
original maturity of three months or less to be cash equivalents.
(4) ALLOCATIONS AND DISTRIBUTIONS
The Partnership's cumulative net distributions from Enhanced Yield
Investments in excess of returns of capital will be shared in proportion to the
partners' capital contributions until the limited partners have received a
priority return, and thereafter are designed so that such distributions
generally will ultimately be shared 80% by the general and limited partners in
proportion to their capital contributions, 10% by the Managing Partner as an
incentive distribution and 10% by the Management Company as an incentive fee.
The priority return of $3,799,551 at March 31, 2000 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
11
<PAGE>
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 from a range of 4.52% to 5.53%, at March 31, 2000.
(6) ENHANCED YIELD INVESTMENTS
The Partnership made no new investments during the three months ended
March 31, 2000. During the three months ended March 31, 2000, the Partnership
received note payments in the amount of $37,200 and management fees in the
amount of $16,667 from Artegraft, Inc. in the form of a 9% demand note.
During the three months ended March 31, 1999, the Partnership made a
Follow-on Investment of $502,500 in Enhanced Yield Investment of one Portfolio
Company, which included $390,000 converted from an account receivable.
(7) ACCOUNTS RECEIVABLE
The balance in "Accounts Receivable" at December 31, 1999 included
$300,000 in payments related to the sale of the Partnership's investment in E-B
Holdings, Inc., which were received in January 2000.
(8) NOTES PAYABLE TO BANK
The Partnership had a $250,000 line of credit promissory note with Bank of
America, N.A., with interest payable at prime that expired on March 21, 2000.
During the three months ended March 31, 2000, the Partnership had no outstanding
balance.
12
<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 (net of $2,625 in selling commission discounts on sales to
affiliates) for 12,310 units of limited partners' interests ("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 March 31, 2000, the Partnership had $4,883,677 (at cost) invested in
Enhanced Yield Investments of four companies.
At March 31, 2000, the Partnership had $302,441 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.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
Net investment income (loss) after all expenses amounted to $2,125 and
$(20,424) for the three months ended March 31, 2000 and 1999, respectively. The
Partnership earned $32,800 and $24,494 in income from Enhanced Yield Investments
during the three months ended March 31, 2000 and 1999, respectively.
The Management Company receives a management fee equal to 2.5% of the
Available Capital, as defined. Such fee amounted to $19,195 and $21,500 for the
three months ended March 31, 2000 and 1999, respectively. The steady decrease in
management fees is due to the decrease in Available Capital for each respective
year. 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 $3,799,551 at March 31, 2000. Based on current
valuations of Enhanced Yield Investments, the Management Company would not
receive any incentive fee upon the sale of the Partnership's investments.
Management fees and other expenses incurred directly by the Partnership are paid
with funds provided from operations.
REALIZED GAIN OR LOSS ON ENHANCED YIELD INVESTMENTS
There were no realized gains or losses on Enhanced Yield Investments for
the three months ended March 31, 2000 and 1999.
13
<PAGE>
UNREALIZED GAINS AND LOSSES ON ENHANCED YIELD INVESTMENTS
Unrealized appreciation of Enhanced Yield Investments decreased by
$210,646 during the three months ended March 31, 2000. Such decrease resulted
from the decrease in the estimated fair value of Enhanced Yield Investments of
two companies.
Unrealized appreciation of Enhanced Yield Investments decreased by
$427,211 during the three months ended March 31, 1999. Such decrease resulted
from the decrease in the estimated fair value of Enhanced Yield Investments of
three companies.
DISTRIBUTIONS
The Partnership made a cash distribution of $615,500 or $50 per Unit
during the three months ended March 31, 2000. The Partnership made no cash
distributions during the three months ended March 31, 1999. Cumulative cash
distributions to limited partners from inception to March 31, 2000, were
$7,951,547, or $650.53 per weighted average number of Units outstanding.
ENHANCED YIELD INVESTMENTS
During the three months ended March 31, 2000, the Partnership received
note payments in the amount of $37,200 and management fees in the amount of
$16,667 from Artegraft, Inc. in the form of a 9% demand note.
The Partnership made a Follow-on Investment of $502,500 in an Enhanced
Yield Investment of one Portfolio Company during the three months ended March
31, 1999, which included $390,000 converted from an accounts receivable.
Of the companies in which the Partnership has investments at March 31,
2000, only Drypers 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Partnership is subject to financial market risks, including changes in
interest rates with respect to its investments in debt securities, as well as
changes in marketable equity security prices. The Partnership does not use
derivative financial instruments to mitigate any of these risks. The return on
the Partnership's investments is generally not affected by foreign currency
fluctuations.
The Partnership's investment in portfolio securities consists of some
fixed rate debt securities. Since the debt securities are generally priced at a
fixed rate, changes in interest rates do not directly impact interest income. In
addition, changes in market interest rates are not typically a significant
factor in the Partnership's determination of fair value of these debt
securities. The Partnership's debt securities are generally held to maturity and
their fair values are determined on the basis of the terms of the debt security
and the financial condition of the issuer.
A portion of the Partnership's investment portfolio consists of debt and
equity investments in private companies. The Partnership would anticipate no
impact on these investments from modest changes in public market equity prices.
However, should significant changes in market equity prices occur, there could
be a longer-term affect on valuations of private companies, which could affect
the carrying value and
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<PAGE>
the amount and timing of gains realized on these investments. A portion of the
Partnership's investment portfolio also consists of common stocks in publicly
traded companies. These investments are directly exposed to equity price risk,
in that a hypothetical ten percent change in these equity prices would result in
a similar percentage change in the fair value of these securities.
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: May 12, 2000 EQUUS CAPITAL PARTNERS, L.P.
By: Equus Capital Corporation
Managing General Partner
/s/ NOLAN LEHMANN
Nolan Lehmann
President and Principal Financial
and Accounting Officer
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