<PAGE>1 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 17, 1996
---------------------
EQUUS GAMING COMPANY L.P.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 000-25306 54-1719877
- ---------------------------- ------------- -------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of organization) File Number) Identification No.)
222 Smallwood Village Center, St. Charles, MD 20602
- ----------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 645-6833
--------------------
Not Applicable
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>2
Items 1-4
Not applicable.
Item 5
The financial statements of Interstate General Company L.P. ("IGC")
included in IGC's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, which are included as Exhibit A to this report, are hereby
incorporated by reference herein for purposes of incorporating such
information by reference into the registrant's Registration Statement on Form
S-3 (No. 33-90982) under the Securities Act of 1933, as amended.
Items 7-8
Not applicable.
<PAGE>3 SIGNATURES
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 hereunto duly authorized.
EQUUS GAMING COMPANY L.P.
(Registrant)
By: Equus Management Company,
its managing general partner
Date: May 17, 1996 By: /s/ Donald G. Blakeman
----------------- -------------------------------------
Donald G. Blakeman
President
<PAGE>4 EXHIBIT A
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands, except per unit amounts)
(Unaudited)
1996 1995
----------- -----------
REVENUES:
Community development - land sales $ 3,306 $ 4,700
Homebuilding - home sales 2,724 2,935
Revenues from investment properties
Equity in earnings from partnerships
and development fees 15,352 694
Apartment rental income 1,120 1,147
Management and other fees, substantially
all from related entities 2,209 1,287
Interest and other income 173 97
---------- ----------
Total revenues 24,884 10,860
---------- ----------
EXPENSES:
Cost of land sales 2,695 2,734
Cost of home sales 2,693 2,745
Selling and marketing 356 378
General and administrative 2,758 2,310
Rental apartment expenses 1,123 1,095
Depreciation and amortization 85 92
Interest expense 1,217 530
---------- ----------
Total expenses 10,927 9,884
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 13,957 976
PROVISION FOR INCOME TAXES 4,823 407
---------- ----------
INCOME BEFORE MINORITY INTEREST 9,134 569
Minority Interest 72 249
---------- ----------
NET INCOME $ 9,062 $ 320
========== ==========
NET INCOME
GENERAL PARTNERS $ 91 $ 3
LIMITED PARTNERS 8,971 317
---------- ----------
$ 9,062 $ 320
========== ==========
NET INCOME PER UNIT $ .88 $ .03
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,257 10,249
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>5 INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
March 31, December 31,
1996 1995
----------- -----------
(Unaudited) (Audited)
CASH AND SHORT-TERM INVESTMENTS
Unrestricted $ 2,176 $ 3,476
Restricted 1,536 2,125
-------- --------
3,712 5,601
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 32,238 33,088
St. Charles, Maryland 28,128 27,826
Other United States locations 14,890 15,522
Notes receivable on lot sales and other 3,085 3,122
-------- --------
78,341 79,558
-------- --------
ASSETS RELATED TO HOMEBUILDING PROJECTS
Homebuilding construction and land 2,767 3,254
Investment in joint venture 250 250
Receivables and other 355 315
-------- --------
3,372 3,819
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Investment properties, net of accumulated
depreciation of $5,294 and $5,124, as of
March 31, 1996 and December 31, 1995,
respectively 23,280 23,348
Investment in residential rental partnerships 26,659 10,922
Other receivables, net of reserves of
$413 and $384 as of March 31, 1996
and December 31, 1995, respectively 2,819 2,452
-------- --------
52,758 36,722
-------- --------
OTHER ASSETS
Costs in excess of net assets acquired, less
accumulated amortization of $926 and $888
as of March 31, 1996 and December 31, 1995,
respectively 2,109 2,147
Deferred costs regarding waste technology and other 2,940 2,975
Property, plant and equipment, less accumulated
depreciation of $2,282 and $2,216 as of March
31, 1996 and December 31, 1995, respectively 1,238 1,271
-------- --------
6,287 6,393
-------- --------
Total assets $144,470 $132,093
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>6 INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
March 31, December 31,
1996 1995
----------- ------------
(Unaudited) (Audited)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities $ 6,556 $ 5,719
Mortgages and notes payable 272 301
Accrued income tax liability - current 5,292 464
Accrued income tax liability - deferred 4,699 4,704
-------- --------
16,819 11,188
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 45,323 47,841
Non-recourse debt 2,016 2,034
Accounts payable, accrued liabilities
and deferred income 4,392 3,752
-------- --------
51,731 53,627
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 590 981
Accounts payable and accrued liabilities 2,612 2,746
-------- --------
3,202 3,727
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,281 1,322
Non-recourse debt 22,618 22,650
Accounts payable and accrued liabilities 1,848 1,670
-------- --------
25,747 25,642
-------- --------
Total liabilities 97,499 94,184
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,383 4,292
Limited partners' capital-10,257 and
10,257 Units issued and outstanding as of
March 31, 1996 and December 31, 1995,
respectively 42,588 33,617
-------- --------
Total partners' capital 46,971 37,909
-------- --------
Total liabilities and partners' capital $144,470 $132,093
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>7
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(In thousands)
(Unaudited)
General Limited
Partners' Partners'
Capital Capital Total
-------- --------- ---------
Three months ended March 31, 1996:
Balances, December 31, 1995 $ 4,292 $33,617 $37,909
Net income 91 8,971 9,062
------- ------- -------
Balances, March 31, 1996 $ 4,383 $42,588 $46,971
======= ======= =======
Three months ended March 31, 1995:
Balances, December 31, 1994 $ 4,322 $36,383 $40,705
Net income 3 317 320
Employee/Director Unit
options exercised -- 171 171
------- ------- -------
Balances, March 31, 1995 $ 4,325 $36,871 $41,196
======= ======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>8 INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands)
(Unaudited)
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,062 $ 320
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Residential rental properties 170 166
Other 205 132
Provision for income taxes (5) 36
Equity in earnings of partnerships (15,182) (314)
Increase in sponsor and developer fees
from partnerships and other (104) (91)
Decrease (increase) in
Homebuilding assets 447 857
Community development assets 1,217 (1,167)
Restricted cash 589 128
Increase in accounts payable,
accrued liabilities and deferred income 6,171 277
------- -------
Net cash provided by operating activities 2,570 344
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in assets related to
investment properties (774) 391
Acquisitions of other assets (99) (44)
------- -------
Net cash (used in) provided by investing activities (873) 347
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 3,021 3,181
Payment of debt (6,018) (4,072)
Employee and director Unit options exercised -- 171
------- -------
Net cash used in financing activities (2,997) (720)
------- -------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (1,300) (29)
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF QUARTER 3,476 1,120
------- -------
CASH AND SHORT-TERM INVESTMENTS, END OF QUARTER $ 2,176 $ 1,091
======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>9 INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
(1) BASIS OF PRESENTATION AND PRINCIPLES OF ACCOUNTING
The accompanying consolidated financial statements are unaudited but
include all adjustments (consisting of normal recurring adjustments) which the
Company's management considers necessary for a fair presentation of the
results of operations for the interim periods. Certain account balances in
the 1995 financial statements have been reclassified to conform to the 1996
presentation. The operating results for the three months ended March 31, 1996
are not necessarily indicative of the results that may be expected for the
year. Net income per Unit is calculated based on weighted average Units
outstanding. Outstanding options and warrants to purchase Units do not have a
material dilutive effect on the calculation of earnings per Unit.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with Generally Accepted Accounting Principles ("GAAP")
have been condensed or omitted. While the Managing General Partner believes
that the disclosures presented are adequate to make the information not
misleading, it is suggested that these financial statements be read in
conjunction with the financial statements and the notes included in the
Partnership's Annual Report filed on Form 10-K for the year ended December 31,
1995.
(2) GOING CONCERN AND RELATED MATTERS
In March 1990, the Company received a notice (the "Notice") from the U.S.
Army Corps of Engineers (the "Corps") asserting that unauthorized fill
materials had been placed in portions of an approximately five-acre parcel in
Charles County, Maryland (the "Site") owned by the Company and claimed by the
Corps to constitute wetlands subject to regulation pursuant to the Clean Water
Act. Following receipt of the Notice, the Company ceased development of the
Site and remediated a portion of the Site in accordance with instructions
issued by the Corps. The Company also commenced discussions with the Corps
regarding mitigation plans that would preserve some commercial value for the
Site and filed suit against the Corps claiming that a prohibition of
development on the entire Site would constitute a governmental taking for
which the Company would be entitled to compensation.
In November 1993, the Company believed that it had an agreement in
principle with the Corps that would settle the Company's claim and permit
commercial development of a portion of the Site. However, in early 1994, the
Company became aware that this matter had been referred to the U.S. Attorney
for the District of Maryland. After conducting a lengthy investigation of the
Company's wetlands practices in St. Charles, in October 1995 a grand jury
convened by the U.S. Attorney charged that certain of the Company's practices
with respect to four parcels, including the Site, constituted criminal
violations of Section 404 of the Clean Water Act. The indictment charged each
of IGC, its affiliate, St. Charles Associates, L.P. ("SCA"), and the Company's
Chairman, James J. Wilson. During the U.S. Attorney's investigation, the
Corps issued additional violation notices relating to filling portions of
<PAGE>10
other parcels claimed by the Corps to be protected wetlands. In October 1995
the government filed a civil action in the U.S. District Court for the
District of Maryland charging the Company and Mr. Wilson with violations of
the Clean Water Act. Of the approximately 4,400 acres developed by the
Company in St. Charles, approximately 70 acres are the subject of the civil
and criminal charges.
On February 29, 1996, each of IGC, SCA and Mr. Wilson were convicted on
four counts of felony violations of Section 404 of the Clean Water Act.
Sentencing is expected to occur in June 1996. On March 12, 1996, IGC and SCA
received service of process with respect to the civil action. Maximum
statutory penalties possible against each of IGC and SCA under the criminal
action are $50,000 per day for each of four felony violations or,
alternatively, twice the pecuniary gain realized by the Company from any
illegal action. The maximum statutory penalty possible under the civil action
is $25,000 per day for each of nine separate violations. Because the
investigation with regard to the sentencing is ongoing, the Company cannot
determine from what point in time these fines could be assessed. In the civil
action, the U.S. Attorney also seeks to enjoin the Company from engaging in
future illegal wetlands practices.
During 1994 and 1995, the Company recognized approximately $4.6 million
in legal and consulting expenses relating to these matters. Such expenses
include a reserve available to cover future anticipated costs of the criminal
and civil actions, including costs of appealing the criminal convictions. The
amount of any fine in the current case cannot be estimated with certainty and
as such the total costs incurred may exceed the amount reserved.
Management believes the Company and Mr. Wilson have many strong arguments
to present on appeal of the criminal convictions. Accordingly, the Company
and Mr. Wilson will appeal the criminal convictions and will continue to
defend vigorously against charges in the civil action.
The Company's loan agreements contain certain restrictive covenants,
cross default provisions and material adverse change in financial condition
clauses. As a result of the Company's conviction on four felony counts of the
Clean Water Act, Signet Bank issued a notice of default by the Company of
certain loan agreement covenants pertaining to $2.3 million of debt.
Negotiations of the terms and conditions of a forbearance agreement are in
process. As a result of this notice of default, and unless and until the
criminal convictions are reversed on appeal, $44.1 million of the Company's
bank debt could be called into default.
The uncertainty with respect to the amount of penalties has hindered the
Company's ability to secure financing necessary for the development of Fairway
Village, the third of five villages in the Planned Unit Development of St.
Charles, Maryland. The Company's current inventory of finished lots in St.
Charles is anticipated to be sold during 1996, therefore, the development of
additional lots is necessary to provide inventory for sales in 1997 and
beyond.
As a result of the uncertainty regarding the magnitude of fines, the
event of default, multiple loan defaults and uncertainty regarding the ability
to obtain future financing, which may cause the Company to have negative cash
flow in 1996, there is substantial doubt about the Company's ability to
continue as a going concern.
<PAGE>11
The Company has historically met its liquidity requirements principally
from cash flow generated by land and home sales, property management fees,
distributions from Housing Development Associates S.E. ("HDA") and residential
rental partnerships and from bank financing providing funds for development
and working capital.
As discussed in Note 4, the Company no longer receives distributions from
HDA, as a result of the Company's distribution of Equus Units representing a
99% limited partnership interest in Equus to IGC Unitholders in February 1995.
In addition, under the terms of IGC's loans, most of the cash generated by
U.S. home and lot sales and distributions from partnerships, including
distributions from partnership refinancings, will be used to further reduce
bank loans and meet debt service requirements. As mentioned above, project
financings have been delayed by the inability to determine the penalties
related to the Company's felony convictions. Given these factors, the
Company's ability to generate cash for overhead, development and other uses is
limited.
During the first quarter of 1996, four apartment projects in Puerto Rico
were sold under the 1990 Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). This sale, after taxes, will generate
approximately $11.4 million of cash. Approximately $9.2 million of cash
proceeds is pledged to curtail bank debt and the remainder will be used to pay
legal fees related to the wetlands convictions and support operations. As a
result of the debt curtailments, the FDIC loan will be paid off and
NationsBank will have a first lien on commercial properties in St. Charles
which will have the effect of improving the Company's cash flow as the release
prices under the NationsBank agreement are less than that of the FDIC.
During 1995, the Company negotiated loan extensions with NationsBank and
Signet Bank. NationsBank has agreed to extend the maturity of its loans until
May 1998. Under the agreement, the extension of the maturity beyond November
30, 1995 was contingent upon a mandatory principal curtailment of $2.2 million
which will be made with the proceeds of the LIHPRHA sale. Signet Bank agreed
to extend the maturity of its loans until September 1996. The balance of the
Signet loans as of March 31, 1996 is $2.3 million. The Company anticipates it
will pay off these loans prior to their maturity with the proceeds from the
sale of commercial and residential land which secure the loans.
(3) INVESTMENT IN RESIDENTIAL RENTAL PARTNERSHIPS
As of March 31, 1996, IGC manages and is a general partner in 25 real
estate partnerships which own 28 apartment projects in Puerto Rico, Maryland,
Virginia and Washington, D.C. IGC is also a limited partner in many of these
partnerships. The apartment projects are financed by non-recourse mortgages.
Of the 5,641 rental units in the various partnerships, the Federal Housing
Administration ("FHA") provides subsidies for low and moderate income tenants
in 4,453 units. In addition, IGC is a general partner in four partnerships
that sold their apartment projects under LIHPRHA. The partnerships will be
dissolved once the legal and financial affairs related to the sale are
completed. IGC will continue to manage these properties.
<PAGE>12
The following table summarizes IGC's investment in residential rental
partnerships:
March 31, December 31,
1996 1995
----------- -----------
(Unaudited) (Audited)
(In thousands)
Long-term receivables, net of deferred
income of $3,310 and $3,414 at
March 31, 1996 and December 31, 1995,
respectively $ 3,604 $ 3,331
Investment in partnerships 23,055 7,591
------- -------
$26,659 $10,922
======= =======
The combined condensed statements of income and the combined condensed
statements of cash flow for the three month periods ended March 31, 1996 and
1995, and the combined condensed balance sheets as of March 31, 1996 and
December 31, 1995 are shown below for the partnerships owning residential
rental properties:
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 (1) 1995 (1)
----------- -----------
(In thousands)
Operating income $10,080 $10,174
------- -------
Operating expenses
Depreciation 1,590 1,601
Other 8,229 8,383
------- -------
9,819 9,984
------- -------
Net income - operations 261 190
Gain on sale of properties (2) 38,169 --
------- -------
Net income $38,430 $ 190
======= =======
(1) The income and expenses of Fox Chase Apartments General Partnership
("Fox Chase"), New Forest Apartments General Partnership ("New
Forest") and Lancaster Associates L.P. ("Lancaster") are excluded
from these statements. The operations of these partnerships are
consolidated in the Company's consolidated statements of income for
the three month periods ended March 31, 1996 and 1995.
<PAGE>13
(2) Four properties housing 918 apartments in Puerto Rico were sold
under LIHPRHA.
HOUSING PARTNERSHIPS'
COMBINED CONDENSED BALANCE SHEETS
(Unaudited)
A S S E T S
March 31, December 31,
1996 (1) 1995 (1)
----------- -----------
(In thousands)
Rental apartments, at cost $216,671 $239,911
Accumulated depreciation (90,135) (100,861)
-------- --------
126,536 139,050
-------- --------
Restricted cash and marketable securities:
Residual receipt accounts 7,179 6,783
Replacement reserves and escrows 9,362 9,258
-------- --------
Total restricted cash and marketable securities 16,541 16,041
Cash and certificates of deposit 25,456 5,766
-------- --------
Total cash and marketable securities 41,997 21,807
-------- --------
Other assets 5,629 4,583
-------- --------
Total assets $174,162 $165,440
======== ========
LIABILITIES AND PARTNERS' CAPITAL
March 31, December 31,
1996 (1) 1995 (1)
----------- -----------
(In thousands)
Non-recourse mortgage notes and accrued interest $153,642 $169,161
Loans and interest payable to the Company 8,436 8,667
Other liabilities 19,602 15,080
-------- --------
Total liabilities 181,680 192,908
-------- --------
Partners' capital
Capital contributions, net of distributions (21,325) (2,839)
Retained earnings 13,807 (24,629)
-------- --------
Total partners' capital (7,518) (27,468)
-------- --------
Total liabilities and partners' capital $174,162 $165,440
======== ========
<PAGE>14
(1) The assets, liabilities and partners' capital of Fox Chase, New
Forest and Lancaster are excluded as they are consolidated in the
Company's March 31, 1996 and December 31, 1995 financial statements.
The FHA, Puerto Rico Housing Finance Corporation ("PRHFC"), State and
District of Columbia housing agencies and the partnership agreements require
that the accumulation of cash in the partnerships be sufficient to liquidate
all current liabilities before distributions to partners are permitted. Most
of the partnership agreements provide that IGC, as general partner, receive a
zero to 5% interest in profits, losses and cash flow from operations until
such time as the limited partners have received cash distributions equal to
their capital contributions. Thereafter, IGC generally shares in 50% of cash
distributions from operations.
(4) OPERATIONS DISTRIBUTED TO UNITHOLDERS
On February 6, 1995, IGC distributed to its unitholders its 99% limited
partnership interest in Equus (the "Equus Distribution"). IGC and its wholly
owned subsidiary, Equus Management Company ("EMC"), retained the 1% general
partner interest and will continue to manage Equus. For a transitional period
following completion of the Equus Distribution, IGC will provide certain
administrative services and support to Equus pursuant to a Master Support and
Services Agreement (the "Support Agreement"). Equus will reimburse IGC for
costs incurred in providing these services. IGC accounts for its investment
on the equity method of accounting.
Originally formed in September 1993, Equus was restructured in 1994 as a
limited partnership between IGC and EMC for the purpose of succeeding to
substantially all of IGC's ownership interest in real estate assets employed
in thoroughbred racing and related wagering businesses. Through a series of
transactions during 1994, 1995 and 1996, Equus holds an 82% interest in HDA.
HDA owns El Comandante Race Track ("El Comandante"), the only licensed
thoroughbred racing facility in Puerto Rico, which it leases to El Comandante
Operating Company, Inc. ("ECOC"), an unaffiliated Puerto Rico nonstock
corporation. ECOC operates El Comandante at its expense and pays rent to HDA
based primarily upon the greater of $7,500,000 or 25% of ECOC's share of
wagering revenues.
<PAGE>15
(5) DEBT
The Company's outstanding debt is collateralized primarily by land,
housing and other land improvements, receivables, and investments in
partnerships. The following table summarizes the indebtedness of IGC:
Stated Outstanding Balance at:
Maturity Interest March 31, December 31,
Description by Lender Date Rate* 1996 1995
- ------------------------- -------------- -------- ------------- ------------
(In thousands)
Non-recourse debt:
Community Development 12-29-24 to 6.85%-9.875% $22,618 $22,650
Administration (1) 10-01-28
Supra & Co. (8) 08-02-09 P + 1.5% 2,016 2,034
------- -------
Total non-recourse 24,634 24,684
------- -------
Recourse debt:
Citibank (6,12) Demand (9) 1,281 1,334
NationsBank 03-31-96 P + 1%-1.5% 10,591 10,725
(2,4,11,12)
Washington Savings From 11-29-96 8%-10% 215 682
(2,3,11) to 12-27-96
Riggs National Bank (2) 06-15-96 P + 1.5% 1,216 1,205
1st National Bank of 09-14-96 to P + 1.5%-10.25% 813 765
St. Mary's (2,3,13) 12-29-97
Signet Bank (2,3,10) 09-01-96 P + 1.5% 2,319 3,325
FDIC (2,4,14) 09-30-96 P + 1% 6,546 6,546
Virginia First 11-16-96 P + 1.5% 604 339
Savings (3)
Wachovia Bank & Trust 11-30-96 to P + .5%-1% 183 227
(2,3,11) 04-26-00
Purchase money 10-28-97 10% 1,000 1,000
mortgage (2)
FirstBank (2,12) 12-31-97 P + 1.5% 15,832 17,370
Banco Popular (2,7,12) 12-05-98 P + 1.5% 4,000 4,000
General (5) From 10-26-96 7.4%-11.5% 538 566
to 05-16-00
Citibank (2,12) 05-05-96 Eurodollar 2,328 2,361
+ 2.5%
------- -------
Total recourse 47,466 50,445
------- -------
Total debt 72,100 $75,129
======= =======
*P = Prime
<PAGE>16
Balance Sheet Classification
- ----------------------------
Outstanding Balance at:
March 31, December 31,
1996 1995
------------ ------------
Mortgages and notes payable - Recourse debt $ 272 $ 301
Related to community development -
Recourse debt 45,323 47,841
Non-recourse debt 2,016 2,034
Related to homebuilding projects - Recourse debt 590 981
Related to investment properties -
Recourse debt 1,281 1,322
Non-recourse debt 22,618 22,650
------- -------
Total debt $72,100 $75,129
======= =======
(1) Collateralized by apartment projects and secured by FHA or the Maryland
Housing Fund.
(2) Collateralized by community development assets.
(3) Collateralized by homebuilding assets.
(4) Collateralized by investment in residential rental partnerships.
(5) Collateralized by other assets.
(6) Collateralized by letter of credit.
(7) Collateralized by a secondary interest in Equus Units owned by Interstate
Business Corporation ("IBC").
(8) Minority partner in Puerto Rico land development subsidiary.
(9) The interest rate is not fixed to maturity and is renegotiated on a
periodic basis. The interest rate was 6.6% and 7.05% at March 31, 1996
and December 31, 1995, respectively.
(10) As a result of the wetlands litigation verdict, the financial institution
issued a notice of default.
(11) These loans contain certain covenants requiring the Company to remain in
compliance with applicable laws. Unless reversed on appeal, the wetlands
litigation verdict would result in a default of these covenants.
(12) These loans contain cross default provisions that could be triggered by
the events of default resulting from the wetlands litigation verdict.
(13) These loans contain a provision allowing the financial institution to
call the loan if there has been a material adverse change in the
Company's financial condition.
(14) Paid subsequent to year end.
<PAGE>17
(6) RELATED PARTY TRANSACTIONS
James J. Wilson, Chief Executive Officer of the Company has an ownership
interest in various entities to which IGC provides management services. These
entities and their relationships to IGC are as follows:
IBC or Affiliate IGC
-------------------- --------------------
Limited Limited
and Limited and Limited
General Liability General Liability
Partner Partner Partner Partner
------- ----------- ------- -----------
Chastleton .99% -- .01% --
Coachman's Limited Partnership
("Coachman's") 1% 49% 1% 49%
Santa Maria Associates,
S.E. ("Santa Maria") -- 99% -- 1%
El Monte Properties, S.E.
("El Monte") -- 99% -- 1%
G.L. Limited Partnership
("Rolling Hills") 1% 49% -- --
Village Lake Associates
Limited Partnership
("Village Lake") 99% 1% -- --
Capital Park Associates
("Capital Park") (a) -- -- --
Smallwood Village Associates,
Limited Partnership ("SVA") 1% 51% -- --
Smallwood Village Office
Building Associates Limited
Partnership ("SVOBA") 25% -- -- --
IBC, General Partner of IGC (b) -- -- -- --
Equus (c) -- 32% 1% --
(a) An affiliate of IBC holds notes receivable that are secured by the
existing general partners' interest in the partnership.
(b) IBC, controlled by James J. Wilson, is entitled to representation on
Interstate General Management Corporation's ("IGMC") board of
directors. James J. Wilson and two members of his immediate family
are currently providing this representation.
(c) EMC is the managing general partner of Equus. James J. Wilson
resigned from EMC's board of directors and as Chief Executive
Officer of Equus during March 1996.
<PAGE>18
Transactions between the above entities and IGC are described in the
following tables.
REVENUE FOR THE QUARTER ENDED MARCH 31, 1996
(In thousands)
---------------------------------------------
Income Earned
-------------------------
Management Adjustment
Fees Interest Total to Reserve Recognized
---------- -------- ----- ---------- ----------
Chastleton (b,d) $ 18 $ -- $ 18 $(18) $--
Coachman's (b) 6 6 12 (12) --
Santa Maria 13 -- 13 -- 13
El Monte 26 -- 26 -- 26
Rolling Hills (c,j) 23 -- 23 -- 23
Village Lake (b) 6 -- 6 -- 6
Capital Park 67 -- 67 -- 67
SVA 12 -- 12 -- 12
SVOBA 2 -- 2 -- 2
IBC 7 8 15 -- 15
---- ---- ---- ----- ----
$180 $ 14 $194 $ (30) $164
==== ==== ==== ===== ====
RECEIVABLES AT MARCH 31, 1996
(In thousands)
--------------------------------------------------------
Outstanding Balance
---------------------------------------
Working
Capital Land/
Management Loans Asset Book
Fees (d) Sales Interest Total Reserved Balance
---------- ------- ----- -------- ----- -------- -------
Chastleton (g,l) $364 $ 32 $ -- $ -- $ 396 $(364) $ 32
Coachman's (f,l) 26 116 -- 23 165 (49) 116
Santa Maria 1 -- -- -- 1 -- 1
El Monte 5 -- -- -- 5 -- 5
Rolling Hills (j,l) 152 4 -- -- 156 -- 156
Village Lake (l) 55 2 -- -- 57 -- 57
Capital Park 27 1 -- -- 28 -- 28
SVA 4 1 -- -- 5 -- 5
SVOBA -- -- -- -- -- -- --
IBC (h,i,l) 2 200 302 41 545 -- 545
Equus (k) -- 419 -- -- 419 -- 419
---- ---- ---- ---- ------ ----- ------
$636 $775 $302 $ 64 $1,777 $(413) $1,364
==== ==== ==== ==== ====== ===== ======
<PAGE>19
REVENUE FOR THE QUARTER ENDED MARCH 31, 1995
(In thousands)
---------------------------------------------
Income Earned
-------------------------
Management Adjustment
Fees Interest Total to Reserve Recognized
---------- -------- ----- ---------- ----------
Chastleton (b,d) $ 16 $ -- $16 $(16) $ --
Coachman's (b,i) 6 6 12 316 328
Santa Maria 20 -- 20 -- 20
El Monte 24 -- 24 -- 24
Rolling Hills (c,j) 13 -- 13 352 365
Village Lake (b) 6 -- 6 26 32
Capital Park 59 -- 59 -- 59
SVA 14 -- 14 3 17
SVOBA 3 -- 3 -- 3
IBC 8 8 16 -- 16
---- ---- ---- ----- ----
$169 $ 14 $183 $ 681 $864
==== ==== ==== ===== ====
RECEIVABLES AT DECEMBER 31, 1995
(In thousands)
--------------------------------------------------------
Outstanding Balance
---------------------------------------
Working
Capital Land/
Management Loans Asset Book
Fees (d) Sales Interest Total Reserved Balance
---------- ------- ----- -------- ----- -------- -------
Chastleton (g,l) $347 $ 33 $ -- $ -- $ 380 $(347) $ 33
Coachman's (f,l) 19 117 -- 18 154 (37) 117
Santa Maria -- -- -- -- -- -- --
El Monte 28 -- -- -- 28 -- 28
Rolling Hills (j,l) 280 3 -- -- 283 -- 283
Village Lake (l) 49 2 -- -- 51 -- 51
Capital Park 24 4 -- -- 28 -- 28
SVA 4 1 -- -- 5 -- 5
SVOBA -- -- -- -- -- -- --
IBC (h,i,l) 3 8 302 33 346 -- 346
Equus (k) -- 225 -- -- 225 -- 225
---- ---- ---- ---- ------ ----- ------
$754 $393 $302 $ 51 $1,500 $(384) $1,116
==== ==== ==== ==== ====== ===== ======
(a) Includes developer and refinancing fees.
(b) The management fee was reduced from 5% to 2.5% until the project has
positive cash flow and has paid all previously accrued management fees.
<PAGE>20
(c) The management fee was reduced from 4.5% to 2.5% until the project has
positive operating cash flow and has paid all previously accrued
management fees.
(d) Management agreed that it would defer all management fees until
Chastleton had sufficient cash flow to fund operations and to subordinate
50% of its management fee until IBC has recovered its operating advances.
(e) Working capital loans include operating advances and reimbursements due
for common expenses.
(f) IBC has the funding obligation for operating deficits. Since IGC equally
shares the general and limited partnership interest with IBC, IGC funded
a portion of the deficits.
(g) IBC has the funding obligation for operating deficits. In early 1996,
IGC, as general partner, funded $184,000 of cash deficits that were
satisfied in April 1996.
(h) IGC is contingently liable under $4.6 million of letters of credit issued
by NationsBank collateralized by land, which secure additional bonds
issued for Chastleton.
(i) During 1989, IBC purchased 5.01 acres of commercial land. IGC accepted a
note receivable for 80% of the $1,092,000 purchase price. The note was
collateralized by IBC's ownership interest in Santa Maria and Village
Lake. On December 23, 1994, Lakeside, a subsidiary of the Company,
purchased the remaining 1.23 acres of this land from IBC for the
development of rental units for senior citizens, for its appraised value
of $440,000. Lakeside paid $88,000 to IBC and issued a note payable for
the remaining $352,000. During the first quarter of 1995, IBC assigned
the note receivable due from Lakeside to IGC in satisfaction of past due
receivables from Coachman's. The collection of the majority of the
Coachman's receivables had previously been questionable and $328,000 had
been reserved. This transaction resulted in income recognition of these
reserves during the first quarter of 1995. The Company collected the
$352,000 receivable due from Lakeside during 1995.
(j) The performance of this project has improved and the project produced
positive cash flow during 1995 and 1996. The collection of the remaining
receivable balance is considered probable and reserves related to this
receivable aggregating $335,000 were recognized as income during the
first quarter of 1995.
(k) IGC provides certain administrative and operational support for Equus
pursuant to the Support Agreement. The Company also is reimbursed for
administrative support provided to Equus' subsidiaries. In addition, as
general partner, IGC advanced funds as needed for working capital
deficits.
(l) During April 1996, an IBC affiliate purchased these receivables.
IGC and affiliates lease office space from Smallwood Village Associates
Limited Partnership ("SVA"), one of IBC's commercial properties in which IGC's
executive offices are located. A total of 17,255 square feet of office space
is leased by IGC and affiliates at approximately $205,000 per year (subject to
adjustment for inflation). The lease expires in the year 2001 and at IGC's
request, IBC has the obligation to sublease the space for the remainder of the
lease. During the three months ended March 31, 1996 and 1995, IGC's rent for
its share of the leases was $34,000 and $48,000, respectively.
IGC's Puerto Rico executive office has been located in the Doral Building
since November 1991 under a five-year lease providing for a first-year payment
of rent of approximately $187,000 and certain escalations for increases in the
CPI and pro-rata share of operating expenses in years two through five.
<PAGE>21
Rental expense for the executive office and certain other property in Puerto
Rico leased from affiliates was $58,000 and $66,000 for the three months ended
March 31, 1996 and 1995, respectively.
American Family Homes, a wholly owned subsidiary of IGC, leased 3000
square feet of commercial space from IBC which was used for one of its sales
centers. The lease expired December 31, 1995. Rent expense associated with
this lease during the first quarter of 1995 was approximately $10,000.
IGC provides administrative support services to Equus Gaming Company L.P.
pursuant to a Master Support and Services Agreement. During the first quarter
of 1996 and 1995, IGC received $50,000 and $50,000, respectively, in
connection with such services.
In addition to the support provided Equus pursuant to the Support
Agreement, the Company provides management services and administrative support
to Equus' subsidiaries, HDA, Galapagos and S & E, and its major tenant, ECOC.
The administrative support is reimbursed as the services are rendered. The
management agreement with HDA continues into December 2004. Upon closing of
an HDA refinancing in December 1993, the management agreement was amended to
reduce the management fee to an annual fee of $250,000, adjusted annually
beginning in 1994 by the percentage increase in the Consumer Price Index
("CPI"). Prior to such amendment, IGC received a management fee equal to 5%
of the HDA's rental income. The HDA management fees earned during the first
three months of 1996 and 1995 were $68,000 and $66,000, respectively.
Pursuant to a consulting agreement effective December 15, 1993, ECOC has
retained as executive management three racing consultants employed by IGC.
ECOC reimburses all of IGC's payroll, bonus, fringe benefits and out-of-pocket
expenses associated with the employment of the consultants, and reimburses IGC
for other personnel who from time to time provide services to ECOC. Such
reimbursements are subject to certain limitations on increases in reimbursable
costs during the term of the consulting agreement. ECOC uses certain land
owned by Land Development Associates, S.E. ("LDA") for a sanitary landfill in
connection with its operation of the El Comandante Race Track. LDA has
authorized this use, but has reserved the right to terminate such use if it
conflicts with future development by LDA. Jorge Colon Nevares, a director of
IGMC, also serves as a director of ECOC and Thomas B. Wilson, one of the IBC
representatives on IGMC's board of directors, serves as ECOC's president.
James J. Wilson, as a general partner of Interstate General Properties
S.E. ("IGP"), is entitled to priority distributions made by each housing
partnership in which IGP is the general partner. If IGP receives a
distribution which represents 1% or less of a partnership's total
distribution, Mr. Wilson receives the entire distribution. If IGP receives a
distribution which represents more than 1% of a partnership's total
distribution, Mr. Wilson receives the first 1% of such total.
On March 31, 1995, IGC sold two parcels in the Parque Escorial
development in Puerto Rico to Compri Caribe Development Corp. ("Compri"), a
corporation wholly owned by Jorge Colon Nevares, a director of the Company's
managing general partner for use in its operations. The terms of sale
provided for a sales price of $3,453,000, of which $693,000 was paid in cash,
and the remainder of which was satisfied by a note in the amount of
$2,760,000. The note is collateralized by the land parcels and bears interest
at a rate of 10% per annum commencing upon the completion of certain
infrastructure improvements. Monthly payments of principal and interest
<PAGE>22
totalling $27,000 are due monthly commencing May 1, 1996 with a balloon
payment due at maturity on April 1, 1998.
Concurrent with the transaction described above, the Company executed a
$3,397,000 contract of sale with Compri for three other land parcels in the
Parque Escorial development. On April 1, 1996, Compri made a 20% cash payment
and the remainder was satisfied by an interest bearing note collateralized by
the land parcels. The note bears interest at a rate of 10% per annum
commencing upon the completion of certain infrastructure improvements, and is
payable in thirty-five monthly installments of principal and interest of
$27,000, with a balloon payment due at maturity on April 1, 1999.
On September 8, 1995, the Company executed a Contract of Sale with Twenty
First Century Homes S.E. ("Twenty First Century") for two parcels of land in
the Parque Escorial Development for $3,520,000. Jorge Colon Nevares holds a
50% ownership interest in Twenty First Century. Closing is expected to occur
during the second quarter of 1996.
