EX-99.1 2 ex991to8ka106898_07092008.htm ex991to8ka106898_07092008.htm
Exhibit 99.1
 
MUSTANG CAPITAL ADVISORS, LP
 
Index to Financial Statements
 
Consolidated Financial Statements of Mustang Capital Advisors, LP:
 
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets —December 31, 2007 and 2006
F-2
Consolidated Statements of Income —Years Ended December 31, 2007 and 2006
F-3
Consolidated Statements of Changes in Partners’ Capital —Years Ended December 31, 2007 and 2006
F-4
Consolidated Statements of Cash Flows —Years Ended December 31, 2007 and 2006
F-5
Notes to Audited Consolidated Financial Statements
F-6 – F-9
Unaudited Consolidated Financial Statements of Mustang Capital Advisors, LP:
 
Consolidated Balance Sheets – June 30, 2008 and December 31, 2007
F-10
Consolidated Statements of Income – Six Months Ended June 30, 2008 and December 31, 2007
F-11
Consolidated Statement of Changes in Partners’ Capital – Six Months Ended June 30, 2008
F-12
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2008 and 2007 
F-13
Notes to Unaudited Consolidated Financial Statements
F-14 – 17

 


Report of Independent Auditors
 
The Partners of
 
Mustang Capital Advisors, LP
 
We have audited the accompanying consolidated balance sheets of Mustang Capital Advisors, LP and Subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of income, changes in partners’ capital, and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Partnership’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mustang Capital Advisors, LP and Subsidiaries at December 31, 2007 and 2006 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
As discussed in Note 1, the financial statements include investments in securities valued at $5,131,000 as of December 31, 2007 (approximately 37.8% of total partners’ capital and minority interests) and $4,724,000 as of December 31, 2006 (approximately 43.7% of total partners’ capital and minority interests), whose fair value is estimated by the General Partner in the absence of readily ascertainable market values.  Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed.
 
/s/ Dixon Hughes PLLC
 
High Point, North Carolina
 
May 6, 2008
 
F-1

 
Mustang Capital Advisors, LP and Subsidiaries
(A Texas Limited Partnership)
 
Consolidated Balance Sheets
 
December 31, 2007 and 2006
 
   
2007
   
2006
 
Assets
           
Cash and cash equivalents
  $ 19,295     $ 9,071  
Portfolio investments
    12,636,716       8,210,120  
Due from broker
    968,101       2,598,814  
Other assets
    4,963       6,465  
                 
Total assets
  $ 13,629,075     $ 10,824,470  
                 
Liabilities and Partners’ Capital
               
Liabilities
               
Accrued expenses
  $ 57,402     $ 20,375  
Total current liabilities
    57,402       20,375  
                 
Minority interests
    12,672,954       10,279,485  
                 
Partners’ Capital
               
General partner
    11,356       6,811  
Limited partner
    887,363       517,799  
Total partners’ capital
    898,719       524,610  
                 
Total liabilities and partners’ capital
  $ 13,629,075     $ 10,824,470  

See accompanying notes to consolidated financial statements.
 
F-2

 
Mustang Capital Advisors, LP and Subsidiaries
(A Texas Limited Partnership)
 
Consolidated Statements of Income
 
Years Ended December 31, 2007 and 2006
 
   
2007
   
2006
 
Revenues:
           
Management fee income
  $ 414,062     $ 292,980  
                 
Expenses:
               
General and administrative
    73,841       88,092  
Professional fees
    106,151       56,542  
Total expenses
    179,992       144,634  
                 
Net operating income before net portfolio income
    234,070       148,346  
                 
Net portfolio income
    3,006,532       1,541,847  
                 
Income before minority interests in income of consolidated entities
    3,240,602       1,690,193  
                 
Minority interests in income of consolidated entities
    2,393,469       1,315,602  
                 
Net income
  $ 847,133     $ 374,591  

See accompanying notes to consolidated financial statements.
 
F-3

 
Mustang Capital Advisors, LP and Subsidiaries
(A Texas Limited Partnership)
 
Consolidated Statements of Changes in Partners’ Capital
 
Years Ended December 31, 2007 and 2006
 
   
General
Partner
   
Limited
Partner
   
Total
 
                   
Balances at December 31, 2005
  $ 5,600     $ 428,855     $ 434,455  
                         
Allocation of net income
    3,746       370,845       374,591  
Distributions
    (2,535 )     (281,901 )     (284,436 )
                         
Balances at December 31, 2006
    6,811       517,799       524,610  
                         
Allocation of net income
    8,471       838,662       847,133  
Distributions
    (3,926 )     (469,098 )     (473,024 )
                         
Balances at December 31, 2007
  $ 11,356     $ 887,363     $ 898,719  

See accompanying notes to consolidated financial statements.
 
F-4

 
Mustang Capital Advisors, LP and Subsidiaries
(A Texas Limited Partnership)
 
Consolidated Statements of Cash Flows
 
Years Ended December 31, 2007 and 2006
 
   
2007
   
2006
 
Operating activities:
           
Net income
  $ 847,133     $ 374,591  
                 
                 
Adjustments to reconcile net income to net cash provided by
operating activities:
               
Minority interests in income of consolidated entities
    2,393,469       1,315,602  
Net realized gains on investments
    (1,095,734 )     (789,194 )
Net unrealized gains on investments
    (1,764,434 )     (620,474 )
                 
Cash flows due to changes in operating assets and liabilities:
               
Due from broker
    1,630,713       (2,476,635 )
Other assets
    1,502       11,215  
Due to broker
    -       (124,602 )
Accrued expenses
    37,027       (21,888 )
Investment purchases
    (14,672,843 )     (5,638,824 )
Cash proceeds from sales of investments
    13,106,415       8,261,210  
Net cash provided by operating activities
    483,248       291,001  
                 
                 
Financing activities:
               
Distributions to partners
    (473,024 )     (284,436 )
Net cash used in financing activities
    (473,024 )     (284,436 )
                 
Net increase in cash and cash equivalents
    10,224       6,565  
Cash and cash equivalents, beginning of year
    9,071       2,506  
Cash and cash equivalents, end of year
  $ 19,295     $ 9,071  

See accompanying notes to consolidated financial statements.
 
F-5



Mustang Capital Advisors, LP and Subsidiaries
(A Texas Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
 
1.           Organization
 
Mustang Capital Advisors, LP (the “Partnership”), a Texas limited partnership, is a registered investment advisor, and is the investment advisor to, and the general partner of Mustang Capital Partners I, LP and Mustang Capital Partners II, LP (collectively, the “Funds”).  The Funds are private investment funds organized for the purpose of trading and investing in securities.
 
The Partnership also provides fee-based investment advisory services to individual investors.
 
2.           Significant Accounting Policies
 
Basis of Accounting
 
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the operations of the Partnership and the Funds.  All material inter-company transactions and balances have been eliminated in consolidation.
 
The Partnership’s interest in the Funds is within the scope of the Emerging Issues Task Force (“EITF”) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners have Certain Limited Rights (“EITF 04-5”).  Although the Partnership has a minority economic interest in the Funds, it has a majority voting interest and controls the management of the Funds.  Additionally, although the Funds limited partners hold a majority economic interest in the Funds, they do not have the right to dissolve the partnerships, nor do they have substantive kick-out rights or participating rights that would overcome presumption of control by the Partnership.  Accordingly, the Partnership consolidates the Funds and records minority interest for the economic interests in the Funds held by the limited partners.
 
Use of Estimates
 
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include demand deposits and money market funds.
 
Portfolio Investments
 
Portfolio investments consist of equity securities held by the Funds for investment purposes.  The Funds are, for GAAP purposes, investment companies defined in the AICPA Audit and Accounting Guide Investment Companies.  Thus, the Funds reflect their investments on the Consolidated Statements of Financial Condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of net portfolio income in the Consolidated Statements of Income.
 
The Funds value investments in securities that are freely tradable and are listed on a national securities exchange or reported on the NASDAQ national market at their last sales price as of the last business day of the period.  Other securities traded in the over-the-counter markets and listed securities for which no sale was reported on that date are valued at their last reported “bid” price.
 
F-6

 
A significant amount of the investments (side pocket investments) have been valued, in the absence of observable market prices, by the Partnership.  For investments for which observable market prices do not exist, such investments are reported at fair value as determined by the Partnership.  Fair value is determined using valuation methodologies after giving consideration to a range of factors including last known sales price; any current bids or offers on the stock; comparisons to publicly traded stocks with appropriate discounts for liquidity; size of position; control data research and current market conditions.  Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.  Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed.
 
Securities transactions are recorded on a trade-date basis.  Dividend income is recognized on the ex-dividend date, and interest income is recognized on an accrual basis.  Realized gains and losses from securities transactions are computed on a first-in, first-out basis.
 
Due from Broker
 
In the normal course of business, substantially all of the Funds’ securities transactions, money balances and security positions are transacted with a broker.  The Funds are subject to credit risk to the extent any broker with whom they conduct business is unable to fulfill contractual obligations on their behalf.  Management monitors the financial condition of its broker and does not anticipate any losses from this counterparty.
 
Recent Accounting Pronouncements
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.”  SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in our Consolidated Financial Statements.  Among other requirements, this statement requires that the consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated income statement.  SFAS 160 is effective for the first fiscal period beginning on or after December 15, 2008.  The impact of adopting SFAS 160 on our Consolidated Financial Statements has not yet been determined but the effect could be significant.
 
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years, with early adoption permitted.  We have not yet determined the impact, if any, that the implementation of SFAS No. 157 will have on our results of operations or financial condition.
 
Partners’ Capital
 
Minority interest represents the limited partners’ interest in the earnings and equity of the Funds.  In accordance with the limited partnership agreements of the Funds, profits and losses of the Funds are allocated to the limited and general partners according to their respective interests in the Funds.  In addition, the general partner (Mustang Capital Advisors, LP) receives a performance allocation from each limited partner’s capital account if the annual net profit attributable to the limited partner is in excess of a non-cumulative return equal to an annual rate of 4% of the limited partner’s capital account balance as of the beginning of the year (“Hurdle Rate”), as adjusted for any additional contributions or partial withdrawals during the year.  The performance allocation from each limited partner’s capital account to the general partner’s account is equal to 20% of the net profits above the limited partner’s hurdle rate, subject to a loss carry-forward calculation.
 
The performance allocation is not allocated to the general partner for side pocket investments until a liquidity event has taken place, at which time the general partner is allocated 20% of the net profits realized in excess of the 4% hurdle rate.  At December 31, 2007 and 2006, if a recognition event had taken place on all side pocket investments, the performance allocation to the Partnership on these side pocket investments would have been approximately $296,000 and $199,000, respectively.
 
F-7

 
Income Taxes
 
No provision for federal or state income taxes is made in the accompanying consolidated financial statements since the Partnership and the consolidated funds are not subject to income taxes.  The partners are required to include their proportionate share of income in their individual tax returns.
 
Management Fee Income
 
The Partnership receives fees for investment advisory services performed for third parties.  Management fees are charged based on a percentage of assets under management.  Assets under management for third parties, which are not included in the accompanying financial statements, amounted to approximately $44 million at December 31, 2007 and $29 million at December 31, 2006.
 
3.           Portfolio Investments
 
Portfolio investments are investments in equity securities held by Mustang Capital Partners I and II.  As discussed in Note 1, Mustang Capital Partners I and II are for GAAP purposes, investment companies under the AICPA Audit and Accounting Guide, Investment Companies.  The Partnership has retained the specialized accounting for Mustang Capital Partners I and II pursuant to EITF Issue No. 85-12, Retention of Specialized Accounting for Investments in Consolidation.  As such, marketable equity securities held by Mustang Capital Partners I and II are recorded at fair value in portfolio investments, with unrealized gains and losses resulting from changes in fair value reflected in the consolidated statements of income.
 
The following is a summary of marketable equity securities held by Mustang Capital Partners I and II as of December 31, 2007 and 2006, all of which are in the United States:
 
   
December 31, 2007
 
   
Cost
   
Fair Value
 
Investments in equity securities at fair value
           
OI Corporation
  $ 1,881,182     $ 1,923,620  
Western Sizzlin Corporation
    1,596,838       2,942,643  
Other
    2,418,844       2,639,453  
      5,896,864       7,505,716  
Investments in equity securities at estimated fair value as determined
by management
               
FVNB Corporation
    2,365,342       3,786,000  
Trinity Bank, N.A.
    750,000       1,345,000  
      3,115,342       5,131,000  
                 
Total portfolio investments
  $ 9,012,206     $ 12,636,716  

F-8


   
December 31, 2006
 
   
Cost
   
Fair Value
 
Investments in equity securities at fair value
           
International Bancshares Corporation
  $ 1,331,792     $ 1,390,950  
Cullen Frost Bankers, Inc.
    358,915       550,441  
Western Sizzlin Corporation
    668,008       695,360  
Other
    675,987       849,323  
      3,034,702       3,486,074  
Investments in equity securities at estimated fair value as determined
by management
               
FVNB Corporation
  $ 2,365,342     $ 3,085,296  
Trinity Bank, N.A.
    750,000       1,278,750  
Other
    200,000       360,000  
      3,315,342       4,724,046  
                 
Total portfolio investments
  $ 6,350,044     $ 8,210,120  

The gross realized gains on investments in securities were $1,325,831 and $993,096 in 2007 and 2006, respectively.  The gross realized losses on investments in securities were $230,097 and $203,902 in 2007 and 2006, respectively.
 
The limited partner of Mustang Capital Advisors, LP, who directly and indirectly owns 100% of the Partnership, served on the Board of Directors of Trinity Bank, N.A. (A portfolio investment of the Funds) until March of 2006.
 
The following table summarizes the net portfolio income in the consolidated statements of income for the years ended December 31, 2007 and 2006:
 
   
2007
   
2006
 
             
Money-market dividends
  $ 50,045     $ 57,904  
Interest income
    96,319       74,275  
Net realized gain on securities
    1,095,734       789,194  
Net change in unrealized appreciation on securities
    1,764,434       620,474  
                 
    $ 3,006,532     $ 1,541,847  

4.           Subsequent Event
 
Subsequent to December 31, 2007, the Partnership signed a term sheet to sell a controlling interest in Mustang Capital Advisors, LP to Western Sizzlin Corporation (Western).  Under the proposed transaction, Western will purchase a 50.5% limited partnership interest in Mustang Capital Advisors, LP and a 51% membership interest in Mustang Capital Management, LP which owns a 1% interest in Mustang Capital Advisors, LP as its general partner.  The total sales price for these interests will be $1,173,000, consisting of $300,000 in cash and $873,000 in shares of Western Sizzlin Corporation common stock.  The transaction is subject to definitive documentation.
 
F-9

 

Mustang Capital Advisors, LP and Subsidiaries
(A Texas Limited Partnership)
 
Consolidated Balance Sheets
 
June 30, 2008 (unaudited) and December 31, 2007 (audited)
 
   
June 30,
2008
   
December 31, 2007
 
Assets
           
Cash and cash equivalents
  $ 10,669     $ 19,295  
Portfolio Investments
    5,359,867       12,636,716  
Due from broker
    5,071,289       968,101  
Other assets
    6,551       4,963  
                 
Total Assets
  $ 10,448,376     $ 13,629,075  
                 
Liabilities and Partners’ Capital
               
Liabilities
    -          
Accrued expenses
  $ 35,839     $ 57,402  
Total current liabilities
    35,839       57,402  
                 
Minority interests
    9,603,974       12,672,954  
                 
Partners’ Capital
               
General partner
    10,849       11,356  
Limited partner
    797,714       887,363  
Total partners’ capital
    808,563       898,719  
                 
Total liabilities and partners’ capital
  $ 10,448,376     $ 13,629,075  

See accompanying notes to consolidated financial statements.
 
F-10


Mustang Capital Advisors, LP and Subsidiaries
(A Texas Limited Partnership)
 
Consolidated Statements of Income
 
Six Months Ended June 30, 2008 and 2007
(Unaudited)
 
   
Six Months Ended
June 30,
 
   
2008
   
2007
 
Revenues:
           
Management Fee Income
  $ 249,912     $ 175,775  
                 
Expenses:
               
General and administrative
    8,171       57,625  
Professional fees
    52,877       28,340  
Total expenses
    61,048       85,965  
                 
Net operating income before net portfolio income
    188,864       89,810  
                 
Net portfolio income (loss)
    (423,145 )     2,064,599  
                 
Income (loss) before minority interests in income (loss) of
               
consolidated entities
    (234,281 )     2,154,409  
                 
Minority interests in income (loss) of consolidated entities
    (637,665 )     1,676,555  
                 
Net income
  $ 403,384     $ 477,854  

See accompanying notes to consolidated financial statements.

F-11


Mustang Capital Advisors, LP and Subsidiaries
(A Texas Limited Partnership)
 
Consolidated Statement of Changes in Partners' Capital
 
Six Months Ended June 30, 2008
(Unaudited)

 
   
General
Partner
   
Limited
Partner
   
Total
 
                   
Balances at December 31, 2007
  $ 11,356     $ 887,363     $ 898,719  
                         
Allocation of net income
    4,033       399,351       403,384  
Distributions
    (4,540 )     (489,000 )     (493,540 )
                         
Balances at June 30, 2008
  $ 10,849     $ 797,714     $ 808,563  

See accompanying notes to consolidated financial statements.
 
F-12


Mustang Capital Advisors, LP and Subsidiaries
(A Texas Limited Partnership)
 
Consolidated Statements of Cash Flows
 
Six Months Ended June 30, 2008 and 2007
(Unaudited)
 
   
Six Months Ended
June 30,
 
   
2008
   
2007
 
Operating activities:
           
Net Income
  $ 403,384     $ 477,854  
                 
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Minority interests in income of consolidated entities
    (3,068,980 )     1,396,461  
Net realized gains on investments
    (1,691,497 )     (730,097 )
Net unrealized losses on investments
    2,411,206       (986,009 )
                 
Cash flows due to changes in operating assets and liabilities:
               
Due from broker
    (4,103,188 )     1,754,257  
Other assets
    (1,588 )     2,410  
Due to broker
    -       -  
Accrued expenses
    (21,563 )     (7,007 )
Distributions to minority interests
    2,189,474       -  
Investment purchases
    (1,971,568 )     (4,930,374 )
Cash proceeds from sales of investments
    6,339,234       3,288,974  
Net cash provided by operating activities
    484,914       266,469  
                 
Financing activities:
               
Distributions to partners
    (493,540 )     (262,854 )
Contributions from partners
    -       -  
Net cash used in financing activities
    (493,540 )     (262,854 )
                 
Net decrease in cash and cash equivalents
    (8,626 )     3,615  
Beginning balance cash and cash equivalents
    19,295       9,071  
Ending balance cash and cash equivalents
  $ 10,669     $ 12,686  

See accompanying notes to consolidated financial statements.
 
F-13


Mustang Capital Advisors, LP
(A Texas Limited Partnership)
Notes to Consolidated Financial Statements
June 30, 2008 and 2007

1.           Organization
 
Mustang Capital Advisors, LP (the “Partnership”), a Texas limited partnership is a registered investment advisor, and is the investment advisor to ,and the general partner of both Mustang Capital Partners I, LP and Mustang Capital Partners II, LP (the “Funds). The Funds are private investment funds organized for the purpose of trading and investing in securities.
 
The Partnership also provides fee based investment advisory services to individual investors.
 
2.           Significant Accounting Policies
 
Basis of Accounting
 
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the operations of the Partnership and the Funds.  All material inter-company transactions and balances have been eliminated in consolidation.
 
The Partnership’s interest in the Funds is within the scope of the Emerging Issues Task Force (“EITF”) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners have Certain Limited Rights (“EITF 04-5”).  Although the Partnership has a minority economic interest in the Funds, it has a majority voting interest and controls the management of the Funds.  Additionally, although the Funds limited partners hold a majority economic interest in the Funds they do not have the right to dissolve the partnerships or have substantive kick-out rights or participating rights that would overcome presumption of control by the Partnership.  Accordingly the Partnership consolidates the Funds and records minority interest for the economic interests in the Funds held by the limited partners.
 
Use of Estimates
 
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include demand deposits and money market funds.
 
Portfolio Investments
 
Portfolio investments consist of equity securities held by the Funds for investment purposes.  The Funds are, for GAAP purposes, investment companies under the AICPA Audit and Accounting Guide Investment Companies. Thus, the Funds reflect their investments on the Consolidated Statements of Financial Condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of net portfolio income in the Consolidated Statements of Income.
 
The Funds value investments in securities that are freely tradable and are listed on a national securities exchange or reported on the NASDAQ national market at their last sales price as of the last business day of the period.  Other securities traded in the over-the-counter markets and listed securities for which no sale was reported on that date are valued at their last reported “bid” price.
 
F-14

 
A significant amount of the investments (Side pocket investments) have been valued, in the absence of observable market prices, by the Partnership. For investments for which observable market prices do not exist, such investments are reported at fair value as determined by the Partnership.  Fair value is determined using valuation methodologies after giving consideration to a range of factors including last known sales price; any current bids or offers on the stock; comparisons to publicly traded stocks with appropriate discounts for liquidity; size of position; control data research; current market conditions. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that can not be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed.
 
Securities transactions are recorded on a trade-date basis. Dividend income is recognized on the ex-dividend date, and interest income is recognized on an accrual basis. Realized gains and losses from securities transactions are computed on a first-in, first-out basis.
 
Due from Broker
 
In the normal course of business, substantially all of the Funds’ securities transactions, money balances and security positions are transacted with a broker.  The Funds are subject to credit risk to the extent any broker with whom they conduct business is unable to fulfill contractual obligations on their behalf.  Management monitors the financial conditions of such brokers and does not anticipate any losses from these counterparties.
 
Office Equipment
 
Office equipment is recorded at cost.  Depreciation is calculated using the straight-line method over the asset’s useful life, which is five years.
 
Partners’ Capital
 
Minority interest represents the limited partners’ interest in the earnings and equity of the Funds.  In accordance with the limited partnership agreements of the Funds, profits and losses of the Funds are allocated to the limited and general partners according to their respective interests in the Funds.  In addition, the general partner (Mustang Capital Advisors, LP) receives a performance allocation from each limited partner’s capital account if the annual net profit attributable to the limited partner is in excess of a non-cumulative return equal to an annual rate of 4% of the limited partner’s capital account balance as of the beginning of the year (“Hurdle Rate”), as adjusted for any additional contributions or partial withdrawals during the year.  The performance allocation from each limited partner’s capital account to the general partner’s account is equal to 20% of the net profits above the limited partner’s hurdle rate, subject to a loss carry-forward calculation.
 
The performance allocation is not allocated to the general partner for side pocket investments until a liquidity event has taken place, at which time the general partner is allocated 20% of the net profits realized in excess of the 4% hurdle rate. At June 30, if a recognition event had taken place on all side pocket investments, the performance allocation to the Partnership on these side pocket investments would have been approximately $101,000 and $215,800 for 2008 and 2007, respectively.
 
Income Taxes
 
No provision for federal or state income taxes is made in the accompanying consolidated financial statements since the Partnership is not subject to income taxes. The partners are required to include their proportionate share of income in their individual tax returns.
 
Management Fee Income
 
The Partnership receives fees for investment advisory services performed for third parties.
 
3.           Portfolio Investments
 
The following table presents a summary of the investments held by the Funds at June 30, 2008.  These investments are presented as a percentage of investments of the Funds.
 
F-15

 
   
Percentage of
Investments of
Consolidated
Mustang Funds
 
Market
or fair value
 
All investments are in the United States.
           
             
Investments in securities, at market value:
           
Common Stocks:
           
Banking
           
Chemung Financial Corporation
    11.8 %   $ 635,114  
Hallmark Financial Services
    5.7 %     304,605  
Manufacturing
               
OI Corporation
    44.7 %     2,395,268  
Retail Trade
               
Western Sizzlin Corporation
    3.1 %     164,640  
Service
               
Computer Services, Incorporated
    9.6 %     517,440  
Sanders, Morris, Harris Group
    1.3 %     67,800  
Total investments, at market value
    76.2 %   $ 4,084,867  
                 
Investments in securities, at fair value:
               
Common Stocks:
               
Banking
               
Trinity Bank, N.A.
    23.8 %     1,275,000  
Total investments, at fair value
    23.8 %     1,275,000  
                 
Total investments in securities
    100.0 %   $ 5,359,867  

The following table presents a summary of the investments held by the Funds at June 30, 2007.  These investments are presented as a percentage of investments of the Funds.
 
   
Percentage of
Investments of
Consolidated
Mustang Funds
 
Market
or fair value
 
All investments are in the United States.
           
             
Investments in securities, at market value:
           
Common Stocks:
           
Banking
           
International Bancshares
    5.5 %   $ 633,839  
Southside Bancshares
    2.4 %     272,239  
Texas Capital Bancshares
    8.4 %     972,225  
Hallmark Financial Services
    3.3 %     381,780  
Energy
               
Westmoreland Coal Co.
    0.3 %     30,162  
Manufacturing
               
OI Corporation
    7.6 %     881,963  
Team Inc.
    1.9 %     224,850  
Hardinge Inc.
    1.5 %     170,150  
Brush Wellman
    2.7 %     314,925  
Retail Trade
               
Western Sizzlin Corporation
    11.9 %     1,379,338  
Service
               
Computer Services, Incorporated
    6.8 %     791,565  
Burlington Northern
    3.7 %     425,700  
Willbros Group
    3.7 %     430,360  
Total investments, at market value
    59.7 %   $ 6,909,096  
                 
Investments in securities, at fair value:
               
Common Stocks:
               
Banking
               
First Victoria National Bank
    28.8 %     3,327,280  
Trinity Bank, N.A.
    11.5 %     1,331,250  
Total investments, at fair value
    40.3 %     4,658,530  
                 
Total investments in securities
    100.0 %   $ 11,567,626  
 
F-16

 
The gross realized gains on investments in securities for the six months ended June 30 were $2,080,229 and $1,018,144 for 2008 and 2007, respectively. The gross realized losses on investments in securities for the six months ended June 30 were $146,890 and $10,710 for 2008 and 2007, respectively.

The following table summarizes the net portfolio income in the consolidated statements of income for the six months ended June 30:
 
   
June 30,
2008
   
June 30,
2007
 
Money-market dividends
  $ 39,705     $ 17,987  
Interest income
    15,018       53,170  
Net realized gain on securities
    1,933,339       1,007,434  
Net change in unrealized appreciation on securities
    (2,411,207 )     986,008  
Portfolio income, net
  $ (423,145 )   $ 2,064,599  

4.           Performance Allocation
 
The Partnership receives a performance allocation from each limited partner’s capital account in the Funds at December 31 of each year equal to 20% of the net profits above the limited partner’s 4% annual return, subject to a loss carry-forward calculation.  The performance allocation is not allocated annually for Side Pocket investments.  Only upon a recognition event, as defined in the operating agreements, will the Partnership be allocated 20% of the net profits above the limited partner’s 4% annual priority return.
 
 
 
 
F-17