SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2004
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to
Commission File Number 0-19509
EQUUS II INCORPORATED
(Exact name of registrant as specified in its charter)
| Delaware | 76-0345915 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 2727 Allen Parkway, 13th Floor Houston, Texas |
77019 | |
| (Address of principal executive offices) |
(Zip Code) | |
Registrant’s telephone number, including area code: (713) 529-0900
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in 12b-2 of the Exchange Act). Yes ¨ No x
There were 6,615,173 shares of the registrant’s common stock, $.001 par value, outstanding, as of May 14, 2004. The net asset value of a share at March 31, 2004 was $10.54
EQUUS II INCORPORATED
(A Delaware Corporation)
| PAGE | ||||
| PART I. FINANCIAL INFORMATION |
||||
| Item 1. |
Financial Statements | |||
| Balance Sheets | ||||
| 1 | ||||
| Statements of Operations | ||||
| 2 | ||||
| Statements of Changes in Net Assets | ||||
| 3 | ||||
| Statements of Cash Flows | ||||
| 4 | ||||
| Selected Per Share Data and Ratios | ||||
| 6 | ||||
| Schedule of Portfolio Securities | ||||
| 7 | ||||
| 13 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 | ||
| Item 3. |
26 | |||
| PART II. OTHER INFORMATION |
||||
| Item 4. |
27 | |||
| Item 6. |
27 | |||
| 28 | ||||
ii
Part I. Financial Information
| Item 1. | Financial Statements |
EQUUS II INCORPORATED
BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Assets |
||||||||
| Investments in portfolio securities at fair value (cost $77,872,465 and $83,129,763, respectively) |
$ | 71,093,474 | $ | 75,553,608 | ||||
| Cash |
49,528 | 11,296 | ||||||
| Temporary cash investments, at cost which approximates fair value |
17,407 | 375,583 | ||||||
| Restricted cash & temporary investments, at cost which approximates fair value |
50,649,395 | 52,695,202 | ||||||
| Accounts receivable |
353,077 | 15,469 | ||||||
| Accrued interest receivable due from portfolio companies |
3,659,317 | 4,256,557 | ||||||
| Total assets |
125,822,198 | 132,907,715 | ||||||
| Liabilities and net assets |
||||||||
| Liabilities: |
||||||||
| Accounts payable and accrued liabilities |
148,018 | 240,186 | ||||||
| Dividends payable |
— | 2,287,194 | ||||||
| Due to management company |
348,588 | 357,692 | ||||||
| Revolving line of credit |
4,109,044 | 5,000,000 | ||||||
| Payable for securities purchased |
49,998,800 | 51,984,089 | ||||||
| Note payable |
1,500,000 | 1,500,000 | ||||||
| Total liabilities |
56,104,450 | 61,369,161 | ||||||
| Commitments and contingencies |
||||||||
| Net assets: |
||||||||
| Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares outstanding |
— | — | ||||||
| Common stock, $.001 par value, 25,000,000 shares authorized, 6,615,173 shares outstanding |
6,615 | 6,615 | ||||||
| Additional paid-in capital |
84,196,899 | 84,497,378 | ||||||
| Undistributed net investment income (loss) |
3,107,135 | (695,282 | ) | |||||
| Undistributed net capital losses |
(10,813,910 | ) | (4,694,002 | ) | ||||
| Unrealized depreciation of portfolio securities, net |
(6,778,991 | ) | (7,576,155 | ) | ||||
| Total net assets |
$ | 69,717,748 | $ | 71,538,554 | ||||
| Net assets per share |
$ | 10.54 | $ | 10.81 | ||||
The accompanying notes are an
integral part of these financial statements.
1
EQUUS II INCORPORATED
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Investment income: |
||||||||
| Interest income from portfolio securities |
$ | 696,253 | $ | 803,958 | ||||
| Dividend income from portfolio securities |
3,572,000 | 43,000 | ||||||
| Interest from temporary cash investments |
262 | 2,408 | ||||||
| Total investment income |
4,268,515 | 849,366 | ||||||
| Expenses: |
||||||||
| Management fees |
348,588 | 398,570 | ||||||
| Director fees and expenses |
67,657 | 54,555 | ||||||
| Professional fees |
60,899 | 67,125 | ||||||
| Administrative fees |
12,500 | 12,500 | ||||||
| Mailing, printing and other expenses |
21,377 | 6,448 | ||||||
| Interest expense |
251,356 | 183,064 | ||||||
| Non-cash compensation expense (benefit) |
(300,480 | ) | — | |||||
| Franchise taxes |
4,200 | — | ||||||
| Total expenses |
466,097 | 722,262 | ||||||
| Net investment income |
3,802,418 | 127,104 | ||||||
| Realized loss on sales of portfolio securities, net |
(6,119,908 | ) | (8,100,724 | ) | ||||
| Unrealized appreciation (depreciation) of portfolio securities, net: |
||||||||
| End of period |
(6,778,991 | ) | 5,294,516 | |||||
| Beginning of period |
(7,576,155 | ) | (5,417,014 | ) | ||||
| Unrealized appreciation (depreciation), net |
797,164 | 10,711,530 | ||||||
| Total increase (decrease) in net assets from operations |
$ | (1,520,326 | ) | $ | 2,737,910 | |||
The accompanying notes are an
integral part of these financial statements.
2
EQUUS II INCORPORATED
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Operations: |
||||||||
| Net investment income |
$ | 3,802,418 | $ | 127,104 | ||||
| Realized loss on sales of portfolio securities, net |
(6,119,908 | ) | (8,100,724 | ) | ||||
| Unrealized appreciation (depreciation) of portfolio securities, net |
797,164 | 10,711,530 | ||||||
| Increase (decrease) in net assets from operations |
(1,520,326 | ) | 2,737,910 | |||||
| Capital Transactions: |
||||||||
| Non-cash compensation expense (benefit) |
(300,480 | ) | — | |||||
| Decrease in net assets from capital transactions |
(300,480 | ) | — | |||||
| Increase (decrease) in net assets |
(1,820,806 | ) | 2,737,910 | |||||
| Net assets at beginning of period |
71,538,554 | 76,976,095 | ||||||
| Net assets at end of period |
$ | 69,717,748 | $ | 79,714,005 | ||||
The accompanying notes are an
integral part of these financial statements.
3
EQUUS II INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Interest and dividends received |
$ | 3,711,327 | $ | 95,411 | ||||
| Cash paid to management company, directors, bank and suppliers |
(867,849 | ) | (407,692 | ) | ||||
| Purchase of portfolio securities |
(446,800 | ) | (375,000 | ) | ||||
| Proceeds from sales of portfolio securities |
266,018 | 1,159,854 | ||||||
| Principal payments from portfolio securities |
135,000 | 1,964,547 | ||||||
| Sales (purchases) of restricted cash & temporary investments, net |
2,045,807 | 2,567,581 | ||||||
| Advances to portfolio companies |
(8 | ) | (37 | ) | ||||
| Net cash provided by operating activities |
4,843,495 | 5,004,664 | ||||||
| Cash flows from financing activities: |
||||||||
| Borrowings under margin account |
49,998,800 | 54,959,521 | ||||||
| Repayments under margin account |
(51,984,089 | ) | — | |||||
| Advances from bank |
3,034,044 | 375,000 | ||||||
| Repayments to bank |
(3,925,000 | ) | (60,325,000 | ) | ||||
| Dividends paid |
(2,287,194 | ) | — | |||||
| Net cash used by financing activities |
(5,163,439 | ) | (4,990,479 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
(319,944 | ) | 14,185 | |||||
| Cash and cash equivalents at beginning of period |
386,879 | 516,678 | ||||||
| Cash and cash equivalents at end of period |
$ | 66,935 | $ | 530,863 | ||||
The accompanying notes are an
integral part of these financial statements.
4
EQUUS II INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
(Continued)
| 2004 |
2003 |
|||||||
| Reconciliation of increase in net assets from operations to net cash provided by operating activities: |
||||||||
| Increase (decrease) in net assets from operations |
$ | (1,520,326 | ) | $ | 2,737,910 | |||
| Adjustments to reconcile increase (decrease) in net assets from operations to net cash provided by operating activities: |
||||||||
| Realized loss on sales of portfolio securities, net |
6,119,908 | 8,100,724 | ||||||
| Unrealized (appreciation) depreciation, net |
(797,164 | ) | (10,711,530 | ) | ||||
| Accrued interest and dividends exchanged for portfolio securities |
(1,154,428 | ) | (326,943 | ) | ||||
| (Increase) decrease in accrued interest receivable |
597,240 | (427,011 | ) | |||||
| Non-cash compensation expense (benefit) |
(300,480 | ) | — | |||||
| Decrease in accounts payable |
(92,168 | ) | (84,001 | ) | ||||
| Increase (decrease) in due to management company |
(9,104 | ) | 398,570 | |||||
| Purchase of portfolio securities |
(446,800 | ) | (375,000 | ) | ||||
| Proceeds from sales of portfolio securities |
266,018 | 1,159,854 | ||||||
| Principal payments from portfolio securities |
135,000 | 1,964,547 | ||||||
| Sales (purchases) of restricted cash & temporary investments, net |
2,045,807 | 2,567,581 | ||||||
| Advances to portfolio companies |
(8 | ) | (37 | ) | ||||
| Net cash provided by operating activities |
$ | 4,843,495 | $ | 5,004,664 | ||||
The accompanying notes are an
integral part of these financial statements.
5
EQUUS II INCORPORATED
SUPPLEMENTAL INFORMATION – SELECTED PER SHARE DATA AND RATIOS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Investment income |
$ | 0.65 | $ | 0.13 | ||||
| Expenses |
0.07 | 0.11 | ||||||
| Net investment income |
0.58 | |||||||