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 June 30, 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 | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 2727 Allen Parkway, 13th Floor | ||
| Houston, Texas | 77019 | |
| (Address of principal | (Zip Code) | |
| executive offices) | ||
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 6,414,668 shares of the registrant’s common stock, $.001 par value, outstanding, as of August 13, 2004. The net asset value of a share at June 30, 2004 was $10.78.
(A Delaware Corporation)
INDEX
| PAGE | ||||
| PART I. |
FINANCIAL INFORMATION | |||
| Item 1. |
Financial Statements | |||
| 1 | ||||
| 2 | ||||
| - For the six months ended June 30, 2004 and 2003 | 3 | |||
| 4 | ||||
| 5 | ||||
| 7 | ||||
| Schedule of Portfolio Securities - June 30, 2004 | 8 | |||
| Notes to Financial Statements | 13 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||
| Item 3. |
Quantitative and Qualitative Disclosure about Market Risk | 25 | ||
| Item 4. |
Controls and Procedures | 26 | ||
| PART II. |
OTHER INFORMATION | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases on Equity Securities | 27 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 27 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 28 | ||
| 29 | ||||
BALANCE SHEETS
JUNE 30, 2004 AND DECEMBER 31, 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Assets |
||||||||
| Investments in portfolio securities at fair value (cost $61,912,267 and $83,129,763, respectively) |
$ | 46,546,430 | $ | 75,553,608 | ||||
| Restricted cash & temporary investments, at cost which approximates fair value |
23,635,347 | 52,695,202 | ||||||
| Cash |
6,647 | 11,296 | ||||||
| Temporary cash investments, at cost which approximates fair value |
19,226,025 | 375,583 | ||||||
| Accounts receivable |
13,605 | 15,469 | ||||||
| Accrued interest and dividends receivable |
2,162,502 | 4,256,557 | ||||||
| Escrowed receivables, at estimated fair value |
2,513,000 | — | ||||||
| Total Assets |
94,103,556 | 132,907,715 | ||||||
| Liabilities and net assets |
||||||||
| Liabilities: |
||||||||
| Accounts payable |
223,129 | 240,186 | ||||||
| Dividends payable |
— | 2,287,194 | ||||||
| Due to management company |
352,642 | 357,692 | ||||||
| Revolving line of credit |
— | 5,000,000 | ||||||
| Payable for margin loan |
22,999,361 | 51,984,089 | ||||||
| Note payable |
— | 1,500,000 | ||||||
| Total Liabilities |
23,575,132 | 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, 6,541,068 and 6,615,173 shares outstanding, respectively |
6,541 | 6,615 | ||||||
| Additional paid-in capital |
83,620,846 | 84,497,378 | ||||||
| Undistributed net investment income (loss) |
2,825,726 | (695,282 | ) | |||||
| Undistributed net capital gain (losses) |
(558,852 | ) | (4,694,002 | ) | ||||
| Unrealized depreciation of portfolio securities, net |
(15,365,837 | ) | (7,576,155 | ) | ||||
| Total net assets |
$ | 70,528,424 | $ | 71,538,554 | ||||
| Net assets per share |
$ | 10.78 | $ | 10.81 | ||||
The accompanying notes are an
integral part of these financial statements.
1
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Investment income: |
||||||||
| Interest income from portfolio securities |
$ | 455,641 | $ | 623,249 | ||||
| Dividend income from portfolio securities |
48,100 | 3,751,140 | ||||||
| Interest from temporary cash investments |
24,848 | 714 | ||||||
| Other income |
30,000 | — | ||||||
| Total investment income |
558,589 | 4,375,103 | ||||||
| Expenses: |
||||||||
| Management fees |
352,642 | 384,756 | ||||||
| Director fees and expenses |
87,602 | 58,860 | ||||||
| Professional fees |
227,369 | 71,072 | ||||||
| Administrative fees |
12,500 | 12,500 | ||||||
| Mailing, printing and other expenses |
46,434 | 53,524 | ||||||
| Interest expense |
12,358 | 340,283 | ||||||
| Non-cash compensation expense (benefit) |
23,629 | 206,044 | ||||||
| Excise tax |
— | 36,832 | ||||||
| Franchise taxes |
77,465 | 23,924 | ||||||
| Total expenses |
839,999 | 1,187,795 | ||||||
| Net investment income |
(281,410 | ) | 3,187,308 | |||||
| Realized gain on sales of portfolio securities, net |
10,255,058 | 19,377 | ||||||
| Change in unrealized appreciation (depreciation) of portfolio securities, net: |
||||||||
| End of period |
(15,365,837 | ) | (881,020 | ) | ||||
| Beginning of period |
(6,778,991 | ) | 5,294,516 | |||||
| Change in unrealized appreciation (depreciation), net |
(8,586,846 | ) | (6,175,536 | ) | ||||
| Total increase (decrease) in net assets from operations |
$ | 1,386,802 | $ | (2,968,851 | ) | |||
The accompanying notes are an
integral part of these financial statements.
2
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Investment income: |
||||||||
| Interest income from portfolio securities |
$ | 1,151,895 | $ | 1,427,206 | ||||
| Dividend income from portfolio securities |
3,620,100 | 3,794,140 | ||||||
| Interest from temporary cash investments |
25,110 | 3,123 | ||||||
| Other income |
30,000 | — | ||||||
| Total investment income |
4,827,105 | 5,224,469 | ||||||
| Expenses: |
||||||||
| Management fees |
701,231 | 783,326 | ||||||
| Director fees and expenses |
155,259 | 113,416 | ||||||
| Professional fees |
288,268 | 138,196 | ||||||
| Administrative fees |
25,000 | 25,000 | ||||||
| Mailing, printing and other expenses |
67,812 | 59,972 | ||||||
| Interest expense |
263,713 | 523,347 | ||||||
| Non-cash compensation expense (benefit) |
(276,851 | ) | 206,044 | |||||
| Excise tax |
— | 36,832 | ||||||
| Franchise taxes |
81,665 | 23,924 | ||||||
| Total expenses |
1,306,097 | 1,910,057 | ||||||
| Net investment income |
3,521,008 | 3,314,412 | ||||||
| Realized gain (loss) on sales of portfolio securities, net |
4,135,150 | (8,081,347 | ) | |||||
| Change in unrealized appreciation (depreciation) of portfolio securities, net: |
||||||||
| End of period |
(15,365,837 | ) | (881,020 | ) | ||||
| Beginning of period |
(7,576,155 | ) | (5,417,014 | ) | ||||
| Change in unrealized appreciation (depreciation), net |
(7,789,682 | ) | 4,535,994 | |||||
| Total increase (decrease) in net assets from operations |
$ | (133,524 | ) | $ | (230,941 | ) | ||
The accompanying notes are an
integral part of these financial statements.
3
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Operations: |
||||||||
| Net investment income |
$ | 3,521,008 | $ | 3,314,412 | ||||
| Realized gain (loss) on sales of portfolio securities, net |
4,135,150 | (8,081,347 | ) | |||||
| Unrealized appreciation (depreciation) of portfolio securities, net |
(7,789,682 | ) | 4,535,994 | |||||
| Increase (decrease) in net assets from operations |
(133,524 | ) | (230,941 | ) | ||||
| Capital Transactions: |
||||||||
| Non-cash compensation expense (benefit) |
(302,402 | ) | 206,044 | |||||
| Capital stock repurchased |
(574,204 | ) | — | |||||
| Increase (decrease) in net assets from capital transactions |
(876,606 | ) | 206,044 | |||||
| Increase (decrease) in net assets |
(1,010,130 | ) | (24,897 | ) | ||||
| Net assets at beginning of period |
71,538,554 | 76,976,095 | ||||||
| Net assets at end of period |
$ | 70,528,424 | $ | 76,951,198 | ||||
The accompanying notes are an
integral part of these financial statements.
4
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Interest and dividends received |
$ | 5,718,631 | $ | 289,451 | ||||
| Cash paid to management company, directors, bank and suppliers |
(1,630,605 | ) | (1,800,818 | ) | ||||
| Purchase of portfolio securities |
(596,800 | ) | (1,205,000 | ) | ||||
| Proceeds from sales of portfolio securities |
24,393,973 | 1,436,040 | ||||||
| Principal payments from portfolio securities |
245,000 | 2,074,547 | ||||||
| Sales (purchases) of restricted cash & temporary investments, net |
29,059,855 | 1,537,152 | ||||||
| Decrease in accounts receivable |
1,864 | — | ||||||
| Advances to portfolio companies |
— | (36 | ) | |||||
| Net cash provided by operating activities |
57,191,918 | 2,331,336 | ||||||
| Cash flows from financing activities: |
||||||||