FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2005 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 6,506,692 shares of the registrant’s common stock, $.001 par value, outstanding, as of May 16, 2005. The net asset value of a share at March 31, 2005 was $11.61.
(A Delaware Corporation)
INDEX
ii
BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
(Unaudited)
| 2005 |
2004 |
|||||||
| Assets |
||||||||
| Investments in portfolio securities at fair value (cost $53,114,390 and $53,194,666, respectively) |
$ | 53,592,004 | $ | 48,621,356 | ||||
| Restricted cash & temporary investments, at cost which approximates fair value |
25,213,577 | 24,218,234 | ||||||
| Cash |
10,420 | 12,523 | ||||||
| Temporary cash investments, at cost which approximates fair value |
19,166,199 | 18,563,525 | ||||||
| Accounts receivable |
87,073 | 104,964 | ||||||
| Accrued interest and dividends receivable |
280,022 | 441,644 | ||||||
| Escrowed receivables, at fair value |
3,036,000 | 2,660,000 | ||||||
| Total assets |
$ | 101,385,295 | $ | 94,622,246 | ||||
| Liabilities and net assets |
||||||||
| Liabilities: |
||||||||
| Accounts payable and accrued liabilities |
$ | 246,290 | $ | 99,614 | ||||
| Accrued compensation |
281,868 | 12,367 | ||||||
| Dividends payable |
— | 1,589,160 | ||||||
| Due to management company |
377,873 | 342,998 | ||||||
| Borrowing under margin account |
24,963,938 | 23,978,450 | ||||||
| Total liabilities |
25,869,969 | 26,022,589 | ||||||
| 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, 6,506,692 shares outstanding |
6,507 | 6,507 | ||||||
| Additional paid-in capital |
84,198,238 | 84,174,979 | ||||||
| Undistributed net investment income (losses) |
(437,935 | ) | (12,367 | ) | ||||
| Undistributed net capital gains (losses) |
(8,729,098 | ) | (10,996,152 | ) | ||||
| Unrealized appreciation (depreciation) of portfolio securities, net |
477,614 | (4,573,310 | ) | |||||
| Total net assets |
$ | 75,515,326 | $ | 68,599,657 | ||||
| Net assets per share |
$ | 11.61 | $ | 10.54 | ||||
The accompanying notes are an integral part of these financial statements.
1
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
| 2005 |
2004 |
|||||||
| Investment income: |
||||||||
| Interest income from portfolio securities |
$ | 315,825 | $ | 696,253 | ||||
| Dividend income from portfolio securities |
156,316 | 3,572,000 | ||||||
| Interest from temporary cash investments |
89,647 | 262 | ||||||
| Other income |
3,334 | — | ||||||
| Total investment income |
565,122 | 4,268,515 | ||||||
| Expenses: |
||||||||
| Management fee |
377,873 | 348,588 | ||||||
| Director fees and expenses |
104,829 | 67,657 | ||||||
| Professional fees |
121,172 | 60,899 | ||||||
| Administrative fees |
12,500 | 12,500 | ||||||
| Mailing, printing and other expenses |
19,498 | 21,377 | ||||||
| Interest expense |
38,492 | 251,356 | ||||||
| Compensation expense (benefit) |
269,501 | (300,480 | ) | |||||
| Franchise taxes |
46,825 | 4,200 | ||||||
| Total expenses |
990,690 | 466,097 | ||||||
| Net investment income (loss) |
(425,568 | ) | 3,802,418 | |||||
| Realized gain (loss) on dispositions of portfolio securities, net |
2,267,054 | (6,119,908 | ) | |||||
| Unrealized appreciation (depreciation) of portfolio securities, net: |
||||||||
| End of period |
477,614 | (6,778,991 | ) | |||||
| Beginning of period |
(4,573,310 | ) | (7,576,155 | ) | ||||
| Increase (decrease) in unrealized appreciation of portfolio securities, net |
5,050,924 | 797,164 | ||||||
| Total increase (decrease) in net assets from operations |
$ | 6,892,410 | $ | (1,520,326 | ) | |||
| Increase (decrease) in net assets from operations per share: |
||||||||
| Basic |
$ | 1.06 | $ | (0.23 | ) | |||
| Diluted |
$ | 1.05 | $ | (0.23 | ) | |||
| Weighted average shares outstanding, in thousands |
||||||||
| Basic |
6,507 | 6,615 | ||||||
| Diluted |
6,542 | 6,615 | ||||||
The accompanying notes are an integral part of these financial statements.
2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
| 2005 |
2004 |
|||||||
| Operations: |
||||||||
| Net investment income |
$ | (425,568 | ) | $ | 3,802,418 | |||
| Realized gain (loss) on dispositions of portfolio securities, net |
2,267,054 | (6,119,908 | ) | |||||
| Increase in unrealized appreciation of portfolio securities, net |
5,050,924 | 797,164 | ||||||
| Increase (decrease) in net assets from operations |
6,892,410 | (1,520,326 | ) | |||||
| Capital transactions: |
||||||||
| Non-cash compensation expense (benefit) |
— | (300,480 | ) | |||||
| Increase from officer notes settlement |
23,475 | — | ||||||
| Shares issued in dividend |
(216 | ) | — | |||||
| Increase (decrease) in net assets from capital share transactions |
23,259 | (300,480 | ) | |||||
| Increase (decrease) in net assets |
6,915,669 | (1,820,806 | ) | |||||
| Net assets, at beginning of period |
68,599,657 | 71,538,554 | ||||||
| Net assets, at end of period |
$ | 75,515,326 | $ | 69,717,748 | ||||
The accompanying notes are an integral part of these financial statements.
3
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
| 2005 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Interest and dividends received |
$ | 202,689 | $ | 3,711,319 | ||||
| Cash paid to management company, directors, bank and suppliers |
(539,638 | ) | (867,849 | ) | ||||
| Purchase of portfolio securities |
— | (446,800 | ) | |||||
| Proceeds from dispositions of portfolio securities |
2,495,113 | 266,018 | ||||||
| Principal payments from portfolio securities |
18,163 | 135,000 | ||||||
| Sales (purchases) of restricted temporary cash investments |
(995,343 | ) | 2,045,807 | |||||
| Net cash provided by operating activities |
1,180,984 | 4,843,495 | ||||||
| Cash flows from financing activities: |
||||||||
| Advances from bank |
— | 3,034,044 | ||||||
| Repayments to bank |
— | (3,925,000 | ) | |||||
| Borrowings under margin account |
24,963,938 | 49,998,800 | ||||||
| Repayments under margin account |
(23,978,450 | ) | (51,984,089 | ) | ||||
| Dividends paid |
(1,589,376 | ) | (2,287,194 | ) | ||||
| Payments received on officer notes |
23,475 | — | ||||||
| Net cash used by financing activities |
(580,413 | ) | (5,163,439 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
600,571 | (319,944 | ) | |||||
| Cash and cash equivalents at beginning of period |
18,576,048 | 386,879 | ||||||
| Cash and cash equivalents at end of period |
$ | 19,176,619 | $ | 66,935 | ||||
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, 2005 AND 2004
(Unaudited)
(Continued)
| Reconciliation of increase (decrease) in net assets from operations to net cash provided by operating activities: |
||||||||
| Increase (decrease) in net assets from operations |
$ | 6,892,410 | $ | (1,520,326 | ) | |||
| Adjustments to reconcile increase (decrease) in net assets from operations to net cash provided by operating activities: |
||||||||
| Realized (gain) loss on dispositions of portfolio securities, net |
(2,267,054 | ) | 6,119,908 | |||||
| Decrease (increase) in unrealized appreciation, net |
(5,050,924 | ) | (797,164 | ) | ||||
| Decrease (increase) in accrued interest receivable |
161,622 | 597,240 | ||||||
| Decrease (increase) in accounts receivable |
17,891 | (8 | ) | |||||
| Accrued interest or dividends exchanged for portfolio securities |
(541,946 | ) | (1,154,428 | ) | ||||
| Non-cash compensation expense (benefit) |
269,501 | (300,480 | ) | |||||
| Increase (decrease) in accounts payable and accrued liabilities |
146,676 | (92,168 | ) | |||||
| Increase (decrease) in due to management company |
34,875 | (9,104 | ) | |||||
| Purchase of portfolio securities |
— | (446,800 | ) | |||||
| Proceeds from dispositions of portfolio securities |
2,495,113 | 266,018 | ||||||
| Principal payments from portfolio securities |
18,163 | 135,000 | ||||||
| Sales (purchases) of restricted temporary cash investments |
(995,343 | ) | 2,045,807 | |||||
| Net cash provided by operating activities |
$ | 1,180,984 | $ | 4,843,495 | ||||