10-Q 1 f10q_equus06302021.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period to

Commission File Number 814-00098

EQUUS TOTAL RETURN, INC.

(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.)

700 Louisiana St., 48^th Floor Houston, Texas	77002
(Address of principal executive offices)	(Zip Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Registrant’s telephone number, including area code: (713) 529-0900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange

on which registered

Common Stock

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller Reporting Company ☐

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company. Yes ☐ No ☒

There were 13,518,146 shares of the registrant’s common stock, $.001 par value, outstanding, as of August 13, 2021.

	Page
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Financial Statements	3
Condensed Balance Sheets	3
Condensed Statements of Operations	4
Condensed Statements of Changes in Net Assets	5
Condensed Statements of Cash Flows	6
Supplemental Information—Selected Per Share Data and Ratios	7
Schedules of Investments	8
Notes to Condensed Financial Statements	12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosure about Market Risk	34
Item 4. Controls and Procedures	34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	35
Item 1A. Risk Factors	35
Item 6. Exhibits	36
SIGNATURE	37

	June 30, 2021			December 31, 2020

(in thousands, except per share amounts)
Assets
Investments in portfolio securities at fair value:
Control investments (cost at $7,961 and $7,611, respectively)	$	10,250		$	7,000
Total investments in portfolio securities at fair value		10,250			7,000
Temporary cash investments		—			24,000
Cash and cash equivalents		24,169			23,639
Restricted cash		—			240
Accounts receivable from affiliates		350			350
Escrow receivable		700			3,413
Other assets		18			181
Total assets		35,487			58,823
Liabilities and net assets
Accounts payable		65			54
Accrued compensation		695			990
Accounts payable to related parties		3			2
Borrowing under margin account		—			24,000
Total liabilities		763			25,046

Commitments and contingencies (see Note 2)

Net assets	$	34,724		$	33,777

Net assets consist of:
Common stock, par value	$	13		$	13
Capital in excess of par value		74,685			56,142
Accumulated earnings deficit		(39,975	)		(22,378	)
Total net assets	$	34,724		$	33,777
Shares of common stock issued and outstanding, $.001 par value, 100,000 and 50,000 shares authorized, respectively		13,518			13,518
Shares of preferred stock issued and outstanding, $.001 par value, 10,000 and 5,000 shares authorized, respectively		—			—
Net asset value per share	$	2.57		$	2.50

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2021			2020			2021			2020
Investment income:
Interest and dividend income:
Non-affiliate investments - related party	$	—		$	98		$	—		$	193
Total interest and dividend income		—			98			—			193
Interest from temporary cash investments		—			—			—			3
Other income - director fees		—			6			—			12
Total investment income		—			104			—			208

Expenses:
Compensation expense		334			291			840			695
Professional fees		173			228			468			608
Director fees and expenses		97			97			173			176
Professional liability expenses		82			60			166			123
General and administrative expenses		27			36			56			104
Mailing, printing and other expenses		26			37			57			66
Taxes		11			9			14			9
Interest expense		1			9			2			16
Total expenses		751			767			1,776			1,797

Net investment loss		(751	)		(663	)		(1,776	)		(1,589	)

Net realized (loss) gain:
Escrow receivable		—			—			(177	)		—
Temporary cash investments		—			(1	)		—			8
Net realized (loss) gain		—			(1	)		(177	)		8

Net unrealized appreciation (depreciation) of portfolio securities:
Control investments		1,400			2,000			2,900			(1,500	)
Non-affiliate investments - related party		—			1,238			—			(1,519	)
Net change in net unrealized appreciation (depreciation) of portfolio securities		1,400			3,238			2,900			(3,019	)


Net increase (decrease) increase in net assets resulting from operations	$	649		$	2,574		$	947		$	(4,600	)

Net increase (decrease) in net assets resulting from operations per share:
Basic and diluted	$	0.05		$	0.19		$	0.07		$	(0.34	)
Weighted average shares outstanding:
Basic and diluted		13,518			13,518			13,518			13,518

	Common Stock
(in thousands)	Number of Shares		Par Value		Capital in Excess of Par Value		Accumulated Earnings Deficit			Total Net Assets

Balances at January 1, 2020		13,518		13		56,062		(10,086	)		45,989

Share-based incentive compensation		—		—		80		—			80

Net (decrease) increase in net assets resulting from operations
Undistributed net investment losses		—		—		—		(1,589	)		(1,589	)
Undistributed net capital gains		—		—		—		8			8
Unrealized depreciation of portfolio securities		—		—		—
Control investments								(1,500	)		(1,500	)
Non affiliate investments - related party		—		—		—		(1,519	)		(1,519	)

Balances at June 30, 2020		13,518	$	13	$	56,142	$	(14,685	)	$	41,469


Balances at January 1, 2021		13,518	$	13	$	56,142	$	(22,378	)	$	33,777
Recharacterization of net capital gains		—		—		18,543		(18,543	)		—
Net increase (decrease) in net assets resulting from operations
Undistributed net investment losses		—		—		—		(1,776	)		(1,776	)
Undistributed net capital losses		—		—		—		(177	)		(177	)
Unrealized appreciation of portfolio securities
Non affiliate investments - related party		—		—		—		2,900			2,900

Balances at June 30, 2021		13,518	$	13	$	74,685	$	(39,975	)	$	34,724

Name and location of			Date of Initial				Cost of		Fair
Portfolio Company	Industry		Investment		Investment	Principal	Investment		Value⁽¹⁾

Control Investments: Majority-owned ⁽²⁾:
Equus Energy, LLC ⁽³⁾ Houston, TX		Energy		December 2011	Member interest (100%)		$	7,961	$	10,250

Total Control Investments: Majority-owned (represents 100% of total investments at fair value)							$	7,961	$	10,250
Total Investments							$	7,961	$	10,250

Type of Securities	Cost		Fair Value		Fair Value as Percentage of Net Assets

Limited liability company investments	$	7,961	$	10,250		29.5	%

Total	$	7,961	$	10,250		29.5	%

				Fair Value Measurements as of June 30, 2021
(in thousands)			Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs Level 3)
Assets
Investments:
Control investments	$	10,250		$	—		$	—		$	10,250
Total investments		10,250			—			—			10,250
Temporary cash investments		—			—			—			—
Total investments and temporary cash investments	$	10,250		$	—		$	—		$	10,250

				Fair Value Measurements as of December 31, 2020
(in thousands)			Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets
Investments:
Control investments	$	7,000		$	—		$	—		$	7,000
Total investments		7,000			—			—			7,000
Temporary cash investments		24,000			24,000			—			—
Total investments and temporary cash investments	$	31,000		$	24,000		$	—		$	7,000

	Fair value measurements using significant unobservable inputs (Level 3)
(in thousands)	Control Investments		Affiliate Investments		Non-affiliate Investments		Total
Fair value as of January 1, 2021	$	7,000	$	—	$	—	$7,000
Change in unrealized appreciation		2,900		—		—	2,900
Purchases of portfolio securities		350		—		—	350
Fair value as of June 30, 2021	$	10,250	$	—	$	—	$10,250

					Range
(in thousands)	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum			Maximum
			Asset approach	Acreage value (per acre)	$	3,000		$	10,250
Limited liability company investments	$	10,250	Guideline Transaction method; Market approach	Recovery rate Reserve adjustment factors		75	%		100	%

	As of June 30, 2021			As of December 31, 2020
Accumulated undistributed net investment losses	$	(42,086	)	$	(40,310	)
Unrealized appreciation of portfolio securities, net		2,289			(611	)
Accumulated undistributed net capital gains		(177	)		18,543
Accumulated earnings deficit	$	(39,975	)	$	(22,378	)

	June 30,			December 31,
	2021			2020


Assets
Current assets:
Cash and cash equivalents	$	839		$	621
Accounts receivable		125			77
Total current assets		964			698
Oil and gas properties		8,093			8,061
Less: accumulated depletion, depreciation and amortization		(8,093	)		(8,061	)
Net oil and gas properties		—			—
Total assets	$	964		$	698

Liabilities and member's deficit
Current liabilities:
Accounts payable and other	$	243		$	229
Due to affiliate		350			350
Total current liabilities		593			579
Asset retirement obligations		211			208
Total liabilities		804			787

Total member's equity (deficit)		160			(89	)

Total liabilities and member's equity (deficit)	$	964		$	698

	•	our future operating results;
	•	our business prospects and the prospects of our existing and prospective portfolio companies;
	•	the return or impact of current and future investments;
	•	our contractual arrangements and other relationships with third parties;
	•	the dependence of our future success on the general economy and its impact on the industries in which we invest;
	•	the financial condition and ability of our existing and prospective portfolio companies to achieve their objectives;
	•	our expected financings and investments;
	•	our regulatory structure and tax treatment;
	•	our ability to qualify and operate as a BDC and a RIC, including the impact of changes in laws or regulations governing our operations, or the operations of our portfolio companies;
	•	the adequacy of our cash resources and working capital;
	•	the timing of cash flows, if any, from the operations of our portfolio companies;
	•	the impact of fluctuations in interest rates on our business;

	•	the valuation of our investments in portfolio companies, particularly those having no liquid trading market;
	•	our ability to recover unrealized losses;
	•	market conditions and our ability to access additional capital, if deemed necessary;
	•	developments in the global economy as well as the public health crisis related to the COVID-19 virus and resulting demand and supply for oil and natural gas;
	•	natural or man-made disasters and other external events that may disrupt our operations; and
	•	continued volatility of oil and natural gas prices.

SEC Form 10-Q filed by Equus Total Return, Inc.