10-Q 1 f10q_equus03312022.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 March 31, 2022

☐

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 May 12, 2022.

	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	30
Item 3. Quantitative and Qualitative Disclosure about Market Risk	36
Item 4. Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	37
Item 6. Exhibits	38
SIGNATURE	38

	March 31, 2022			December 31, 2021

(in thousands, except shares and per share amounts)
Assets
Investments in portfolio securities at fair value:
Control investments (cost at $7,961)	$	15,000		$	13,000
Total investments in portfolio securities at fair value		15,000			13,000
Temporary cash investments		3,000			2,500
Cash and cash equivalents		22,300			23,465
Restricted cash		30			25
Accounts receivable from affiliates		350			350
Other assets		257			376
Total assets		40,937			39,716
Liabilities and net assets
Accounts payable		198			46
Accrued compensation		303			792
Accounts payable to related parties		1			13
Borrowing under margin account		3,000			2,500
Total liabilities		3,502			3,351

Commitments and contingencies (see Note 2)

Net assets
Common stock, $.001 par value per share; 100,000,000 and 50,000,000 shares authorized and 13,518,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

Preferred stock, $.001 par value per share; 10,000,000 and 5,000,000 shares authorized, respectively
Common stock, par value	$	13		$	13
Capital in excess of par value		74,685			74,685
Accumulated deficit		(37,263	)		(38,333	)
Total net assets	$	37,435		$	36,365
Net asset value per share	$	2.77		$	2.69

	Three Months Ended March 31,
(in thousands, except per share amounts)	2022			2021

Expenses:
Compensation expense		344			506
Professional fees		350			295
Director fees and expenses		76			76
Professional liability expenses		121			84
General and administrative expenses		30			29
Mailing, printing and other expenses		7			31
Taxes		—			3
Interest expense		2			1
Total expenses		930			1,025

Net investment loss		(930	)		(1,025	)

Net realized loss:
Escrow receivable		—			(177	)
Net realized loss		—			(177	)

Net unrealized appreciation of portfolio securities:
Control investments		2,000			1,500
Net change in net unrealized appreciation of portfolio securities		2,000			1,500

Net increase in net assets resulting from operations	$	1,070		$	298

Net increase in net assets resulting from operations per share:
Basic and diluted	$	0.08		$	0.02
Weighted average shares outstanding:
Basic and diluted		13,518			13,518


	Common Stock
(in thousands)	Number of Shares		Par Value		Capital in Excess of Par Value		Accumulated Deficit			Total Net Assets
Balances at January 1, 2021		13,518	$	13	$	56,142	$	(22,378	)	$	33,777
Net increase in net assets resulting from operations		—		—		—		298			298
Balances at March 31, 2021		13,518	$	13	$	56,142	$	(22,080	)	$	34,075


Balances at January 1, 2022		13,518	$	13	$	74,685	$	(38,333	)	$	36,365
Net increase in net assets resulting from operations		—		—		—		1,070			1,070
Balances at March 31, 2022		13,518	$	13	$	74,685	$	(37,263	)	$	37,435


	Three Months ended March 31
(in thousands)	2022			2021
Reconciliation of (decrease) increase in net assets resulting from operations to net cash (used in) provided by operating activities:
Net increase in net assets resulting from operations	$	1,070		$	298
Adjustments to reconcile net (decrease) increase in net assets resulting from operations to net cash (used in) provided by operating activities:
Net realized loss
Escrow receivable		—			177
Net change in unrealized appreciation of portfolio securities
Control investments		(2,000	)		(1,500	)
(Purchases) sales of temporary cash investments, net		(500	)		24,000
Changes in operating assets and liabilities:
Accrued esrow receivable		—			2,536
Other assets		119			82
Accounts payable and accrued liabilities		(337	)		37
Accounts payable to related parties		(12	)		—
Net cash (used in) provided by operating activities		(1,660	)		25,630
Cash flows from financing activities:
Borrowings under margin account		3,000			—
Repayments under margin account		(2,500	)		(24,000	)
Net cash provided by (used in) financing activities		500			(24,000	)
Net (decrease) increase in cash and cash equivalents		(1,160	)		1,630
Cash and cash equivalents and restricted cash at beginning of period		23,490			23,879

Cash and cash equivalents and restricted cash at end of period	$	22,330		$	25,509
Supplemental disclosure of cash flow information:
Interest paid	$	1		$	1
Income taxes paid	$	38		$	3

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	$	7,961	$	15,000
Total Control Investments: Majority-owned (represents 83.3% of total investments at fair value)									7,961		15,000
Temporary Cash Investments
U.S. Treasury Bill		Government		March 2022	UST 0% 4/22		3,000		3,000		3,000
Total Temporary Cash Investments (represents 16.1% of total investments at fair value)									3,000		3,000
Total Investments								$	10,961	$	18,000

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

Limited liability company investments	$	7,961	$	15,000		40.1	%

Total	$	7,961	$	15,000		40.1	%

				Fair Value Measurements as of March 31, 2022
(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	$	15,000		$	—		$	—		$	15,000
Total investments		15,000			—			—			15,000
Temporary cash investments		3,000			3,000			—			—
Total investments and temporary cash investments	$	18,000		$	3,000		$	—		$	15,000

				Fair Value Measurements as of December 31, 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	$	13,000		$	—		$	—		$	13,000
Total investments		13,000			—			—			13,000
Temporary cash investments		2,500			2,500			—			—
Total investments and temporary cash investments	$	15,500		$	2,500		$	—		$	13,000

	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, 2022	$	13,000	$	—	$	—	$13,000
Change in unrealized appreciation		2,000		—		—	2,000
Fair value as of March 31, 2022	$	15,000	$	—	$	—	$15,000

	As of March 31, 2022			As of December 31, 2021
Accumulated undistributed net investment losses	$	(44,731	)	$	(43,801	)
Unrealized appreciation of portfolio securities, net		7,039			5,039
Accumulated undistributed net capital gains		429			429
Accumulated deficit	$	(37,264	)	$	(38,333	)

	As of March 31, 2022		As of December 31, 2021
Cash and cash equivalents at end of period	$	22,300	$	23,465
Restricted cash at end of period		30		25
Cash and cash equivalents and restricted cash at end of period	$	22,330	$	23,490

	March 31			December 31
	2022			2021


Assets
Current assets:
Cash and cash equivalents	$	510		$	640
Accounts receivable		388			215
Total current assets		898			855
Oil and gas properties		8,097			8,097
Less: accumulated depletion, depreciation and amortization		(8,093	)		(8,093	)
Net oil and gas properties		4			4
Total assets	$	902		$	859

Liabilities and member's deficit
Current liabilities:
Accounts payable and other	$	150		$	103
Due to affiliate		350			350
Total current liabilities		500			453
Asset retirement obligations		215			214
Total liabilities		715			667

Total member's equity		187			192

Total liabilities and member's equity	$	902		$	859

	•	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.