# EDGAR Filing Document

**Accession Number:** 0000878932
**File Stem:** 0001096906-25-002129
**Filing Date:** 2025-12
**Character Count:** 159784
**Document Hash:** 93e3e1f8e3aac7fd9bc0b08f3a9baa3e
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001096906-25-002129.hdr.sgml**: 20251218

**ACCESSION NUMBER**: 0001096906-25-002129

**CONFORMED SUBMISSION TYPE**: 10-Q/A

**PUBLIC DOCUMENT COUNT**: 62

**CONFORMED PERIOD OF REPORT**: 20230630

**FILED AS OF DATE**: 20251218

**DATE AS OF CHANGE**: 20251218

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** EQUUS TOTAL RETURN, INC.
- **CENTRAL INDEX KEY:** 0000878932

**ORGANIZATION NAME:**
- **EIN:** 760345915
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-Q/A
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 814-00098
- **FILM NUMBER:** 251583660

**BUSINESS ADDRESS:**
- **STREET 1:** 700 LOUISIANA STREET
- **STREET 2:** 48TH FLOOR
- **CITY:** HOUSTON
- **STATE:** TX
- **ZIP:** 77002
- **BUSINESS PHONE:** 7135290900

**MAIL ADDRESS:**
- **STREET 1:** 700 LOUISIANA STREET
- **STREET 2:** 48TH FLOOR
- **CITY:** HOUSTON
- **STATE:** TX
- **ZIP:** 77002

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** EQUUS II INC
- **DATE OF NAME CHANGE:** 19970422

?xml version='1.0' encoding='ASCII'? equus_10qa.htm

**UNITED STATES** 

**SECURITIES AND EXCHANGE COMMISSION** 

**Washington, D.C. 20549** 

**FORM 10-Q/A** 

**Amendment No. 1**

☒ **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** <br>

For the quarterly period ended **June 30, 2023**

or

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** <br>

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**<br>**incorporation or organization)**<br>**700 Louisiana St., 48th Floor**<br>**Houston, Texas** | **(I.R.S. Employer**<br>**Identification No.)**<br>**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: <u>(713) 529-0900</u>**

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

---

| | |
|:---|:---|
| **Title of each class** | **Name of each exchange** <br>**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 ☐&nbsp;&nbsp;&nbsp;&nbsp;No ☒

There were 13,518,146 shares of the registrant's common stock, $.001 par value, outstanding, as of June 30, 2023.

**EXPLANATORY NOTE**

Equus Total Return, Inc. ("Equus" or the "Company") is filing this Amendment No. 1 on Form 10-Q/A ("Amended 10-Q") which supersedes and replaces in its entirety the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2023 ("Original Filing").

The sole purpose of this Amended 10-Q is to provide the required Inline XBRL tagging, which was inadvertently omitted from the Original Filing. No other changes to the Original Filing have been made.

This Amended 10-Q does not reflect events occurring after the Original Filing except as noted above. This Amended 10-Q continues to speak as of the date of the Original Filing and the Company has not otherwise updated disclosures contained therein or herein to reflect events that occurred at a later date.

**EQUUS TOTAL RETURN, INC.**

**(A Delaware Corporation)**

**INDEX**

---

| | |
|:---|:---|
|  | **Page** |
| [PART I. FINANCIAL INFORMATION](#p1) |  |
| [Item 1. Unaudited Condensed Financial Statements](#i1) | 4 |
| [Condensed Balance Sheets](#bs) | 4 |
| [Condensed Statements of Operations](#cso) | 5 |
| [Condensed Statements of Changes in Net Assets](#asset) | 6 |
| [Condensed Statements of Cash Flows](#cf) | 7 |
| [Supplemental Information—Selected Per Share Data and Ratios](#supplement) | 8 |
| [Schedules of Investments](#schedul) | 9 |
| [Notes to Condensed Financial Statements](#notes) | 13 |
| [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](#i2) | 36 |
| [Item 3. Quantitative and Qualitative Disclosure about Market Risk](#i3) | 43 |
| [Item 4. Controls and Procedures](#i4) | 44 |
| [PART II. OTHER INFORMATION](#p2) |  |
| [Item 1. Legal Proceedings](#p2i1) | 45 |
| [Item 1A. Risk Factors](#p2i1a) | 45 |
| [Item 6. Exhibits](#i6) | 46 |
| [SIGNATURE](#sig) | 47 |

---

---

| |
|:---|
| 3 |
| *[**Table of Contents**](#TOC)* |

---

**<u>Part I. Financial Information</u>**

**<u>Item 1. Unaudited Condensed Financial Statements</u>**

**EQUUS TOTAL RETURN, INC.**

**CONDENSED BALANCE SHEETS**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **June 30,** <br>**2023** | **December 31,** <br>**2022** |
| **(in thousands, except shares and per share amounts)** |  |  |
| Assets |  |  |
| Investments in portfolio securities at fair value: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Control investments (cost at $8,861 and $8,111, respectively) | $23200 | $15650 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total investments in portfolio securities at fair value | 23200 | 15650 |
| Temporary cash investments | 12989 | 5998 |
| Cash and cash equivalents | 16407 | 19224 |
| Restricted cash | 130 | 60 |
| Accounts receivable from affiliates | 328 | 350 |
| Accrued interest | 8 |  |
| Other assets | 35 | 382 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | 53097 | 41664 |
| Liabilities and net assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 53 | 107 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued compensation | 3 | 321 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable to related parties | 1 | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;Borrowing under margin account | 12989 | 5998 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 13046 | 6427 |
| Commitments and contingencies (See Note 2) |  |  |
| Net assets |  |  |
| Common stock, $0.001 par value per share; 100,000,000 shares authorized and 13,518,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively |  |  |
| Preferred stock, $0.001 par value per share; 10,000,000 shares authorized as of June 30, 2023 and December 31, 2022 respectively |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Common stock, par value | $13 | $13 |
| &nbsp;&nbsp;&nbsp;&nbsp;Capital in excess of par value | 74685 | 74685 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accumulated deficit | (34647) | (39461) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total net assets | $40051 | $35237 |
| Net asset value per share | $2.96 | $2.61 |

---

The accompanying notes are an integral part of these financial statements.

---

| |
|:---|
| 4 |
| *[**Table of Contents**](#TOC)* |

---

**EQUUS TOTAL RETURN, INC.**

**CONDENSED STATEMENTS OF OPERATIONS**

**(Unaudited)**

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Six Months ended June 30,** | **Six Months ended June 30,** |
| <br>**(in thousands, except per share amounts)** | **2023** | **2022** | **2023** | **2022** |
| Investment income: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Control investments | $8 | $— | $8 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total interest and dividend income | 8 |  | 8 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest from temporary cash investments | 4 |  | 10 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total investment income | 12 |  | 18 |  |
| Expenses: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Compensation expense | 393 | 345 | 810 | 689 |
| &nbsp;&nbsp;&nbsp;&nbsp;Professional fees | 126 | 106 | 526 | 456 |
| &nbsp;&nbsp;&nbsp;&nbsp;Professional liability expenses | 181 | 177 | 365 | 298 |
| &nbsp;&nbsp;&nbsp;&nbsp;Director fees and expenses | 103 | 92 | 183 | 168 |
| &nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses | 35 | 31 | 70 | 61 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mailing, printing and other expenses | 30 | 29 | 52 | 36 |
| &nbsp;&nbsp;&nbsp;&nbsp;Taxes | 7 |  | 7 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest expense | 1 |  | 2 | 2 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total expenses | 876 | 780 | 2015 | 1710 |
| Net investment loss | (864) | (780) | (1997) | (1710) |
| Net realized gain: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Temporary cash investments | 9 |  | 11 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net realized gain | 9 |  | 11 |  |
| Net unrealized appreciation of portfolio securities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Control investments | 6800 | 500 | 6800 | 2500 |
| Net change in net unrealized appreciation of portfolio securities | 6800 | 500 | 6800 | 2500 |
| Net increase (decrease) in net assets resulting from operations | $5945 | $(280) | $4814 | $790 |
| Net increase (decrease) in net assets resulting from operations per share: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted | $0.44 | $(0.02) | $0.36 | $0.06 |
| Weighted average shares outstanding: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted | 13518 | 13518 | 13518 | 13518 |

---

The accompanying notes are an integral part of these financial statements.

---

| |
|:---|
| 5 |
| *[**Table of Contents**](#TOC)* |

---

**EQUUS TOTAL RETURN, INC.**

**CONDENSED STATEMENTS OF CHANGES IN NET ASSETS**

**(Unaudited)**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Common Stock** | **Common Stock** | **Common Stock** | | |
| <br>**(in thousands)** | **Number** <br>**of Shares** | **Par Value** | **Capital in Excess** <br>**of Par Value** |<br>**Accumulated** <br>**Deficit** |<br>**Total Net** <br>**Assets** |
| Balances as of January 1, 2022 | 13518 | $13 | $74685 | $(38333) | $36365 |
| Net increase in net assets resulting from operations |  |  |  | 1070 | 1070 |
| Balances as of March 31, 2022 | 13518 | $13 | $74685 | $(37263) | $37435 |
| Net decrease in net assets resulting from operations |  |  |  | (280) | (280) |
| Balances as of June 30, 2022 | 13518 | $13 | $74685 | $(37543) | $37155 |
| Balances as of January 1, 2023 | 13518 | $13 | $74685 | $(39461) | $35237 |
| Net decrease in net assets resulting from operations |  |  |  | (1131) | (1131) |
| Balances as of March 31, 2023 | 13518 | $13 | $74685 | $(40592) | $34106 |
| Net increase in net assets resulting from operations |  |  |  | 5945 | 5945 |
| Balances as of June 30, 2023 | 13518 | $13 | $74685 | $(34647) | $40051 |

---

The accompanying notes are an integral part of these financial statements.

---

| |
|:---|
| 6 |
| *[**Table of Contents**](#TOC)* |

---

**EQUUS TOTAL RETURN, INC.**

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
| | **Six months ended June 30,** | **Six months ended June 30,** |
| <br>**(in thousands)** | **2023** | **2022** |
| Reconciliation of increase in net assets resulting from operations to net cash |  |  |
| used in operating activities: |  |  |
| Net increase in net assets resulting from operations | $4814 | $790 |
| Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net realized gain: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Temporary cash investments | (11) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net change in unrealized appreciation of portfolio securities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Control investments | (6800) | (2500) |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchase of portfolio securities | (750) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchase of temporary cash investments, net | (6980) | (1500) |
| Changes in operating assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable from affiliates | 22 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued interest and dividend receivable | (8) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued escrow receivable |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Other assets | 347 | 299 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities | (372) | (472) |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable to related parties | 0 | (12) |
| Net cash used in operating activities | (9738) | (3395) |
| Cash flows from financing activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Borrowings under margin account | 22980 | 7000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Repayments under margin account | (15989) | (5500) |
| Net cash provided by financing activities | 6991 | 1500 |
| Net decrease in cash and cash equivalents | (2747) | (1895) |
| Cash and cash equivalents and restricted cash at beginning of period | 19284 | 23490 |
| Cash and cash equivalents and restricted cash at end of period | $16537 | $21595 |
| Supplemental disclosure of cash flow information: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest paid | $2 | $2 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income taxes paid | $7 | $38 |

---

The accompanying notes are an integral part of these financial statements.

---

| |
|:---|
| 7 |
| *[**Table of Contents**](#TOC)* |

---

**EQUUS TOTAL RETURN, INC.**

**SUPPLEMENTAL INFORMATION—SELECTED PER SHARE DATA AND RATIOS**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **Six months ended June 30,** | **Six months ended June 30,** |
|  | **2023** | **2022** |
| Expenses | $(0.15) | $(0.13) |
| Net investment loss | (0.15) | (0.13) |
| Net change in unrealized appreciation of portfolio securities | 0.50 | 0.19 |
| Net increase in net assets | 0.35 | 0.06 |
| Net assets at beginning of period | 2.61 | 2.69 |
| Net assets at end of period, basic and diluted | $2.96 | $2.75 |
| Weighted average number of shares outstanding during period, in thousands | 13518 | 13518 |
| Market price per share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Beginning of period | $1.43 | $2.38 |
| &nbsp;&nbsp;&nbsp;&nbsp;End of period | $1.52 | $2.61 |
| Selected information and ratios: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Ratio of expenses to average net assets | (5.35)% | 4.65% |
| &nbsp;&nbsp;&nbsp;&nbsp;Ratio of net investment loss to average net assets | (5.30)% | (4.65)% |
| &nbsp;&nbsp;&nbsp;&nbsp;Ratio of net increase in net assets resulting from operations to average net assets | 12.79% | 2.15% |
| &nbsp;&nbsp;&nbsp;&nbsp;Return on net asset value | (3.45)% | 2.23% |
| &nbsp;&nbsp;&nbsp;&nbsp;Total return on market price <sup>(1)</sup> | 6.29% | 9.66% |

---

<sup>(1)</sup> Total return = [(ending market price per share - beginning price per share) / beginning market price per share].

The accompanying notes are an integral part of these financial statements.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

---

| |
|:---|
| 8 |
| *[**Table of Contents**](#TOC)* |

---

**EQUUS TOTAL RETURN, INC.**

**SCHEDULE OF INVESTMENTS**

**JUNE 30, 2023**

**(Unaudited)**

***(in thousands, except share data)***

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Name and Location of**<br>**Portfolio Company** | <br>**Industry** | **Date of Initial**<br>**Investment** | <br>**Investment** | **Principal** | **Principal** | **Cost of**<br>**Investment** | **Fair**<br>**Value<sup>(1)</sup>** |
| **Control Investments: Majority-owned <sup>(2)</sup>:** | **Control Investments: Majority-owned <sup>(2)</sup>:** |  |  |  |  |  |  |
| Equus Energy, LLC <sup>(3)</sup><br>Houston, TX | Energy  | December 2011  | Member interest (100%) |  |  | $8111 | $15650 |
| Morgan E&P, LLC <sup>(3)</sup><br>Houston, TX | Energy  | April 2023 | Member interest (100%) |  |  |  | 6800 |
|  |  |  | 12% senior secured promissory note due 5/26 <sup>(4)</sup> | $| 750 | 750 | 750 |
|  |  |  |  |  |  | 750 | 7550 |
| **Total Control Investments: Majority-owned (represents 64.1% of total investments at fair value)** | **Total Control Investments: Majority-owned (represents 64.1% of total investments at fair value)** | **Total Control Investments: Majority-owned (represents 64.1% of total investments at fair value)** | **Total Control Investments: Majority-owned (represents 64.1% of total investments at fair value)** | **Total Control Investments: Majority-owned (represents 64.1% of total investments at fair value)** | **Total Control Investments: Majority-owned (represents 64.1% of total investments at fair value)** | **8861** | **23200** |
| **Temporary Cash Investments** |  |  |  |  |  |  |  |
| U.S. Treasury Bill | Government | June 2023 | UST 0% 7/23 |  | 12989 | 12989 | 12989 |
| **Total Temporary Cash Investments (represents 35.9% of total investments at fair value)** | **Total Temporary Cash Investments (represents 35.9% of total investments at fair value)** | **Total Temporary Cash Investments (represents 35.9% of total investments at fair value)** | **Total Temporary Cash Investments (represents 35.9% of total investments at fair value)** | **Total Temporary Cash Investments (represents 35.9% of total investments at fair value)** | **Total Temporary Cash Investments (represents 35.9% of total investments at fair value)** | **12989** | **12989** |
| **Total Investments** |  |  |  |  |  | $**21850** | $**36189** |

---

<sup>(1)</sup> See Note 3 to the financial statements, Valuation of Investments.

<sup>(2)</sup> Majority owned investments are generally defined under the 1940 Act as companies in which we own more than 50% of the voting securities of such company.

<sup>(3)</sup> Level 3 Portfolio Investment.

<sup>(4)</sup> Income producing.

The accompanying notes are an integral part of these financial statements.

---

| |
|:---|
| 9 |
| *[**Table of Contents**](#TOC)* |

---

**EQUUS TOTAL RETURN, INC.**

**SCHEDULE OF INVESTMENTS – (Continued)**

**JUNE 30, 2023**

**(Unaudited)**

Our portfolio securities are restricted from public sale without prior registration under the Securities Act of 1933 (hereafter, the "Securities Act"). We typically negotiate certain aspects of the method and timing of the disposition of our investment in each portfolio company, including registration rights and related costs.

As a business development company ("BDC"), we may invest up to 30% of our assets in non-qualifying portfolio investments, as permitted by the Investment Company Act of 1940 (the "1940 Act"). Specifically, we may invest up to 30% of our assets in entities that are not considered "eligible portfolio companies" (as defined in the 1940 Act), including companies located outside of the United States, entities that are operating pursuant to certain exceptions under the 1940 Act, and publicly-traded entities with a market capitalization exceeding $250 million. As of June 30, 2023, we had invested 43.7% of our assets in securities of portfolio companies that constituted qualifying investments under the 1940 Act. As of June 30, 2023, all of our investments are in enterprises that are considered eligible portfolio companies under the 1940 Act. We provide significant managerial assistance to our portfolio companies that comprise 100% of the total value of the investments in portfolio securities as of June 30, 2023.

We are classified as a "non-diversified" investment company under the 1940 Act, which means we are not limited in the proportion of our assets that may be invested in the securities of a single user. The value of one segment called "Energy" includes our two remaining portfolio companies and was 57.9% of our net asset value, 43.7% of our total assets and 100% of our investments in portfolio company securities (at fair value) as of June 30, 2023. Changes in business or industry trends or in the financial condition, results of operations, or the market's assessment of any single portfolio company will affect the net asset value and the market price of our common stock to a greater extent than would be the case if we were a "diversified" company holding numerous investments.

Our investments in portfolio securities consist of the following types of securities as of June 30, 2023 (in thousands):

---

| | | | |
|:---|:---|:---|:---|
| **Type of Securities** | **Cost** | **Fair Value** | **Fair Value as Percentage of Net Assets** |
| Limited liability company investments | $8111 | $22450 | 56.0% |
| Secured and subordinated debt | 750 | 750 | 1.9% |
| Total | $8861 | $23200 | 57.9% |

---

The following is a summary by industry of the Fund's investments in portfolio securities as of June 30, 2023 (in thousands):

---

| | | |
|:---|:---|:---|
| **Industry** | **Fair Value** | **Fair Value as Percentage**<br> **of Net Assets** |
| Energy | $23200 | 57.9% |
| Total | $23200 | 57.9% |

---

The accompanying notes are an integral part of these financial statements.

---

| |
|:---|
| 10 |
| *[**Table of Contents**](#TOC)* |

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**EQUUS TOTAL RETURN, INC.**

**SCHEDULE OF INVESTMENTS**

**DECEMBER 31, 2022**

**(Unaudited)** 

***(in thousands, except share data)***

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Name and Location of**<br>**Portfolio Company** | <br>**Industry** | **Date of Initial**<br>**Investment** | <br>**Investment** | <br>**Principal** | **Cost of**<br>**Investment** | **Fair**<br>**Value<sup>(1)</sup>** |
| **Control Investments: Majority-owned <sup>(2)</sup>:** | **Control Investments: Majority-owned <sup>(2)</sup>:** | **Control Investments: Majority-owned <sup>(2)</sup>:** |  |  |  |  |
| Equus Energy, LLC <sup>(3)</sup> <br>Houston, TX | Energy  | December 2011  | Member interest (100%) | $8111 | $8111 | $15650 |
| **Total Control Investments: Majority-owned (represents 61.0% of total investments at fair value)** | **Total Control Investments: Majority-owned (represents 61.0% of total investments at fair value)** | **Total Control Investments: Majority-owned (represents 61.0% of total investments at fair value)** | **Total Control Investments: Majority-owned (represents 61.0% of total investments at fair value)** |  | **8111** | **15650** |
| **Temporary Cash Investments** |  |  |  |  |  |  |
| U.S. Treasury Bill | Government | March 2023 | UST 0% 4/23 | 9992 | 9992 | 9992 |
| **Total Temporary Cash Investments (represents 39.0% of total investments at fair value)** | **Total Temporary Cash Investments (represents 39.0% of total investments at fair value)** | **Total Temporary Cash Investments (represents 39.0% of total investments at fair value)** | **Total Temporary Cash Investments (represents 39.0% of total investments at fair value)** |  | **9992** | **9992** |
| **Total Investments** |  |  |  |  | $**18103** | $**25642** |

---

<sup>(1)</sup> See Note 3 to the financial statements, Valuation of Investments.

<sup>(2)</sup> Majority owned investments are generally defined under the 1940 Act as companies in which we own more than 50% of the voting securities of the company.

<sup>(3)</sup> Level 3 Portfolio Investment.

The accompanying notes are an integral part of these financial statements.

---

| |
|:---|
| 11 |
| *[**Table of Contents**](#TOC)* |

---

**EQUUS TOTAL RETURN, INC.**

**SCHEDULE OF INVESTMENTS – (Continued)**

**DECEMBER 31, 2022**

**(Unaudited)**

**(in thousands, except share data)**

Our portfolio securities are restricted from public sale without prior registration under the Securities Act of 1933 (hereafter, the "Securities Act"). We typically negotiate certain aspects of the method and timing of the disposition of our investment in each portfolio company, including registration rights and related costs.

As an investment company classified as a business development company ("BDC") under the Investment Company Act of 1940 (hereafter, the "1940 Act"), we may invest up to 30% of our assets in non-qualifying portfolio investments, as permitted by the 1940 Act. Specifically, we may invest up to 30% of our assets in entities that are not considered "eligible portfolio companies" (as defined in the 1940 Act), including companies located outside of the United States, entities that are operating pursuant to certain exceptions under the 1940 Act, and publicly- traded entities with a market capitalization exceeding $250 million. As of December 31, 2022, we had invested 3 7.6% of our assets in securities of portfolio companies that constituted qualifying investments under the 1940 Act. As of December 31, 2022, our investments are in enterprises that are considered eligible portfolio companies under the 1940 Act. We provide significant managerial assistance to a portfolio company that comprises 100% of the total value of the investments in portfolio securities as of December 31, 2022.

We are classified as a "non-diversified" investment company under the 1940 Act, which means we are not limited in the proportion of our assets that may be invested in the securities of a single user. The value of one segment called 'Energy' includes one portfolio company and was 44.4% of our net asset value, 37.6% of our total assets and 100% of our investments in portfolio company securities (at fair value) as of December 31, 2022. Changes in business or industry trends or in the financial condition, results of operations, or the market's assessment of any single portfolio company will affect the net asset value and the market price of our common stock to a greater extent than would be the case if we were a "diversified" company holding numerous investments.

Our investments in portfolio securities consist of the following types of securities as of December 31, 2022 (in thousands):

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| | | | |
|:---|:---|:---|:---|
| **Type of Securities** | **Cost** | **Fair Value** | **Fair Value as Percentage of Net Assets** |
| Limited liability company investments | $8111 | $15650 | 44.4% |
| Total | $8111 | $15650 | 44.4% |

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The following is a summary by industry of the Fund's investments in portfolio securities as of December 31, 2022 (in thousands):

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| | | |
|:---|:---|:---|
| **Industry** | **Fair Value** | **Fair Value as Percentage** <br>**of Net Assets** |
| Energy | $15650 | 44.4% |
| Total | $15650 | 44.4% |

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The accompanying notes are an integral part of these financial statements.

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**EQUUS TOTAL RETURN, INC.**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**JUNE 30, 2023**

**(Unaudited)**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(1) Description of Business and Basis of Presentation**

**Description of Business—**Equus Total Return, Inc. ("we," "us," "our," "Equus" the "Company" and the "Fund"), a Delaware corporation, was formed by Equus Investments II, L.P. (the "Partnership") on August 16, 1991. On July 1, 1992, the Partnership was reorganized and all of the assets and liabilities of the Partnership were transferred to the Fund in exchange for shares of common stock of the Fund. Our shares trade on the New York Stock Exchange ("NYSE") under the symbol 'EQS'. On August 11, 2006, our shareholders approved the change of the Fund's investment strategy to a total return investment objective. This strategy seeks to provide the highest total return, consisting of capital appreciation and current income. In connection with this strategic investment change, the shareholders also approved the change of name from Equus II Incorporated to Equus Total Return, Inc. As of June 30, 2023, we had 100,000,000 shares of common stock and 10,000,000 shares of preferred stock authorized for issuance, of which 13,518,146 shares of common stock and no shares of preferred stock were outstanding.

We attempt to maximize the return to stockholders in the form of current investment income and long-term capital gains by investing in the debt and equity securities of companies with a total enterprise value between $5.0 million and $75.0 million, although we may engage in transactions with smaller or larger investee companies from time to time. We seek to invest primarily in companies pursuing growth either through acquisition or organically, leveraged buyouts, management buyouts and recapitalizations of existing businesses or special situations. Our income-producing investments consist principally of debt securities including subordinated debt, debt convertible into common or preferred stock, or debt combined with warrants and common and preferred stock. Debt and preferred equity financing may also be used to create long-term capital appreciation through the exercise and sale of warrants received in connection with the financing. We seek to achieve capital appreciation by making investments in equity and equity-oriented securities issued by privately-owned companies in transactions negotiated directly with such companies. Given market conditions over the past several years and the performance of our portfolio, our Management and Board of Directors believe it prudent to continue to review alternatives to refine and further clarify the current strategies.

We elected to be treated as a BDC under the Investment Company Act of 1940 Act ("1940 Act"), although our shareholders authorized us to withdraw this election in previous years (which authorization has since expired) and will likely do so again in the future. We currently qualify as a regulated investment company ("RIC") for federal income tax purposes and, therefore, are not required to pay corporate income taxes on any income or gains that we distribute to our stockholders. We have two wholly-owned taxable subsidiaries ("Taxable Subsidiary") which hold one or more of our portfolio investments listed on our Schedules of Investments. The purpose of these and other Taxable Subsidiaries we may form is to permit us to hold certain income- producing investments or portfolio companies organized as limited liability companies, or LLCs, (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross revenue for income tax purposes must consist of investment income. Absent the Taxable Subsidiaries, a portion of the gross income of these income-producing investments or of any LLC (or other pass-through entity) portfolio investment, as the case may be, would flow through directly to us for the 90% test. To the extent that such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur significant federal income taxes. The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiaries is taxed to the Taxable Subsidiaries and does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages. We do not consolidate the Taxable Subsidiaries for income tax purposes, with the exception of Texas Margins Tax, which is an entity level tax. The Taxable Subsidiaries may generate income tax expense because of the Taxable Subsidiaries' ownership of the portfolio companies. We reflect any such income tax expense on our Statements of Operations.

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**Impact of Economic and Geopolitical Events on the Oil and Gas Sector—** The substantial volatility in world markets has been prominent in the oil and gas sector, with WTI oil prices reaching a multi-year high of $130.00 per barrel in March 2022, and gas prices also reaching a multi-year high in mid-year, both due in part to increased demand, the reluctance of U.S. producers and OPEC nations to generate additional supply, and the conflict in Ukraine. Beginning in the second and third quarters of 2022 and largely due to recessionary headwinds and other macroeconomic factors, oil and natural gas prices have retreated substantially. In the case of natural gas, prices have continued to decline through the first quarter of 2023 before stabilizing during the second quarter of 2023. However, recent oil price stability has been a significant factor in increased consolidation activity in the Permian Basin and the Williston Basin where Equus Energy and Morgan E&P, LLC, respectively, hold most of their development rights.

**Basis of Presentation**—In accordance with Article 6 of Regulation S-X under the Securities Act and the Securities Exchange Act of 1934, as amended ("Exchange Act"), we do not consolidate portfolio company investments, including those in which we have a controlling interest. Our interim unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), for interim financial information and in accordance with the requirements of reporting on Form 10-Q and Article 10 of Regulation S-X, under the Exchange Act. Accordingly, they are unaudited and exclude some disclosures required for annual financial statements. We believe that we have made all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of these interim financial statements.

The results of operations for the three months ended June 30, 2023 are not necessarily indicative of results that ultimately may be achieved for the remainder of the year. The interim unaudited financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(2) Liquidity and Financing Arrangements**

**Liquidity**—There are several factors that may materially affect our liquidity during the reasonably foreseeable future. We are evaluating the impact of current market conditions on our portfolio company valuations and their ability to provide current income. We have followed valuation techniques in a consistent manner; however, we are cognizant of current market conditions that might affect future valuations of portfolio securities.

**Cash and Cash Equivalents**—As of June 30, 2023, we had cash and cash equivalents of $16.5 million. We had $23.2 million of our net assets of $40.1 million invested in portfolio securities.

As of December 31, 2022, we had cash and cash equivalents of $19.3 million. We had $15.7 million of our net assets of $35.2 million invested in portfolio securities.

We exclude "Restricted Cash and Temporary Cash Investments" used for purposes of complying with RIC requirements from cash equivalents.

**Restricted Cash and Temporary Cash Investments**—As of June 30, 2023, we had $13.1 million of restricted cash and temporary cash investments, including primarily the proceeds of a quarter-end margin loan that we incurred to maintain the diversification requirements applicable to a RIC. Of this amount, $13.0 million was invested in U.S. Treasury bills and $0.1 million represented a required 1% brokerage margin deposit. These securities were held by a securities brokerage firm and pledged along with other assets to secure repayment of the margin loan. The U.S. Treasury bills matured on July 6, 2023 and we subsequently repaid this margin loan, plus interest.

As of December 31, 2022, we had $6.0 million of restricted cash and of temporary cash investments, including primarily the proceeds of a quarter-end margin loan that we incurred to maintain the diversification requirements applicable to a RIC. Of this amount, $6.0 million was invested in U.S. Treasury bills and $0.06 million represented a required 1% brokerage margin deposit. These securities were held by a securities brokerage firm and pledged along with other assets to secure repayment of the margin loan. The U.S. Treasury bills matured on January 4, 2023 and we subsequently repaid this margin loan, plus interest.

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**Dividends**—So long as we remain a BDC, we will pay out net investment income and/or realized net capital gains, if any, on an annual basis as required under the 1940 Act.

**Investment Commitments**—Under certain circumstances, we may be called on to make follow-on investments in certain portfolio companies. If we do not have sufficient funds to make follow-on investments, the portfolio company in need of the investment may be negatively impacted. Also, our equity interest in the estimated fair value of the portfolio company could be reduced. We had no follow-on commitments as of December 31, 2022.

We have committed to invest up to $10.0 million, via a senior secured debt facility, into Morgan E&P, LLC, our wholly-owned subsidiary engaged in oil and gas development in the Williston Basin region. As of June 30, 2023, Morgan had drawn approximately $750,000 under this facility.

**RIC Borrowings, Restricted Cash and Temporary Cash Investments**—We may periodically borrow sufficient funds to maintain the Fund's RIC status by utilizing a margin account with a securities brokerage firm. We cannot assure you that any such arrangement will be available in the future. If we are unable to borrow funds to make qualifying investments, we may no longer qualify as a RIC. We would then be subject to corporate income tax on the Fund's net investment income and realized capital gains, and distributions to stockholders would be subject to income tax as ordinary dividends. If we remain a BDC and do not become an operating company as described in Note 6 – *Conversion to an Operating Company* below, our failure to continue to qualify as a RIC could be materially adverse to us and our stockholders.

As of June 30, 2023, we borrowed $13.0 million to maintain our RIC status by utilizing a margin account with a securities brokerage firm. We collateralized such borrowings with restricted cash and temporary cash investments in U.S. Treasury bills of $13.1 million.

As of December 31, 2022, we borrowed $6.0 million to maintain our RIC status by utilizing a margin account with a securities brokerage firm. We collateralized such borrowings with restricted cash and temporary cash investments in U.S. Treasury bills of $6.06 million.

**Asset Coverage Ratio**—Under the 1940 Act, BDCs are required to have an asset coverage ratio of 200%, meaning that the maximum debt that may be incurred by a BDC is the BDC's net asset value. Pursuant to amendments made to the 1940 Act in March 2018, BDCs may now, with stockholder or board of directors approval, reduce this ratio to 150%, meaning that the maximum debt that may be incurred by a BDC is two times the BDC's net asset value. In November 2019, we obtained approval of our shareholders to reduce our asset coverage ratio to 150%. This authorization permits Equus to borrow up to twice the value of the Fund's net assets. Other than the margin loan obtained by the Fund from time to time to acquire U.S. Treasury bills to maintain our RIC status as described above, we have not yet undertaken any other additional borrowings.

**Certain Risks and Uncertainties**—Market and economic volatility which has become endemic in the past few years, together with the economic dislocation caused by the onset of the coronavirus, has constrained the availability of debt financing for small and medium-sized companies such as Equus and its portfolio companies. Such debt financing generally has shorter maturities, higher interest rates and fees, and more restrictive terms than debt facilities available in the past. In addition, during these years and continuing into the second quarter of 2023, the price of our common stock remained well below our net asset value, thereby making it undesirable to issue additional shares of our common stock below net asset value.

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Because of these challenges, our near-term strategies shifted from originating debt and equity investments to preserving liquidity necessary to meet our operational needs. Key initiatives that we have previously undertaken to provide necessary liquidity include monetizations, the suspension of dividends and the internalization of management. We are also evaluating potential opportunities that could enable us to effect a change to our business and become an operating company as described in Note 6 – *Conversion to an Operating Company*. We believe we have sufficient liquidity to meet our operating requirements for 12 months from the date of this filing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(3) Significant Accounting Policies**

The following is a summary of significant accounting policies followed by the Fund in the preparation of our financial statements:

**Use of Estimates**—The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Although we believe the estimates and assumptions used in preparing these financial statements and related notes are reasonable in light of known facts and circumstances, actual results could differ from those estimates.

**Valuation of Investments**—For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board has approved a multi-step valuation process each quarter, as described below:

1. Each portfolio company or investment is reviewed by our investment professionals;

2. With certain exceptions as determined by our Management, with respect to investments with a fair value exceeding $2.5 million that have been held for more than one year, we engage independent valuation firms to assist our investment professionals. These independent valuation firms conduct independent valuations and make their own independent assessments;

3. Our Management produces a report that summarizes each of our portfolio investments and recommends a fair value of each such investment as of the date of the report;

4. The Audit Committee of our Board reviews and discusses the preliminary valuation of our portfolio investments as recommended by Management in their report and any reports or recommendations of the independent valuation firms, and then approves and recommends the fair values of our investments so determined to our Board for final approval; and

5. The Board discusses valuations and determines the fair value of each portfolio investment in good faith based on the input of our Management, the respective independent valuation firm, as applicable, and the Audit Committee.

Investments are valued utilizing various methodologies and approaches, including a yield analysis, enterprise value ("EV") analysis, net asset value analysis, liquidation analysis, discounted cash flow analysis, or a combination of methods, as appropriate. The yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV analysis, the EV of a portfolio company is first determined and allocated over the portfolio company's securities in order of their preference relative to one another (i.e., "waterfall" allocation). To determine the EV, we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent M&A transactions and/or a discounted cash flow analysis. The net asset value analysis is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The liquidation analysis is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company's assets. The discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts.

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In estimating the fair values of our equity interest in Equus Energy, we have given more emphasis to a market approach that examines developed and undeveloped reserves and mineral acreage values, as well as a market approach that examines comparable industry transactions involving oil and gas assets in proximity to the leasehold interests held by Equus Energy. In estimating the fair values of our equity interest in Morgan E&P, LLC ("Morgan"), we have given more emphasis to a market approach that examines Morgan's reserves and production multiples, as well as an income approach that examines expected cash flows from the development of leasehold interests held by Morgan. Our management received advice and assistance from a third-party valuation firm to support our determination of the fair value of these investments.

In applying these methodologies, additional factors that we consider in fair value pricing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company's ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; the principal market; and enterprise values, among other factors. Also, any failure by a portfolio company to achieve its business plan or obtain and maintain its financing arrangements could result in increased volatility and result in a significant and rapid change in its value.

Our general intent is to hold our loans to maturity when appraising our privately held debt investments. As such, we believe that the fair value will not exceed the cost of the investment. However, in addition to the previously described analysis involving allocation of value to the debt instrument, we perform a yield analysis assuming a hypothetical current sale of the security to determine if a debt security has been impaired. The yield analysis considers changes in interest rates and changes in leverage levels of the portfolio company as compared to the market interest rates and leverage levels. Assuming the credit quality of the portfolio company remains stable, the Fund will use the value determined by the yield analysis as the fair value for that security if less than the cost of the investment.

We record unrealized depreciation on investments when we determine that the fair value of a security is less than its cost basis, and will record unrealized appreciation when we determine that the fair value is greater than its cost basis.

**Fair Value Measurement**—Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and sets out a fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability. The three levels of the fair value hierarchy are described below:

**Level 1**—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

**Level 2**—Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly; and fair value is determined through the use of models or other valuation methodologies.

**Level 3**—Inputs are unobservable for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The inputs into the determination of fair value are based upon the best information under the circumstances and may require significant management judgment or estimation.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.

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Investments for which prices are not observable are generally private investments in the debt and equity securities of operating companies. A primary valuation method used to estimate the fair value of these Level 3 investments is the discounted cash flow method (although a liquidation analysis, option theoretical, or other methodology may be used when more appropriate). The discounted cash flow approach to determine fair value (or a range of fair values) involves applying an appropriate discount rate(s) to the estimated future cash flows using various relevant factors depending on investment type, including comparing the latest arm's length or market transactions involving the subject security to the selected benchmark credit spread, assumed growth rate (in cash flows), and capitalization rates/multiples (for determining terminal values of underlying portfolio companies). The valuation based on the inputs determined to be the most reasonable and probable is used as the fair value of the investment. In the case of our investments in Equus Energy and Morgan, we also examine acreage values in comparable transactions and assess the impact upon the working interests held by these two portfolio companies. The determination of fair value using these methodologies may take into consideration a range of factors including, but not limited to, the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, financing transactions subsequent to the acquisition of the investment and anticipated financing transactions after the valuation date.

To assess the reasonableness of the discounted cash flow approach, the fair value of equity securities, including warrants, in portfolio companies may also consider the market approach—that is, through analyzing and applying to the underlying portfolio companies, market valuation multiples of publicly-traded firms engaged in businesses similar to those of the portfolio companies. The market approach to determining the fair value of a portfolio company's equity security (or securities) will typically involve: (1) applying to the portfolio company's trailing twelve months (or current year projected) earnings before interest, taxes, depreciation, and amortization ("EBITDA") a low to high range of enterprise value to EBITDA multiples that are derived from an analysis of publicly-traded comparable companies, in order to arrive at a range of enterprise values for the portfolio company; (2) subtracting from the range of calculated enterprise values the outstanding balances of any debt or equity securities that would be senior in right of payment to the equity securities we hold; and (3) multiplying the range of equity values derived therefrom by our ownership share of such equity tranche in order to arrive at a range of fair values for our equity security (or securities). Application of these valuation methodologies involves a significant degree of judgment by Management.

Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we might realize significantly less than the value at which such investment had previously been recorded. With respect to Level 3 investments, where sufficient market quotations are not readily available or for which no or an insufficient number of indicative prices from pricing services or brokers or dealers have been received, we undertake, on a quarterly basis, our valuation process as described above.

We assess the levels of the investments at each measurement date, and transfers between levels are recognized on the subsequent measurement date closest in time to the actual date of the event or change in circumstances that caused the transfer. There were no transfers to or from Level 3 for the six months ended June 30, 2023 and the year ended December 31, 2022.

As of June 30, 2023, investments measured at fair value on a recurring basis are categorized in the tables below based on the lowest level of significant input to the valuations:

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| | | | | |
|:---|:---|:---|:---|:---|
| | | **Fair Value Measurements as of June 30, 2023** | **Fair Value Measurements as of June 30, 2023** | **Fair Value Measurements as of June 30, 2023** |
| <br>***(in thousands)*** |<br>**Total** | **Quoted Prices in**<br>**Active Markets**<br>**for Identical**<br>**Assets**<br>**(Level 1)** | **Significant Other**<br>**Observable**<br>**Inputs**<br>**(Level 2)** | **Significant**<br>**Unobservable**<br>**Inputs**<br>**(Level 3)** |
| Assets |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Investments: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Control investments | $23200 | $— | $— | $23200 |
| Total investments | 23200 |  |  | 23200 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Temporary cash investments | 12989 | 12989 |  |  |
| Total investments and temporary cash investments | $36189 | $12989 | $— | $23200 |

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As of December 31, 2022, investments measured at fair value on a recurring basis are categorized in the tables below based on the lowest level of significant input to the valuations:

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| | | | | |
|:---|:---|:---|:---|:---|
| | | **Fair Value Measurements as of December 31, 2022** | **Fair Value Measurements as of December 31, 2022** | **Fair Value Measurements as of December 31, 2022** |
| <br>***(in thousands)*** |<br>**Total** | **Quoted Prices in**<br>**Active Markets**<br>**for Identical**<br>**Assets**<br>**(Level 1)** | **Significant Other**<br>**Observable**<br>**Inputs**<br>**(Level 2)** | **Significant**<br>**Unobservable**<br>**Inputs**<br>**(Level 3)** |
| Assets |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Investments: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Control investments | $15650 | $— | $— | $15650 |
| Total investments | 15650 |  |  | 15650 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Temporary cash investments | 5998 | 5998 |  |  |
| Total investments and temporary cash investments | $21648 | $5998 | $— | $15650 |

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The following table provides a reconciliation of fair value changes during the six months ended June 30, 2023 for all investments for which we determine fair value using unobservable (Level 3) factors:

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Fair value measurements using significant unobservable inputs (Level 3)** | **Fair value measurements using significant unobservable inputs (Level 3)** | **Fair value measurements using significant unobservable inputs (Level 3)** | **Fair value measurements using significant unobservable inputs (Level 3)** |
| <br>***(in thousands)*** | **Control Investments** | **Affiliate Investments** | **Non-affiliate Investments** | **Total** |
| Fair value as of January 1, 2023 | $15650 | $— | $— | $15650 |
| Change in unrealized appreciation | 6800 |  |  | 6800 |
| Purchases of portfolio securities | 750 |  |  | 750 |
| Fair value as of June 30, 2023 | $23200 | $— | $— | $23200 |

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The following table provides a reconciliation of fair value changes during the six months ended June 30, 2022 for all investments for which we determine fair value using unobservable (Level 3) factors:

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Fair value measurements using significant unobservable inputs (Level 3)** | **Fair value measurements using significant unobservable inputs (Level 3)** | **Fair value measurements using significant unobservable inputs (Level 3)** | **Fair value measurements using significant unobservable inputs (Level 3)** |
| <br>***(in thousands)*** | **Control Investments** | **Affiliate Investments** | **Non-affiliate Investments** | **Total** |
| Fair value as of January 1, 2022 | $13000 | $— | $— | $13000 |
| Change in unrealized appreciation | 2500 |  |  | 2500 |
| Fair value as of June 30, 2022 | $15500 | $— | $— | $15500 |

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Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in discount rates, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase/(decrease) in market yields, discount rates, or an increase/(decrease) in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a corresponding increase/(decrease), respectively, in the fair value of certain of our investments. In the case of our holdings in Equus Energy and Morgan, we also consider acreage value, proved reserve multiples, daily production multiples, and discount rates.

Finally, industry trends, market forecasts, and comparable transactions in sectors in which we hold a Level 3 investment are also taken into account when assessing the value of these investments.

The following table summarizes the significant non-observable inputs in the fair value measurements of our Level 3 investments by category of investment and valuation technique as of June 30, 2023 (fair value expressed in thousands; acreage range expressed in dollars and not rounded):

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | | | | **Range** | **Range** | **Range** |
| <br>***(in thousands)*** | <br>**Fair Value** | <br>**Valuation Techniques** | <br>**Unobservable Inputs** | **Minimum** | **Maximum** | **Weighted Average** |
| **Limited liability company investments** |  |  |  |  |  |  |
|  |  |  | Acreage Value (per acre) | $1500 | $11000 | $4062 |
| &nbsp;&nbsp;&nbsp;&nbsp;Equus Energy, LLC | $15650 | Guideline Transaction Method | Proved Reserve Multiple | 4.5x | 11.9x | 10.2x |
|  |  |  | Daily Production Multiple | 18,578.7x | 50,861.2x | 45,069.6x |
|  |  |  | Discount Rate | 11.3% | 11.3% | 11.3% |
|  |  |  | Proved Reserve Multiple | 9,198x | 11,337x | 10,267.5x |
|  |  | Guideline Public Company Method | Daily Production Multiple | 34,150x | 53,622x | 43,886x |
| &nbsp;&nbsp;&nbsp;&nbsp;Morgan E&P, LLC | 6800 |  | Proved Reserve Multiple | 8,878x | 12,716x | 10,797x |
|  |  | Guideline Transaction Method | Daily Production Multiple | 36,221x | 60,083x | 48,152x |
|  |  | Discounted Cash Flow | Discount Rate | 10.7% | 12.3% | 11.3% |
| **Senior debt** |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Morgan E&P, LLC | 750 | Yield analysis | Discount for lack of marketability | 12.0% | 12.1% | 12.05% |
|  | $23200 |  |  |  |  |  |

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The following table summarizes the significant non-observable inputs in the fair value measurements of our Level 3 investments by category of investment and valuation technique as of December 31, 2022 (fair value expressed in thousands; acreage range expressed in dollars and not rounded):

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | | | | **Range** | **Range** | **Range** |
| <br>***(in thousands)*** | <br>**Fair Value** | <br>**Valuation Techniques** | <br>**Unobservable Inputs** | **Minimum** | **Maximum** | **Weighted Average** |
| Limited liability company investments |  |  |  |  |  |  |
|  |  |  | Acreage Value (per acre) | $1500 | $11000 | $4062 |
| &nbsp;&nbsp;&nbsp;&nbsp;Equus Energy, LLC | $15650 | Guideline Transaction Method | Proved Reserve Multiple | 4.0x | 9.5x | 8.2x |
|  |  |  | Daily Production Multiple | 18,578.7x | 47,513.7x | 40,284.4x |
|  |  | Discounted Cash Flow | Discount Rate | 11.0% | 11.0% | 11.0% |

---

Because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values, amounting to $23.2 million as of June 30, 2023 and $15.7 million as of December 31, 2022, respectively, our fair value determinations may materially differ from the values that would have been used had a ready market existed for these securities.

We adjust our net asset value for the changes in the value of our publicly held securities, if applicable, and material changes in the value of private securities, generally determined on a quarterly basis or as announced in a press release, and report those amounts to Lipper Analytical Services, Inc. Our net asset value appears in various publications, including *Barron's* and *The Wall Street Journal*.

**Investment Transactions**—Investment transactions are recorded on the accrual method. Realized gains and losses on investments sold are computed on a specific identification basis.

We classify our investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, "Control Investments" are defined as investments in companies in which the Fund owns more than 25% of the voting securities or maintains greater than 50% of the board representation. Under the 1940 Act, "Affiliate Investments" are defined as those non-control investments in companies in which we own between 5% and 25% of the voting securities. Under the 1940 Act, "Non-affiliate Investments" are defined as investments that are neither Control Investments nor Affiliate Investments. See also Note 4 for discussion of related party investment transactions.

**Interest and Dividend Income Recognition**—We record interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis to the extent that we expect to collect such amounts. We accrete or amortize discounts and premiums on securities purchased over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discount and/or amortization of premium on debt securities. We stop accruing interest on investments when we determine that interest is no longer collectible. We may also impair the accrued interest when we determine that all or a portion of the current accrual is uncollectible. If we receive any cash after determining that interest is no longer collectible, we treat such cash as payment on the principal balance until the entire principal balance has been repaid, before we recognize any additional interest income. We will write off uncollectible interest upon the occurrence of a definitive event such as a sale, bankruptcy, or reorganization of the relevant portfolio interest. Dividend income is recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution.

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**Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation**—Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period net of recoveries and realized gains or losses from in-kind redemptions. Net change in unrealized appreciation or depreciation reflects the net change in the fair value of the portfolio company investments and financial instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial instruments to realized gains or losses.

**Payment in Kind Interest (PIK)—**From time to time, we have loans in our portfolio that may pay PIK interest. We add PIK interest, if any, computed at the contractual rate specified in each loan agreement, to the principal balance of the loan and recorded as interest income. To maintain our status as a RIC, we must pay out to stockholders this non-cash source of income in the form of dividends even if we have not yet collected any cash in respect of such investments. To the extent we remain BDC and a RIC, we will continue to pay out net investment income and/or realized capital gains, if any, on an annual basis as required under the 1940 Act.

**Earnings Per Share**—Basic and diluted per share calculations are computed utilizing the weighted-average number of shares of common stock outstanding for the period. In accordance with ASC 260, Earnings Per Share, the unvested shares of restricted stock awarded pursuant to our equity compensation plans are participating securities and, therefore, are included in the basic earnings per share calculation. As a result, for all periods presented, there is no difference between diluted earnings per share and basic earnings per share amounts.

**Distributable Earnings**—The components that make up distributable earnings (accumulated undistributed deficit) on the Condensed Balance Sheet as of June 30, 2023 and December 31, 2022 are as follows:

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| | | |
|:---|:---|:---|
|  | **June 30,** <br>**2023** | **December 31,** <br>**2022** |
| Accumulated undistributed net investment losses | $(49428) | $(47430) |
| Unrealized appreciation of portfolio securities, net | 14339 | 7539 |
| Accumulated undistributed net capital gains | 442 | 430 |
| Accumulated deficit | $(34647) | $(39461) |

---

**Taxes**—So long as we remain a BDC, we intend to comply with the requirements of the Internal Revenue Code necessary to qualify as a RIC and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to stockholders. We borrow money from time to time to maintain our tax status under the Internal Revenue Code as a RIC. See Note 1 for discussion of Taxable Subsidiaries and see Note 2 for further discussion of the Fund's RIC borrowings.

Texas margin tax applies to legal entities conducting business in Texas. The margin tax is based on our Texas sourced taxable margin. The tax is calculated by applying a tax rate to a base that considers both revenue and expenses and therefore has the characteristics of an income tax. As a result, we have no provision for margin tax expense for the three months ended June 30, 2023, and we expect no in state income tax for the year ended December 31, 2022.

**Cash Flows**—For purposes of the Statements of Cash Flows, we consider all highly liquid temporary cash investments purchased with an original maturity of three months or less to be cash equivalents. We exclude "Restricted Cash and Temporary Cash Investments" used for purposes of complying with RIC requirements from cash equivalents.

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The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported within the consolidated balance sheet that sums to the total of the same amounts shown in the consolidated statement of cash flows as of June 30, 2023 and December 31, 2022:

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| | | |
|:---|:---|:---|
|  | **June 30,** <br>**2023** | **December 31,** <br>**2022** |
| Cash and cash equivalents at end of period | $16407 | $19224 |
| Restricted cash at end of period | 130 | 60 |
| Cash and cash equivalents and restricted cash at end of period | $16537 | $19284 |

---

**Recent Accounting Standards—**We consider the applicability and impact of all accounting standard updates ("ASU") issued by the Financial Accounting Standards Board ("FASB"). ASUs not listed below were assessed and either determined to be not applicable or expected to have minimal impact on our financial statements.

**Accounting Standards Not Yet Adopted**— In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurement (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions", which was issued to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The new guidance is effective for interim and annual periods beginning after December 15, 2023. The Fund is currently evaluating the impact of the new standard on the Company's consolidated financial statements and related disclosures.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(4) Related Party Transactions and Agreements**

Except as noted below, as compensation for services to the Fund, each Independent Director receives an annual fee of $40,000 paid quarterly in arrears, a fee of $2,000 for each meeting of the Board of Directors or committee thereof attended in person, a fee of $1,000 for participation in each telephonic meeting of the Board or committee thereof, and reimbursement of all out-of-pocket expenses relating to attendance at such meetings. The chair of each of our standing committees (audit, compensation, and nominating and governance) also receives an annual fee of $50,000, payable quarterly in arrears. We may also pay other one-time or recurring fees to members of our Board of Directors in special circumstances. None of our interested directors receive annual fees for their service on the Board of Directors.

In respect of services provided to the Fund by members of the Board not in connection with their roles and duties as directors, the Fund pays a rate of $300 per hour for such services.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(5) Portfolio Securities**

During the six months ended June 30, 2023, we made a $0.75 million debt investment in Morgan E&P, LLC ("Morgan") and also invested $1.00 in the equity of Morgan. In May 2023, we entered into an agreement with Morgan to provide it up to $10.0 million in senior debt financing, subject to a schedule of disbursements and draws that we determine. Morgan utilized $500,000 of this facility to acquire 4,747.52 net acres, in the Bakken/Three Forks formation in the Williston Basin of North Dakota as described in Note 9 - Morgan E&P, LLC below. As of June 30, 2023, Morgan had drawn $0.75 million under this facility. We recorded a change in fair value of $6.8 million. The increase was principally due to our expectation of Morgan drilling new wells and generating operating cash flow therefrom in the near future in the Bakken shale region where it holds leasehold acreage rights.

During the six months ended June 30, 2023, notwithstanding price decreases for oil and natural gas in the period, primarily due to stable prices for mineral acreage transactions in the principal region where Equus Energy, LLC, holds its leasehold interests, we recorded no change in the fair value of this investment.

During the six months ended June 30, 2022, with respect to our holding in Equus Energy, LLC, we recorded an increase in the fair value of this investment by $2.5 million. Such change in fair value was principally due to increases in mineral acreage prices and a substantial increase in short-and long-term prices for crude oil and natural gas.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(6) Conversion to an Operating Company**

**Authorization to Withdraw BDC Election**—In 2022, holders of a majority of the outstanding common stock of the Fund approved our cessation as a BDC under the 1940 Act and authorized our Board to cause the Fund's withdrawal of its election to be classified as a BDC, effective as of a date designated by the Board and our Chief Executive Officer. Although this authorization has since expired, we expect to receive a further authorization from our shareholders later in 2023 as a consequence of our expressed intent to transform Equus into an operating company. Notwithstanding any such authorization to withdraw our BDC election, we will not submit any such withdrawal unless and until Equus has entered into a definitive agreement to effect a transformative transaction. Further, even if we are again authorized to withdraw our election as a BDC, we will require a subsequent affirmative vote from holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our business. While we are presently evaluating various opportunities that could enable us to accomplish this transformation, we cannot assure you that we will be able to do so within any particular time period or at all, and, although we expect that our shareholders will grant a further authorization, we do not expect to cause the Fund to withdraw its election to be classified as BDC prior to September 30, 2023. Moreover, we cannot assure you that the terms of any such transformative transaction would be acceptable to us.

**Increase in Authorized Shares—**On January 20, 2021, holders of a majority of the outstanding common stock of the Fund approved the restatement of our Certificate of Incorporation to increase the number of our authorized shares of common stock from 50,000,000 to 100,000,000, and the number of our authorized shares of preferred stock from 5,000,000 to 10,000,000. The increase is intended to help facilitate the transformation of Equus into an operating company and provide sufficient authorized shares to evaluate larger business concerns as possible acquisition or merger candidates.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(7) 2016 Equity Incentive Plan**

**Share-Based Incentive Compensation—**On June 13, 2016, our shareholders approved the adoption of our 2016 Equity Incentive Plan ("Incentive Plan"). On January 10, 2017, the SEC issued an order approving the Incentive Plan and certain awards intended to be made thereunder. The Incentive Plan is intended to promote the interests of the Fund by encouraging officers, employees, and directors of the Fund and its affiliates to acquire or increase their equity interest in the Fund and to provide a means whereby they may develop a proprietary interest in the development and financial success of the Fund, to encourage them to remain with and devote their best efforts to the business of the Fund, thereby advancing the interests of the Fund and its stockholders. The Incentive Plan is also intended to enhance the ability of the Fund and its affiliates to attract and retain the services of individuals who are essential for the growth and profitability of the Fund. The Incentive Plan permits the award of restricted stock as well as common stock purchase options. The maximum number of shares of common stock that are subject to awards granted under the Incentive Plan is 2,434,728 shares. The term of the Incentive Plan will expire on June 13, 2026. On March 17, 2017, we granted awards of restricted stock under the Incentive Plan to certain of our directors and executive officers in the aggregate amount of 844,500 shares. The awards are each subject to a vesting requirement over a 3-year period unless the recipient thereof is terminated or removed from their position as a director or executive officer without "cause", or as a result of constructive termination, as such terms are defined in the respective award agreements entered into by each of the recipients and the Fund. As of March 31, 2020, all awards granted under the Incentive Plan were fully vested. We account for share-based compensation using the fair value method, as prescribed by ASC 718. Accordingly, for restricted stock awards, we measure the grant date fair value based upon the market price of our common stock on the date of the grant and amortize the fair value of the awards as share-based compensation expense over the requisite service period, which is generally the vesting term.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(8) Equus Energy, LLC**

Equus Energy, LLC ("Equus Energy") was formed in November 2011 as a wholly-owned subsidiary of the Fund to make investments in companies in the energy sector, with particular emphasis on income-producing oil & gas properties. In December 2011, we contributed $250,000 to the capital of Equus Energy. On December 27, 2012, we invested an additional $6.8 million in Equus Energy for the purpose of additional working capital and to fund the purchase of $6.6 million in working interests presently consisting of 136 producing and non- producing oil and gas wells. On September 30, 2020, the Fund provided an additional $0.6 million in capital to Equus Energy for the purpose of additional working capital. On June 30, 2021, the Fund provided an additional $0.35 million in capital to Equus Energy for the purpose of additional working capital. On December 31, 2022, the Fund provided an additional $0.15 million in capital to Equus Energy for the purpose of additional working capital. The working interests include associated development rights of approximately 21,320 acres situated on 9 separate properties in Texas and Oklahoma. The working interests range from a de minimus amount to 50% of the leasehold that includes these wells.

The wells are operated by a number of operators, including Burk Royalty, which has operating responsibility for all of Equus Energy's 22 producing well interests located in the Conger Field, a productive oil and gas field on the edge of the Permian Basin that has experienced successful gas and hydrocarbon extraction in multiple formations. Equus Energy, which holds a 50% working interest in each of these Conger Field wells, is seeking to effect a recompletion program of existing Conger Field wells to the Wolfcamp formation, a zone containing oil as well as gas and natural gas liquids. Part of Equus Energy's acreage rights described above also includes a 50% working interest in possible new drilling to the base of the Canyon formation (appx. 8,500 feet) on 2,400 acres in the Conger Field. Also included in the interests acquired by Equus Energy are working interests of 7.5% and 2.5% in the Burnell and North Pettus Units, respectively, which collectively comprise approximately 13,000 acres located in the area known as the "Eagle Ford Shale" play.

The substantial volatility in world markets has been prominent in the oil and gas sector, with WTI oil prices reaching a multi-year high of $130.00 per barrel in March 2022, and gas prices also reaching a multi-year high in mid-year, both due in part to increased demand, the reluctance of U.S. producers and OPEC nations to generate additional supply, and the conflict in Ukraine. Beginning in the second and third quarters of 2022 and largely due to recessionary headwinds and other macroeconomic factors, oil and natural gas prices have retreated substantially. In the case of natural gas, prices have continued to decline through the first quarter of 2023 before stabilizing by the end of the second quarter of 2023. Recent oil price stability has been a significant factor in increased consolidation activity in the Permian Basin where Equus Energy holds most of its development rights. Given such price volatility, the U.S. Energy Information Administration has modified its 2023 oil and gas price forecasts accordingly, with an July 2023 estimate of $85.00 per barrel for Brent crude by the end of 2023, and $2.62 per MMBTU for gas prices by the end of the year.

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Notwithstanding present pricing conditions and forecasts for the remainder of 2023, operators of the leasehold interests held by Equus Energy have not yet undertaken significant capital expenditures, which could have a material adverse effect upon the operations and long-term financial condition of Equus Energy. To conserve existing cash resources or create additional cash resources during the next year, Equus Energy intends to either: (i) attempt to secure equity or debt financing from one or more institutional sources, which sources may include the Fund, a commercial lender, or other investors, (ii) request that its operators shut-in additional wells, (iii) sell certain of its oil and gas holdings, or (iv) undertake a combination of the foregoing. However, we cannot assure you that Equus Energy will be able to implement these plans successfully, or that such plans will generate sufficient liquidity to continue as a going concern. The factors discussed above, therefore, raise substantial doubt about Equus Energy's ability to continue as a going concern.

**Going-Concern**—The accompanying unaudited condensed consolidated financial statements of Equus Energy have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business. As such, the unaudited condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of assets and their carrying amount, or the amount and classification of liabilities that may result should Equus Energy be unable to continue as a going concern. However, Equus Total Return, Inc. has agreed to and will continue to provide financial support to Equus Energy for at least one year and one day past the date of this report and Equus Total Return has the ability and intent to provide the financial support. As such, in connection with continued support from Equus Total Return, management concluded this plan alleviates the substantial doubt that was raised about the ability of Equus Energy to continue as a going concern for at least twelve months from the date the financial statements were issued.

**Revenue and Income**—During the three months ended June 30, 2023, Equus Energy's revenue, operating revenue less direct operating expenses, and net gain were $0.2 million, $0.03 million, and $0.6 million, respectively, as compared revenue, operating revenue less direct operating expenses, and net loss were $0.3 million, $0.15 million, and ($0.1) million, respectively, for the three months ended June 30, 2022.

During the six months ended June 30, 2023, Equus Energy's revenue, operating revenue less direct operating expenses, and net gain were $0.3 million, $0, and $0.03 million, respectively, as compared to revenue, operating revenue less direct operating expenses, and net loss which were $0.6 million, $0.5 million, and $0.23 million, respectively, for the three months ended June 30, 2022.

**Capital Expenditures**—During the six months ended June 30, 2023 and June 30, 2022, Equus Energy's investment, respectively, in capital expenditures for small repairs and improvements was not significant.

We do not consolidate Equus Energy or its wholly-owned subsidiaries and accordingly only the value of our investment in Equus Energy is included on our balance sheets. Our investment in Equus Energy is valued in accordance with our normal valuation procedures and is based in part on a reserve report prepared for Equus Energy by Lee Keeling & Associates, Inc., an independent petroleum engineering firm, the transactions and values of comparable companies in this sector, and the estimated value of leasehold mineral interests associated with the acreage held by Equus Energy. A valuation of Equus Energy was performed by a third-party valuation firm, who recommended a value range of Equus Energy consistent with the fair value determined by our Management (See Schedule of Investments).

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Below is summarized unaudited condensed consolidated financial information for Equus Energy as of June 30, 2023 and December 31, 2022 and for the six months ended June 30, 2023 and 2022, respectively (in thousands):

**<u>EQUUS ENERGY, LLC</u>**

**<u>Unaudited Condensed Consolidated Balance Sheets</u>**

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| | | |
|:---|:---|:---|
|  | **June 30,**<br>**2023** | **December 31,**<br>**2022** |
| Assets |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | $274 | $205 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | 159 | 208 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other current assets | 15 | 12 |
| Total current assets | 448 | 425 |
| Oil and gas properties | 8157 | 8155 |
| Less: accumulated depletion, depreciation and amortization | (8095) | (8095) |
| &nbsp;&nbsp;&nbsp;&nbsp;Net oil and gas properties | 62 | 60 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $510 | $485 |
| Liabilities and member's deficit |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and other | $125 | $110 |
| &nbsp;&nbsp;&nbsp;&nbsp;Due to affiliate | $326 | 350 |
| Total current liabilities | $451 | 460 |
| Asset retirement obligations | 217 | 216 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 668 | 676 |
| Total member's deficit | (158) | (191) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and member's deficit | $510 | $485 |

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Revenue and direct operating expenses for the various oil and gas assets included in the unaudited condensed consolidated statements of operations below represent the net collective working and revenue interests acquired by Equus Energy.

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**<u>EQUUS ENERGY, LLC</u>**

**<u>Unaudited Condensed Consolidated Statements of Operations</u>**

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Six Months ended June 30,** | **Six Months ended June 30,** |
|  | **2023** | **2022** | **2023** | **2022** |
| Operating revenue | $180 | $294 | $318 | $621 |
| Operating expenses |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Direct operating expenses | 146 | 145 | 312 | 129 |
| &nbsp;&nbsp;&nbsp;&nbsp;General and administrative | 451 | 255 | 971 | 468 |
| &nbsp;&nbsp;&nbsp;&nbsp;Depletion, depreciation, amortization and accretion | 1 | 1 | 2 | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other income | (1000) |  | (1000) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating (income) expenses | (402) | 401 | 285 | 598 |
| Net income (loss) | 582 | (107) | 33 | 23 |

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**<u>EQUUS ENERGY, LLC</u>**

**<u>Unaudited Condensed Consolidated Statements of Cash Flows</u>**

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| | | |
|:---|:---|:---|
|  | **Six months ended June 30,** | **Six months ended June 30,** |
|  | **2023** | **2022** |
| Cash flows from operating activities: |  |  |
| Net loss | $33 | $23 |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depletion, depreciation and amortization | 2 | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accretion expense |  | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;Changes in operating assets and liabilites: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | 49 | (160) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | (3) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and other | 15 | (11) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to Parent | (24) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) operating activities | 72 | (146) |
| Cash flows from investing activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment in oil & gas properties | (3) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash (used in) provided by investing activities | (3) |  |
| Net increase (decrease) in cash | 69 | (146) |
| Cash and cash equivalents at beginning of period | 205 | 640 |
| Cash and cash equivalents at end of period | $274 | $494 |

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**Critical Accounting Policies for Equus Energy**

**Oil & Gas Properties—**Equus Energy and its wholly-owned subsidiary EQS Energy Holdings, Inc. (collectively, "the Company") follow the Full Cost Method of Accounting for oil and gas properties. Under the full cost method, all costs associated with property acquisition, exploration, and development activities are capitalized. Capitalized costs include lease acquisitions, geological and geophysical work, delay rentals, costs of drilling, completing and equipping successful and unsuccessful oil and gas wells and related costs. Gains or losses are normally not recognized on the sale or other disposition of oil and gas properties. Gains or losses are normally reflected as an adjustment to the full cost pool. Any excess of the net book value of proved oil and gas properties over the ceiling is charged to expense and reflected as additional impairment in the accompanying statements of operations.

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The capitalized costs of oil and gas properties, plus estimated future development costs relating to proved reserves and estimated cost of dismantlement and abandonment, net of salvage value, are amortized on a unit-of-production method over the estimated productive life of the proved oil and gas reserves. Unevaluated oil and gas properties are excluded from this calculation. Depletion, depreciation, amortization and accretion expense for the Company's oil and gas properties totaled $2 thousand for the six months ended June 30, 2023 and 2022, respectively.

Capitalized oil and gas property costs are limited to an amount (the ceiling limitation) equal to the sum of the following:

(a) As of June 30, 2023, the present value of estimated future net revenue from the projected production of proved oil and gas reserves, calculated at the simple arithmetic average, first-day-of-the-month prices during the twelve-month period before the balance sheet date (with consideration of price changes only to the extent provided by contractual arrangements) and a discount factor of 10%;

(b) The cost of investments in unproved and unevaluated properties excluded from the costs being amortized; and

(c) The lower of cost or estimated fair value of unproved properties included in the costs being amortized.

When it is determined that oil and gas property costs exceed the ceiling limitation, an impairment charge is recorded to reduce its carrying value to the ceiling limitation. The Company recognized an impairment loss on its oil and gas properties during the three and six months ended June 30, 2023 and 2022 of $0, respectively.

The costs of certain unevaluated leasehold acreage and certain wells being drilled are not amortized. The Company excludes all costs until proved reserves are found or until it is determined that the costs are impaired. Costs not amortized are periodically assessed for possible impairment or reduction in value. If a reduction in value has occurred, costs being amortized are increased accordingly.

**Revenue Recognition—**The Company recognizes revenue in accordance with Accounting Standards Codification ("ASC") 606, *Revenue from Contracts with Customers.*

The Company's revenue is generated primarily from the sale of oil, gas and natural gas liquids ("NGL") produced from working interests and to a lesser extent from royalty interests in oil and gas properties owned by the Company. As a working interest owner, the Company is responsible for the incurred production expenses proportionate to the interest stipulated in the operating agreement. As a non-operator, the Company does not manage the daily well operations, which are borne by the well operator. Sales of oil, gas and NGLs are recognized at the time control of the product is transferred to the customer.

Various arrangements amongst the eleven different oil and gas properties all differ in some respects, although they do share the commonality that, as a non-operating working interest holder, the Company does not engage in the selling process, but instead relies on the operator, as their selling agent, for negotiating and determining pricing, volume, and delivery terms. Such pricing terms are often a function of a specified discount from the daily/monthly NYMEX or Henry Hub average. The discount is usually based on differentials such as distance of the field/wells from the distribution node or the buyer's storage facility, as well as the quality of the product itself (i.e., in the case of oil, its gravity).

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Revenue is measured based on consideration specified in the contract with the customer, and excludes any amounts collected on behalf of third parties. The Company recognizes revenue in the amount that reflects the consideration it expects to be entitled to in exchange for transferring control of those goods to the customer. The contract consideration is typically allocated to specific performance obligations in the contract according to the terms of the contract. Each unit of oil or gas is considered a separate performance obligation under the contract. Wells are spot measured once a month to determine production and the composition of each of the products (i.e. oil, gas, NGLs) from the well. Each month the consideration obtained by the operator is allocated to the related performance obligations.

*Performance Obligations*

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered.

Depending on the contract and commodity, there are various means by which upstream entities can transfer control (i.e., at the wellhead, inlet, tailgate of the processing plant, or a location where the product is delivered to a third party). The Company has control of the commodity before it is extracted, therefore consideration must be given to whether the transfer of control of the commodity is to the operator or to the end customer at the point of sale.

Unless special arrangements are entered into, the Company's performance obligations are generally considered performed when control of the extracted commodity transfers when it is delivered to the end customer at the agreed-upon market or index price. At the end of each month, when the performance obligation is satisfied, the variable consideration can be reasonably estimated. Variances between the Company's estimated revenue and actual payments are recorded in the month the payment is received.

*Principal vs. Agent*

While the guidance on principal versus agent considerations is similar to legacy GAAP, the key difference is that ASC 606 focuses on control of the specified goods and services as the overarching principle for entities to consider when determining whether they are acting as a principal or an agent. This could result in entities reaching different conclusions than they did under legacy GAAP.

An entity acting as a principal records revenue on a gross basis if it controls a promised good or service before transferring that good or service to the customer. An entity is an agent if it does not control the promised good or service before transfer to the customer. If the entity is an agent, it records as revenue the net amount it retains for its agency services. However, due to the uncertainty of the variable pricing component and the separation of expenses billed to the Company from the consideration processed and paid by the operator, the revenue is recorded at net.

Under the Company's normal operating activity arrangements, the operator is responsible for negotiating, fulfilling and collecting the agreed-upon amount from the sale with the end customer and is, therefore, determined to be acting as agent on behalf of the Company. The principal versus agent consideration will continue to be assessed for new contracts, both within and outside the company's normal operating activities.

**Income Taxes**—A limited liability company is not subject to the payment of federal income taxes as components of its income and expenses flow through directly to the members. However, the Company is subject to certain state income taxes. Texas margin tax applies to legal entities conducting business in Texas. The margin tax is based on our Texas sourced taxable margin. The tax is calculated by applying a tax rate to a base that considers both revenue and expenses and therefore has the characteristics of an income tax. Taxable Subsidiaries may generate income tax expense because of the Taxable Subsidiaries' ownership of the portfolio companies. We reflect any such income tax expense on our Statements of Operations. The Company had no federal income tax expense for the six months ending June 30, 2023 and June 30, 2022, respectively.

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**Asset Retirement Obligations**—The fair value of asset retirement obligations are recorded in the period in which they are incurred if a reasonable estimate of fair value can be made, and the corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. The fair value of the asset retirement obligation is measured using expected future cash outflows discounted at the Company's credit- adjusted risk-free interest rate. Fair value, to the extent possible, should include a market risk premium for unforeseeable circumstances. No market risk premium was included in the Company's asset retirement obligation fair value estimate since a reasonable estimate could not be made. The liability is accreted to its then present value each period, and the capitalized cost is depleted or amortized over the estimated recoverable reserves using the units-of-production method.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(9) Morgan E&P, LLC**

Morgan E&P, LLC ("Morgan") was organized by the Fund on April 3, 2023 as a Delaware limited liability company and a wholly-owned subsidiary of the Fund. On May 22, 2023, Morgan completed the acquisition of 4,747.52 net acres, in the Bakken/Three Forks formation in the Williston Basin of North Dakota, with additional acreage to be acquired over the coming months of up to 6,705.52 net acres. The acreage and associated mineral rights were acquired from Pro Energy I LLC ("Pro Energy"), a company whose principals have decades of oil and gas experience and who have themselves drilled over 1,800 horizontal wells in the Williston Basin over a 10-year period.

Under the terms of the Purchase and Sale Agreement entered into by Morgan and Pro Energy, Morgan is required to drill and complete a minimum of six wells within 18 months of receiving the first drilling permits. The average cost of drilling a new horizontal well is approximately $8.2 million. Morgan will receive an average net revenue interest ("NRI") of 80% in the production of any wells drilled, and after operating expenses are deducted from the NRI, Pro Energy shall receive a carried interest for 20% of these net cash flows.

In May 2023, we entered into an agreement with Morgan to provide it up to $10.0 million in senior debt financing, subject to a schedule of disbursements and draws that we determine. As of June 30, 2023, Morgan had drawn $0.75 million under this facility.

**Going-Concern**—The accompanying unaudited condensed consolidated financial statements of Morgan have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business. As such, the unaudited condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of assets and their carrying amount, or the amount and classification of liabilities that may result should Morgan be unable to continue as a going concern. However, Equus Total Return, Inc. has agreed to and will continue to provide financial support to Morgan for at least one year and one day past the date of this report and Equus Total Return has the ability and intent to provide the financial support. As such, in connection with continued support from Equus Total Return, management concluded this plan alleviates the substantial doubt that was raised about the ability of Morgan Energy to continue as a going concern for at least twelve months from the date the financial statements were issued.

We do not consolidate the financial results of Morgan with the financial results of the Fund and, accordingly, only the value of our investment in Morgan is included on our balance sheets. Our investment in Morgan is valued in accordance with our normal valuation procedures and is based in part on a reserve report prepared for Morgan by Cawley, Gillespie, & Associates, Inc., an independent petroleum engineering firm, the transactions and values of comparable companies in this sector, and the estimated value of leasehold mineral interests associated with the acreage held by Morgan. A valuation of Morgan was performed by a third-party valuation firm, who recommended a value range of Morgan consistent with the fair value determined by our Management (See Schedule of Investments).

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Below is summarized unaudited condensed consolidated financial information for Morgan E&P, LLC as of June 30, 2023 and for the period from inception (April 3, 2023) through June 30, 2023 (in thousands):

**<u>MORGAN E&P, LLC</u>**

**<u>Unaudited Condensed Consolidated Balance Sheet</u>**

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| | |
|:---|:---|
|  | **June 30,**<br>**2023** |
| Assets |  |
| Current assets: |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | $123 |
| Total current assets | 123 |
| Oil and gas properties | 500 |
| Other non-current assets: |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Fixed Assets | 12 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other non-current assets, net | 12 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $635 |
| Liabilities and member's deficit |  |
| Current liabilities: |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued interest payable | $8 |
| &nbsp;&nbsp;&nbsp;&nbsp;Due to Parent | 13 |
| Total current liabilities | 21 |
| NON CURRENT LIABILITIES: |  |
| Notes Payable | 750 |
| Total non-current liabilities | 750 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 771 |
| Total member's deficit | (136) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and member's deficit | $635 |

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**<u>MORGAN E&P, LLC</u>**

**<u>Unaudited Condensed Consolidated Statement of Operations</u>**

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| | |
|:---|:---|
|  | **From inception** <br>**(April 3, 2023)** <br>**through**<br>**June 30, 2023** |
| Operating revenue | $— |
| Other expense |  |
| &nbsp;&nbsp;&nbsp;&nbsp;General and administrative | 128 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest expense | 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other expense | 136 |
| Net loss | $(136) |

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**<u>MORGAN E&P, LLC</u>**

**<u>Unaudited Condensed Consolidated Statement of Cash Flows</u>**

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| | |
|:---|:---|
|  | **From inception** <br>**(April 3, 2023)** <br>**through**<br>**June 30, 2023** |
| Cash flows from operating activities: |  |
| Net loss | $(136) |
| &nbsp;&nbsp;&nbsp;&nbsp;Changes in operating assets and liabilites: |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | (12) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and other | 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to Parent | 13 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in operating activities | (127) |
| Cash flows from investing activities: |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment in oil & gas properties | (500) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities | (500) |
| Cash flows from financing activities: |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Due to Parent | 750 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by investing activities | 750 |
| Net increase in cash | 123 |
| Cash and cash equivalents at beginning of period |  |
| Cash and cash equivalents at end of period | $123 |

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**Critical Accounting Policies for Morgan**

**Acquisitions**—Morgan evaluates each acquisition of oil and gas properties to determine whether each should be accounted for as an acquisition of assets or business in accordance with Accounting Standards Update No. 2017-01: Business Combinations (Topic 805) Clarifying the Definition of a Business ("ASU 2017-01").

Asset acquisitions are recorded at the cost of acquiring the property. The results of operations of the oil and gas properties acquired in the Company's acquisitions have been included in the consolidated financial statements since the closing dates of the respective acquisitions. A business combination may result in the recognition of a bargain purchase gain or goodwill based on the measurement of the fair value of the assets and liabilities acquired at the acquisition date as compared to the fair value of consideration transferred, adjusted for purchase price adjustments. The initial accounting for business combinations may not be complete and adjustments to provisional amounts, or recognition of additional assets acquired or liabilities assumed, may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the acquisition dates.

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**Oil & Gas Properties**—The method of accounting for oil and natural gas properties determines what costs are capitalized and how these costs are ultimately matched with revenue and expenses. Morgan uses the full cost method of accounting for oil and natural gas properties. Under the full cost method, all direct costs and certain indirect costs associated with the acquisition, exploration, and development of oil and natural gas properties are capitalized.

Oil and gas properties include costs that are excluded from costs being depleted or amortized. Oil and natural gas property costs excluded represent investments in unproved properties and include non-producing leasehold, geological and geophysical costs associated with leasehold or drilling interests and exploration costs. The Company excludes these costs until the project is evaluated and proved reserves are established or impairment is determined. Excluded costs are reviewed at least annually to determine if impairment has occurred. The amount of any evaluated or impaired oil and natural gas properties is transferred to capitalized costs being amortized. For the period from inception (April 3, 2023) through June 30, 2023, the Company did not transfer any costs to the full cost pool.

Oil and natural gas properties are depleted using the units-of-production method. The depletion expense is significantly affected by the unamortized historical and future development costs and the estimated proved oil and natural gas reserves. Estimation of proved oil and natural gas reserves relies on professional judgment and the use of factors that cannot be precisely determined. Holding all other factors constant, if proved oil and natural gas reserves were revised upward or downward, earnings would increase or decrease, respectively. Subsequent proved reserve estimates that are materially different from those reported would change the depletion expense recognized during the future reporting period. Proceeds from the sales or disposition of oil and natural gas of proved and unproved properties are accounted for as a reduction of capitalized costs with no gain or loss recognized, unless such reduction would significantly alter the relationship between capitalized costs and proved reserves, in which case the gain or loss is recognized in the statement of income. In general, a significant alteration occurs when the deferral of gains or losses will result in an amortization rate materially different from the amortization rate calculated upon recognition of gains or losses. Abandonments of properties are accounted for as adjustments of capitalized costs with no loss recognized.

Under the full cost accounting rules, total capitalized costs are limited to a ceiling equal to the present value of future net revenue, discounted at 10% per annum, plus the lower of cost or fair value of unevaluated properties less income tax effects (the "ceiling limitation"). Future net revenue used to calculate the ceiling do not include cash outflows associated with settling asset retirement obligations. Morgan performs an annual ceiling test to evaluate whether the net book value of the full cost pool exceeds the ceiling limitation. If capitalized costs (net of accumulated depreciation, depletion, and amortization) are greater than the discounted future net revenue or ceiling limitation, a write-down or impairment of the full cost pool is required. A write-down of the carrying value of the full cost pool is a non-cash charge that reduces earnings and impacts members' equity in the period of occurrence and typically results in lower depreciation, depletion, and amortization expense in future periods. Once incurred, a write-down is not reversible at a later date. The risk that Morgan will be required to write-down the carrying value of oil and natural gas properties increases during a period when oil or gas prices are depressed. In addition, a write-down may occur if estimates of proved reserves are substantially reduced or estimates of future development costs increase significantly.

**Income Taxes**—A limited liability company is not subject to the payment of federal income taxes as components of its income and expenses flow through directly to the members. However, Morgan may be subject to certain state income taxes, inasmuch as it maintains a registered office in Texas. Texas margin tax applies to legal entities conducting business in Texas. The margin tax is based on our Texas sourced taxable margin. The tax is calculated by applying a tax rate to a base that considers both revenue and expenses and therefore has the characteristics of an income tax. Taxable Subsidiaries may generate income tax expense because of the Taxable Subsidiaries' ownership of the portfolio companies. We reflect any such income tax expense on our Statements of Operations. Morgan had no federal income tax expense since inception.

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**Asset Retirement Obligations**—The fair value of asset retirement obligations are recorded in the period in which they are incurred if a reasonable estimate of fair value can be made, and the corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. The fair value of the asset retirement obligation is measured using expected future cash outflows discounted at Morgan's credit- adjusted risk-free interest rate. Fair value, to the extent possible, should include a market risk premium for unforeseeable circumstances. No market risk premium was included in Morgan's asset retirement obligation fair value estimate since a reasonable estimate could not be made. The liability is accreted to its then present value each period, and the capitalized cost is depleted or amortized over the estimated recoverable reserves using the units-of-production method. If the obligation is settled for other than the carrying amount of the liability, the Company will record the difference to the full cost pool.

**Environmental Matters**

We do not believe the existence of current environmental laws or interpretations thereof will materially hinder or adversely affect Morgan's business operations; however, there can be no assurances of future effects on Morgan of new laws or interpretations thereof.

**Environmental Contingencies**

Morgan's activities are subject to local, state, and federal laws and regulations governing environmental quality and pollution control in the United States. The exploration, drilling and production from wells, natural gas facilities, including the operation and construction of pipelines, plants and other facilities for transporting, processing, treating, or storing natural gas and other products, are subject to stringent environmental regulation by state and federal authorities, including the Environmental Protection Agency ("EPA"). Such regulation can increase the cost of planning, designing, installing, and operating such facilities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(10) Subsequent Events**

Management performed an evaluation of the Fund's activity through the date the financial statements were issued, noting the following subsequent events:

On July 6, 2023, our holding in $13.0 million in U.S. Treasury Bills matured and we repaid our margin loan.

On July 26, 2023, we advanced Morgan an additional $0.2 million under its existing credit facility with the Fund.

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 **Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations**

Equus Total Return, Inc. ("we," "us," "our," "Equus," and the "Fund"), a Delaware corporation, was formed on August 16, 1991. Our shares trade on the New York Stock Exchange under the symbol 'EQS'. Our investment strategy seeks to provide the highest total return, consisting of capital appreciation and current income.

The information contained in this section should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Quarterly Report and in conjunction with the financial statements and notes thereto in the Fund's Form 10-K for the year ended December 31, 2022, as filed with the SEC. In addition, some of the statements in this report constitute forward-looking statements. The matters discussed in this Quarterly Report, as well as in future oral and written statements by management of Equus, that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, and the availability of additional capital. In light of these and other uncertainties, the inclusion of a forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward- looking statements contained in this Quarterly Report include statements as to:

• 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;

• changes in interest rates and overall investment activity;

• developments in the global economy 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.

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There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements. For a discussion of factors that could cause our actual results to differ from forward-looking statements contained in this Quarterly Report, please see the discussion in Part II, "*Item 1A. Risk Factors*", and in Part I, "*Item 1A. Risk Factors*" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 ("10-K"). In particular, you should carefully consider the risks we have described in the 10-K and elsewhere in this Quarterly Report concerning our efforts to transform Equus into an operating company, as well as the coronavirus pandemic and the economic impact of the coronavirus on the Fund and our sole remaining portfolio company, as well as on oil and gas markets generally. You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date this Quarterly Report is filed with the SEC.

We attempt to maximize the return to stockholders in the form of current investment income and long-term capital gains by investing in the debt and equity securities of companies with a total enterprise value of between $5.0 million and $75.0 million, although we may engage in transactions with smaller or larger investee companies from time to time. We seek to invest primarily in companies pursuing growth either through acquisition or organically, leveraged buyouts, management buyouts and recapitalizations of existing businesses or special situations. Our income-producing investments consist principally of debt securities including subordinate debt, debt convertible into common or preferred stock, or debt combined with warrants and common and preferred stock. Debt and preferred equity financing may also be used to create long- term capital appreciation through the exercise and sale of warrants received in connection with the financing. To the extent that we remain a BDC, we will seek to achieve capital appreciation by making investments in equity and equity-oriented securities issued by privately-owned companies (and smaller public companies) in transactions negotiated directly with such companies. Given market conditions over the past several years and the performance of our portfolio, our management and Board of Directors believe it is prudent to continue to review alternatives to refine and further clarify the current strategies.

We elected to be treated as a BDC under the 1940 Act. We currently qualify as a RIC for federal income tax purposes and, therefore, are not required to pay corporate income taxes on any income or gains that we distribute to our stockholders. We have a wholly-owned Taxable Subsidiary which holds one of our portfolio investments listed on our Schedules of Investments. The purpose of this Taxable Subsidiary is to permit us to hold certain income-producing investments or portfolio companies organized as limited liability companies, or LLCs, (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross revenue for income tax purposes must consist of investment income. Absent the Taxable Subsidiary, a portion of the gross income of these income- producing investments or of any LLC (or other pass-through entity) portfolio investment, as the case may be, would flow through directly to us for the 90% test. To the extent that such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur significant federal income taxes. The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiary is taxed to the Taxable Subsidiary and does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages. We do not consolidate the Taxable Subsidiary for income tax purposes and they may generate income tax expense because of the Taxable Subsidiary's ownership of the portfolio investment. We reflect any such income tax expense on our Statements of Operations.

**Conversion to an Operating Company**

*Authorization to Withdraw BDC Election*. In 2022, holders of a majority of the outstanding common stock of the Fund approved our cessation as a BDC under the 1940 Act and authorized our Board to cause the Fund's withdrawal of its election to be classified as a BDC, effective as of a date designated by the Board and our Chief Executive Officer. Although this authorization has since expired, we expect to receive a further authorization from our shareholders later in 2023 as a consequence of our expressed intent to transform Equus into an operating company. Notwithstanding any such authorization to withdraw our BDC election, we will not submit any such withdrawal unless and until Equus has entered into a definitive agreement to effect a transformative transaction. Further, even if we are again authorized to withdraw our election as a BDC, we will require a subsequent affirmative vote from holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our business. While we are presently evaluating various opportunities that could enable us to accomplish this transformation, we cannot assure you that we will be able to do so within any particular time period or at all, and, although we expect that our shareholders will grant a further authorization, we do not expect to cause the Fund to withdraw its election to be classified as BDC prior to September 30, 2023. Moreover, we cannot assure you that the terms of any such transformative transaction would be acceptable to us.

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**Reduction in Asset Coverage Ratio**

On November 14, 2019, our shareholders approved a reduction in our asset coverage ratio from 200% to 150%. Prior to the reduction, we were restricted in the amount that we could borrow to the value of our net assets. The reduction in our asset coverage from 200% to 150% means that we may now borrow up to twice the value of our net assets. Except for a margin loan that we have previously procured each quarter to acquire U.S. Treasury bills as part of the maintenance of our RIC status, we have not incurred any additional borrowings as a consequence of this authorization.

**2016 Equity Incentive Plan**

On June 13, 2016, our shareholders approved the adoption of our 2016 Equity Incentive Plan ("Incentive Plan"). On January 10, 2017, the SEC issued an order approving the Incentive Plan and certain awards intended to be made thereunder. The Incentive Plan is intended to promote the interests of the Fund by encouraging officers, employees, and directors of the Fund and its affiliates to acquire or increase their equity interest in the Fund and to provide a means whereby they may develop a proprietary interest in the development and financial success of the Fund, to encourage them to remain with and devote their best efforts to the business of the Fund, thereby advancing the interests of the Fund and its stockholders. The Incentive Plan is also intended to enhance the ability of the Fund and its affiliates to attract and retain the services of individuals who are essential for the growth and profitability of the Fund. The Incentive Plan permits the award of restricted stock as well as common stock purchase options. The maximum number of shares of common stock that are subject to awards granted under the Incentive Plan is 2,434,728 shares. The term of the Incentive Plan will expire on June 13, 2026. On March 17, 2017, we granted awards of restricted stock under the Plan to certain of our directors and executive officers in the aggregate amount of 844,500 shares. The awards were each subject to a vesting requirement over a 3-year period unless the recipient thereof was terminated or removed from their position as a director or executive officer without "cause", or as a result of constructive termination, as such terms are defined in the respective award agreements entered into by each of the recipients and the Fund. As of March 31, 2020, all awards granted under the Incentive Plan were fully vested. We account for share-based compensation using the fair value method, as prescribed by ASC 718. Accordingly, for restricted stock awards, we measure the grant date fair value based upon the market price of our common stock on the date of the grant and amortize the fair value of the awards as share-based compensation expense over the requisite service period, which is generally the vesting term.

**Critical Accounting Policies**

See the Fund's Critical Accounting Policies from the disclosure set forth in the Fund's Annual Report on Form 10-K for the year ended December 31, 2022.

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**Current Market Conditions**

*Impact of Economic and Geopolitical Events on the Oil and Gas Sector.* The substantial volatility in world markets has been prominent in the oil and gas sector, with WTI oil prices reaching a multi-year high of $130.00 per barrel in March 2022, and gas prices also reaching a multi-year high in mid-year, both due in part to increased demand, the reluctance of U.S. producers and OPEC nations to generate additional supply, and the conflict in Ukraine. Beginning in the second and third quarters of 2022 and largely due to recessionary headwinds and other macroeconomic factors, oil and natural gas prices have retreated substantially. In the case of natural gas, prices declined through the first quarter of 2023 before stabilizing during the second quarter and, as of June 30, 2023, stood at $2.48 per MMBTU. However, recent oil price stability has been a significant factor in increased consolidation activity in the Permian Basin where Equus Energy holds most of its development rights, as well as in the Williston Basin region in North Dakota where Morgan E&P, LLC, our newly formed wholly-owned subsidiary ("Morgan"), holds its development rights. The U.S. Energy Information Administration has modified its 2023 oil and gas price forecasts accordingly, with a July 2023 estimate of $85.00 per barrel for Brent crude by the end of 2023, and $2.62 per MMBTU for gas prices by the end of the year.

Operators of the leasehold interests held by Equus Energy have not yet undertaken significant capital expenditures, which could have a material adverse effect upon the operations and long-term financial condition of Equus Energy. To conserve existing cash resources or create additional cash resources during the next year, Equus Energy intends to either: (i) attempt to secure equity or debt financing from one or more institutional sources, which sources may include the Fund, a commercial lender, or other investors, (ii) request that its operators shut-in additional wells, (iii) sell certain of its oil and gas holdings, or (iv) undertake a combination of the foregoing. However, we cannot assure you that Equus Energy will be able to implement these plans successfully, or that such plans will generate sufficient liquidity to fund the operating expenses of Equus Energy over the next twelve-months.

We expect that Morgan will undertake significant capital expenditures for oil and gas development during the third and fourth quarters of 2023. Morgan may secure capital for this purpose from Equus, from one or more institutional and private sources, or a combination of the foregoing.

*The U.S. Economy*. U.S. GDP increased at an annualized rate of 2.4% in the second quarter of 2023, significantly above consensus estimates of 2.0% for the period. This followed an increase of 1.1% on an annualized basis for the first quarter of 2023. The principal drivers of the increase during the second quarter of 2023 were increased government spending and increased durable goods orders. The Conference Board is still projecting a mild recession for the U.S. economy in the second half of 2023, with overall GDP growth of 1.3% for all of 2023 and 0.1% growth for all of 2024. The Congressional Budget Office projects GDP growth of 0.4% for the second half of 2023 and 1.5% for all of 2024. Both the Conference Board and the CBO forecasts were made prior to the release of Q2 GDP data from the Bureau of Economic Analysis and are, therefore, expected to be subsequently revised upward. (*Sources: Bureau of Economic Analysis; The Conference Board; Congressional Budget Office*).

*Employment and Housing*. At June 30, 2023, the U.S. unemployment rate has stood at 3.6%, more or less unchanged since the first quarter of 2022 and substantially below the high of 14.5% in April 2020 when economic uncertainty associated with Covid-19 was at its peak. With signs of a recession in later quarters, economists are projecting a rate of 4.5% by the end of 2023. Most of the recent employment gains in 2022 and the first half of 2023 were due to gains in nonfarm payrolls, the leisure and hospitality industry, professional and business services, retail trade, transportation, and warehousing (*Sources: Bureau of Labor Statistics; Trading Economics*).

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*Consumer Prices*. Consumer prices, which had largely been held in check during the pandemic, began to rise steadily in 2021 and into 2022, reaching an annualized rate of 9.1% during 2022, before retreating to an overall rate of 8.0% for the year. In July 2023, the Bureau of Labor Statistics reported an annualized inflation rate of 2.6% for the second quarter of 2023, with a trailing average of 3.0% for the previous 12 months. Energy prices remained a principal driver of inflation during the run-up in consumer prices, and have also factored significantly into the decline in inflation rates. Largely as a result of Fed monetary responses and a slowing of economic growth, most commentators are forecasting a further decrease in the rate of inflation throughout the rest of the year. (*Sources: Bureau of Economic Analysis; Kiplinger; Bureau of Labor Statistics; Trading Economics*).

*Interest Rates*. Principally as a response to rising prices, the Federal Reserve began a series of federal funds rate increases in May 2022 which continued for ten consecutive meetings of the Federal Open Market Committee. At its most recent meeting in July 2023, the Fed raised rates by a further quarter point, putting the federal funds rate at a range of 5.25%-5.5%, the highest level in 22 years. The result of such rate increases and inflationary pressures has been substantially increased borrowing costs, particularly for homebuyers and small businesses, as well as heightened recession risks. Moreover, credit providers have also begun to require higher collateralization rates, with shorter maturities and higher fees than in the recent past. (*Source: Forbes; The Wall Street Journal*).

*Mergers and Acquisitions*. Despite inflationary pressures and Fed tightening, global merger and acquisition activity in the first half of 2023 began to pick up from its 2022 year-end slowdown, amounting to over $1.0 trilliion in deals consummated during the period. The slowdown in acquisition activity in 2022 was largely as a result of increased costs of capital, reduced financial sponsor activity, and increased regulatory scrutiny. Some industry commentators are predicting that consolidations will continue to increase in the second half of 2023, particularly in the areas of healthcare, technology, and energy. Higher interest rates and lower deal volumes have kept valuation multiples at levels consistent with 2022, which is expected to facilitate increased transaction activity through the remainder of the year. (*Sources: Morgan Stanley; Greenhill; Mckinsey*).

*Private Equity*. After experiencing a record year in 2021, private equity activity slowed in 2022, particularly during the second half of the year. With the increase in M&A dealmaking in the first half of 2023, private equity analysts are also expecting an increase in investment opportunities, particularly in view of comparably lower valuation multiples and, in the face of a predicted recession, increased motivation from sellers. (*Sources: The Wall Street Journal; CNBC*).

During the six months ended June 30, 2023, our net asset value increased from $2.61 per share to $2.96 per share, an increase of 13.4%. As of June 30, 2023, our common stock is trading at a 48.6% discount to our net asset value as compared to 45.2% as of December 31, 2022.

Over the past several years, we have executed certain initiatives to enhance liquidity, achieve a lower operational cost structure, provide more assistance to portfolio companies and realize certain of our portfolio investments. Specifically, we changed the composition of our Board of Directors and Management, terminated certain of our follow-on investments, internalized the management of the Fund, suspended our managed distribution policy, modified our investment strategy to pursue shorter term liquidation opportunities, pursued non-cash investment opportunities, and sold certain of our legacy and underperforming investment holdings. We believe these actions continue to be necessary to protect capital and liquidity in order to preserve and enhance shareholder value. Because our Management is internalized, certain of our expenses should not increase commensurate with an increase in the size of the Fund and, therefore, to the extent we remain a BDC, we expect to achieve efficiencies in our cost structure if we are able to grow the Fund.

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**Liquidity and Capital Resources**

We generate cash primarily from maturities, sales of securities and borrowings, as well as capital gains realized upon the sale of portfolio investments. We use cash primarily to make additional investments, either in new companies or as follow-on investments in the existing portfolio companies and to pay the dividends to our stockholders.

Because of the nature and size of the portfolio investments, we may periodically borrow funds to make qualifying investments to maintain our tax status as a RIC. We often borrow such funds by utilizing a margin account with a securities brokerage firm. There is no assurance that such arrangement will be available in the future. If we are unable to borrow funds to make qualifying investments, Equus may no longer qualify as a RIC. The Fund would then be subject to corporate income tax on its net investment income and realized capital gains, and distributions to stockholders would be subject to income tax as ordinary dividends.

The Fund has the ability to borrow funds and issue forms of senior securities representing indebtedness or stock, such as preferred stock, subject to certain restrictions. Net taxable investment income and net taxable realized gains from the sales of portfolio investments are intended to be distributed at least annually, to the extent such amounts are not reserved for payment of expenses and contingencies or to make follow-on or new investments.

We reserve the right to retain net long-term capital gains in excess of net short-term capital losses for reinvestment or to pay contingencies and expenses. Such retained amounts, if any, will be taxable to the Fund as long-term capital gains and stockholders will be able to claim their proportionate share of the federal income taxes paid on such gains as a credit against their own federal income tax liabilities. Stockholders will also be entitled to increase the adjusted tax basis of their Fund shares by the difference between their undistributed capital gains and their tax credit.

We are evaluating the impact of current market conditions on our portfolio company valuations and their ability to provide current income. We believe we have followed valuation techniques in a reasonably consistent manner; however, we are cognizant of current market conditions that might affect future valuations of portfolio securities. In view of our present status as a BDC and our anticipated transformation into an operating company, we believe that our operating cash flow and cash on hand will be sufficient to meet operating requirements and to finance routine capital expenditures through the next twelve months.

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**Results of Operations**

**Investment Income and Expense**

Net investment income was $0.02 million for the three and six months ended June 30, 2023 due to the interest earned on portfolio investments and short-term investments.

Net investment loss was $0.9 million for the three months ended June 30, 2023 and $0.8 million for the three months ended June 30, 2022, respectively. Net investment loss was $2.0 million for the six months ended June 30, 2023 and $1.7 million for the six months ended June 30, 2022, respectively

Compensation expense was $0.8 million for the six months ended June 30, 2023 and $0.7 million for the six months ended June 30, 2022, as a result of bonuses paid in 2023.

Professional fees were comparable for the six months ended June 30, 2023 and 2022, and were $0.5 million, respectively.

General and administrative expenses were comparable for the six months ended June 30, 2023 and 2022, and were $0.07 million and $0.06 million, respectively.

**Changes in Unrealized Appreciation/Depreciation of Portfolio Securities**

During the six months ended June 30, 2023, made a $0.75 million debt investment in Morgan E&P, LLC ("Morgan") and also invested $1.00 in the equity of Morgan. We recorded a change in fair value of the equity of Morgan of $6.8 million. The increase was principally due to our expectation of Morgan drilling new wells and generating operating cash flow therefrom in the near future in the Bakken shale region where it holds leasehold acreage rights.

During the six months ended June 30, 2023, with respect to our holding in Equus Energy, LLC, we recorded no change in the fair value of this investment.

During the six months ended June 30, 2022, with respect to our holding in Equus Energy, LLC, we recorded an increase in the fair value of $2.5 million, resulting in a net change in unrealized appreciation of $7.5 million. Such change in fair value was principally due to increases in mineral acreage prices and a substantial increase in short-and long-term prices for crude oil and natural gas.

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**Dividends**

We will pay out net investment income and/or realized capital gains, if any, on an annual basis as required under the Investment Company Act of 1940.

**Subsequent Event**s

Management performed an evaluation of the Fund's activity through the date the financial statements were issued, noting the following subsequent events:

On July 6, 2023, our holding in $13.0 million in U.S. Treasury Bills matured and we repaid our margin loan.

On July 26, 2023, we advanced Morgan an additional $0.2 million under its existing credit facility with the Fund.

**Item 3. Quantitative and Qualitative Disclosure about Market Risk**

We are subject to financial market risks, including changes in interest rates with respect to investments in debt securities and outstanding debt payable, as well as changes in marketable equity security prices. In the future, we may invest in companies outside the United States, including in Europe and Asia, which would give rise to exposure to foreign currency value fluctuations. We do not use derivative financial instruments to mitigate any of these risks. The return on investments is generally not affected by foreign currency fluctuations.

Our investments in portfolio securities consist of some fixed-rate debt securities. Since the debt securities are generally priced at a fixed rate, changes in interest rates do not directly affect interest income. In addition, changes in market interest rates are not typically a significant factor in the determination of fair value of these debt securities, since the securities are generally held to maturity. We determine their fair values based on the terms of the relevant debt security and the financial condition of the issuer.

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A major portion of our investment portfolio consists of debt and equity investments in private companies. Modest changes in public market equity prices generally do not significantly impact the estimated fair value of these investments. However, significant changes in market equity prices can have a longer-term effect on valuations of private companies, which could affect the carrying value and the amount and timing of gains or losses realized on these investments. A small portion of the investment portfolio could also consist of common stock in publicly traded companies. These investments are directly exposed to equity price risk, in that a hypothetical ten percent change in these equity prices would result in a similar percentage change in the fair value of these securities.

**Item 4. Controls and Procedures**

We maintain disclosure controls and other procedures that are designed to ensure that information required to be disclosed by the Fund in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Fund's Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operations of the Fund's "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2023. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Fund's disclosure controls and procedures were effective at a reasonable assurance level. There has been no change in our internal control over financial reporting during the quarter ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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**Part II. Other Information**

**Item 1. Legal Proceedings** 

From time to time, the Fund is a party to certain proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot at this time be predicted with certainty, we do not expect that these proceedings will have a material effect upon the Fund's financial condition or results of operations.

**Item 1A. Risk Factors**

In connection with our efforts to convert Equus into an operating company in furtherance of our plan to convert the Fund into an operating company, we may be subject to a number of risks associated with this process, the transactions that would embody a consolidation of Equus with another company, as well as specific risks associated with the commercial enterprise with which Equus may seek to combine itself. We intend to identify, as will be reasonably possible, such risks and include the same in our subsequent filings and reports with the SEC.

Readers should carefully consider these risks and all other information contained in our annual report on Form 10-K ("10-K") for the year ended December 31, 2022, including the Fund's financial statements and the related notes thereto. The risks and uncertainties described in our 10-K and throughout this 10-Q are not the only ones facing the Fund.

Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance.

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**Item 6. Exhibits**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3. Articles of Incorporation or Bylaws**

(a) Restated Certificate of Incorporation of the Fund. [Incorporated by reference to Exhibit 3(a) to Registrant's Current Report on Form 8-K filed on January 21, 2021]

(b) Certificate of Merger, dated June 30, 1993, between the Fund and Equus Investments Incorporated [Incorporated by reference to Exhibit 3(b) to Registrant's Annual Report on form 10-K for the year ended December 31, 2007]

(c) Amended and Restated Bylaws of the Fund [Incorporated by reference to Exhibit 3(c) to Registrant's Current Report on Form 8-K filed on June 30, 2014]

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**10. Material Contracts**

(a) Safekeeping Agreement between the Fund and Amegy Bank, dated August 16, 2008. [Incorporated by reference to Exhibit 10(c) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2008]

(b) Form of Indemnification Agreement between the Fund and its directors and certain officers. [Incorporated by reference to Exhibit 10(d) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011]

(c) Code of Ethics of the Fund (Rule 17j-1). [Incorporated by reference to Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2009]

(d) 2016 Equity Incentive Plan, adopted June 13, 2016. [Incorporated by reference to Exhibit 1 to Registrant's Definitive Proxy Statement filed on May 5, 2016]

**31. Rule 13a-14(a)/15d-14(a) Certifications**

[1.](equus_ex311.htm) [Certification by Chief Executive Officer\*](equus_ex311.htm)

[2.](equus_ex312.htm) [Certification by Chief Financial Officer\*](equus_ex312.htm)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**32. Rule 1350 Certifications**

[1.](equus_ex321.htm) [Certification by Chief Executive Officer\*](equus_ex321.htm)

[2.](equus_ex322.htm) [Certification by Chief Financial Officer\*](equus_ex322.htm)

\* Filed herewith

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed by the undersigned, thereunto duly authorized.

Dated: December 18, 2025

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| EQUUS TOTAL RETURN, INC. |
| /s/ John A. Hardy |
| **John A. Hardy** |
| **Chief Executive Officer** |

---

## Exhibit 31.1

EXHIBIT 31.1

Form of Quarterly Certification Required

by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

I, John A. Hardy, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Equus Total Return, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a. Designed such disclosure controls and procedures. or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation;

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's first fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting, and;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.

Dated: December 18, 2025

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|:---|
| EQUUS TOTAL RETURN, INC. |
| /s/ John A. Hardy |
| **John A. Hardy** |
| **Chief Executive Officer** |

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## Exhibit 31.2

EXHIBIT 31.2

Form of Quarterly Certification Required

by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

I, L'Sheryl D. Hudson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Equus Total Return, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a. Designed such disclosure controls and procedures. or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation;

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's first fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting, and;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.

Dated: December 18, 2025

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|:---|
| EQUUS TOTAL RETURN, INC. |
| /s/ L'Sheryl D. Hudson |
| **L'Sheryl D. Hudson** |
| **Chief Financial Officer** |

---

## Exhibit 32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the accompanying Quarterly Report of Equus Total Return, Inc. (the "Fund") on Form 10-Q for the quarter ended June 30, 2023 (the "Report"), I, John A Hardy, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) To my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund.

Dated: December 18, 2025

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|:---|
| EQUUS TOTAL RETURN, INC. |
| /s/ John A. Hardy |
| **John A. Hardy** |
| **Chief Executive Officer** |

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## Exhibit 32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF

2002 (18 U.S.C. SECTION 1350)

In connection with the accompanying Quarterly Report of Equus Total Return, Inc. (the "Fund") on Form 10-Q for the quarter ended June 30, 2023 (the "Report"), I, L'Sheryl D. Hudson, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) To my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund.

Dated: December 18, 2025

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| |
|:---|
| EQUUS TOTAL RETURN, INC. |
| /s/ L'Sheryl D. Hudson |
| **L'Sheryl D. Hudson** |
| **Chief Financial Officer** |

---