10-Q 1 f10q_equus06302023.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended June 30, 2023

☐

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

For the transition period to

Commission File Number 814-00098

EQUUS TOTAL RETURN, INC.

(Exact name of registrant as specified in its charter)

Delaware	76-0345915
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

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

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

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

Title of each class

Name of each exchange

on which registered

Common Stock

New York Stock Exchange

☐ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No

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

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

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller Reporting Company ☐

Emerging Growth Company ☐

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

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

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

	Page
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Financial Statements	3
Condensed Balance Sheets	3
Condensed Statements of Operations	4
Condensed Statements of Changes in Net Assets	5
Condensed Statements of Cash Flows	6
Supplemental Information—Selected Per Share Data and Ratios	7
Schedules of Investments	8
Notes to Condensed Financial Statements	12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3. Quantitative and Qualitative Disclosure about Market Risk	40
Item 4. Controls and Procedures	40
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	41
Item 1A. Risk Factors	41
Item 6. Exhibits	42
SIGNATURE	43

	June 30, 2023			December 31, 2022

(in thousands, except shares and per share amounts)
Assets
Investments in portfolio securities at fair value:
Control investments (cost at $8,861 and $8,111, respectively)	$	23,200		$	15,650
Total investments in portfolio securities at fair value		23,200			15,650
Temporary cash investments		12,989			5,998
Cash and cash equivalents		16,407			19,224
Restricted cash		130			60
Accounts receivable from affiliates		328			350
Accrued interest		8			—
Other assets		35			382
Total assets		53,097			41,664
Liabilities and net assets
Accounts payable		53			107
Accrued compensation		3			321
Accounts payable to related parties		1			1
Borrowing under margin account		12,989			5,998
Total liabilities		13,046			6,427

Commitments and contingencies (See Note 2)

Net assets
Common stock, $.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, $.001 par value per share; 10,000,000 shares authorized as of June 30, 2023 and December 31, 2022 respectively
Common stock, par value	$	13		$	13
Capital in excess of par value		74,685			74,685
Accumulated deficit		(34,647	)		(39,461	)
Total net assets	$	40,051		$	35,237
Net asset value per share	$	2.96		$	2.61

	Three Months Ended June 30,						Six Months ended June 30,
(in thousands, except per share amounts)	2023			2022			2023			2022
Investment income:
Control investments	$	8		$	—		$	8		$	—
Total interest and dividend income		8			—			8			—
Interest from temporary cash investments		4			—			10			—
Total investment income		12			—			18			—

Expenses:
Compensation expense		393			345			810			689
Professional fees		126			106			526			456
Professional liability expenses		181			177			365			298
Director fees and expenses		103			92			183			168
General and administrative expenses		35			31			70			61
Mailing, printing and other expenses		30			29			52			36
Taxes		7			—			7			—
Interest expense		1			—			2			2
Total expenses		876			780			2,015			1,710

Net investment loss		(864	)		(780	)		(1,997	)		(1,710	)

Net realized gain:
Temporary cash investments		9			—			11			—
Net realized gain		9			—			11			—

Net unrealized appreciation of portfolio securities:
Control investments		6,800			500			6,800			2,500
Net change in net unrealized appreciation of portfolio securities		6,800			500			6,800			2,500

Net increase (decrease) in net assets resulting from operations	$	5,945		$	(280	)	$	4,814		$	790

Net increase (decrease) in net assets resulting from operations per share:
Basic and diluted	$	0.44		$	(0.02	)	$	0.36		$	0.06
Weighted average shares outstanding:
Basic and diluted		13,518			13,518			13,518			13,518

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

Balances as of January 1, 2022		13,518	$	13	$	74,685	$	(38,333	)	$	36,365

Net increase in net assets resulting from operations		—		—		—		1,070			1,070

Balances as of March 31, 2022		13,518	$	13	$	74,685	$	(37,263	)	$	37,435

Net decrease in net assets resulting from operations		—		—		—		(280	)		(280	)

Balances as of June 30, 2022		13,518	$	13	$	74,685	$	(37,543	)	$	37,155

Balances as of January 1, 2023		13,518	$	13	$	74,685	$	(39,461	)	$	35,237

Net decrease in net assets resulting from operations		—		—		—		(1,131	)		(1,131	)

Balances as of March 31, 2023		13,518	$	13	$	74,685	$	(40,592	)	$	34,106

Net increase in net assets resulting from operations		—		—		—		5,945			5,945

Balances as of June 30, 2023		13,518	$	13	$	74,685	$	(34,647	)	$	40,051

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

Control Investments: Majority-owned ⁽²⁾:
Equus Energy, LLC ⁽³⁾ Houston, TX		Energy		December 2011	Member interest (100%)			$	8,111	$	15,650
Morgan E&P, LLC ⁽³⁾ Houston, TX		Energy		April 2023	Member interest (100%)				—		6,800
					12% senior secured promissory note due 5/26 ⁽⁴⁾	$	750		750		750
									750		7,550
Total Control Investments: Majority-owned (represents 64.1% of total investments at fair value)									8,861		23,200
Temporary Cash Investments
U.S. Treasury Bill		Government		June 2023	UST 0% 7/23		12,989		12,989		12,989
Total Temporary Cash Investments (represents 35.9% of total investments at fair value)									12,989		12,989
Total Investments								$	21,850	$	36,189

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

Limited liability company investments	$	8,111	$	22,450		56.0	%
Secured and subordinated debt		750		750		1.9	%

Total	$	8,861	$	23,200		57.9	%

			Fair Value Measurements as of June 30, 2023
(in thousands)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investments:
Control investments	$	23,200	$	—	$	—	$	23,200
Total investments		23,200		—		—		23,200
Temporary cash investments		12,989		12,989		—		—
Total investments and temporary cash investments	$	36,189	$	12,989	$	—	$	23,200

			Fair Value Measurements as of December 31, 2022
(in thousands)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investments:
Control investments	$	15,650	$	—	$	—	$	15,650
Total investments		15,650		—		—		15,650
Temporary cash investments		5,998		5,998		—		—
Total investments and temporary cash investments	$	21,648	$	5,998	$	—	$	15,650

	Fair value measurements using significant unobservable inputs (Level 3)
(in thousands)	Control Investments		Affiliate Investments		Non-affiliate Investments		Total
Fair value as of January 1, 2023	$	15,650	$	—	$	—	$15,650
Change in unrealized appreciation		6,800		—		—	6,800
Purchases of portfolio securities		750		—		—	750
Fair value as of June 30, 2023	$	23,200	$	—	$	—	$23,200

	June 30, 2023			December 31, 2022
Accumulated undistributed net investment losses	$	(49,428	)	$	(47,430	)
Unrealized appreciation of portfolio securities, net		14,339			7,539
Accumulated undistributed net capital gains		442			430
Accumulated deficit	$	(34,647	)	$	(39,461	)

	June 30, 2023		December 31, 2022
Cash and cash equivalents at end of period	$	16,407	$	19,224
Restricted cash at end of period		130		60
Cash and cash equivalents and restricted cash at end of period	$	16,537	$	19,284

	June 30,			December 31,
	2023			2022


Assets
Current assets:
Cash and cash equivalents	$	274		$	205
Accounts receivable		159			208
Other current assets		15			12
Total current assets		448			425
Oil and gas properties		8,157			8,155
Less: accumulated depletion, depreciation and amortization		(8,095	)		(8,095	)
Net oil and gas properties		62			60
Total assets	$	510		$	485

Liabilities and member's deficit
Current liabilities:
Accounts payable and other	$	125		$	110
Due to affiliate	$	326			350
Total current liabilities	$	451			460
Asset retirement obligations		217			216
Total liabilities		668			676

Total member's deficit		(158	)		(191	)

Total liabilities and member's deficit	$	510		$	485

	From inception (April 3, 2023) through
	June 30, 2023


Operating revenue	$	—
Other expense
General and administrative		128
Interest expense		8
Total other expense		136
Net loss	$	(136	)

	From inception (April 3, 2023) through
	June 30, 2023

Cash flows from operating activities:
Net loss	$	(136	)
Changes in operating assets and liabilites:
Prepaid expenses and other current assets		(12	)
Accounts payable and other		8
Due to Parent		13
Net cash used in operating activities		(127	)

Cash flows from investing activities:
Investment in oil & gas properties		(500	)
Net cash used in investing activities		(500	)

Cash flows from financing activities:
Due to Parent		750
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

	•	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.

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