10-Q 1 f10q_equus03312024.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended March 31, 2024

☐

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 13,586,173 shares of the registrant’s common stock, $.001 par value, outstanding, as of March 31, 2024.

	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	35
Item 3. Quantitative and Qualitative Disclosure about Market Risk	40
Item 4. Controls and Procedures	40
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 6. Exhibits	43
SIGNATURE	44


	March 31, 2024			December 31, 2023

(in thousands, except shares and per share amounts)
Assets
Investments in portfolio securities at fair value:
Control investments (cost at $18,611 and $16,364, respectively)	$	41,750		$	40,853
Total investments in portfolio securities at fair value		41,750			40,853
U.S. Treasury bills		52,970			44,955
Cash and cash equivalents		3,050			6,533
Restricted cash		530			450
Accounts receivable from affiliates		139			139
Accrued interest		508			225
Other assets		192			392
Total assets		99,139			93,547
Liabilities and net assets
Accounts payable		166			172
Accrued compensation		2			29
Accounts payable to related parties		109			104
Borrowing under margin account		52,970			44,955
Total liabilities		53,247			45,260

Commitments and contingencies (See Note 2)

Net assets
Common stock, $.001 par value per share; 100,000,000 shares authorized as of March 31, 2024 and December 31, 2023, respectively, and 13,586,173 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

Preferred stock, $.001 par value per share; 10,000,000 shares authorized as of March 31, 2024 and December 31, 2023 respectively
Common stock, par value	$	14		$	14
Capital in excess of par value		74,785			74,785
Accumulated deficit		(28,907	)		(26,512	)
Total net assets	$	45,892		$	48,287
Net asset value per share	$	3.38		$	3.55

	Three Months Ended March 31,
(in thousands, except per share amounts)	2024			2023
Investment income:
Interest income:
Control investments	$	283		$	—
Total interest income		283			—
Interest from U.S. Treasury bills		—			6
Total investment income		283			6

Expenses:
Professional fees		567			400
Compensation expense		428			417
Professional liability expenses		150			184
Director fees and expenses		84			80
Mailing, printing and other expenses		65			22
General and administrative expenses		33			35
Taxes		14			—
Interest expense		32			1
Total expenses		1,373			1,139

Net investment loss		(1,090	)		(1,133	)

Net realized gain:
U.S. Treasury bills		45			2
Net realized gain		45			2
Net unrealized appreciation of portfolio securities:
Control investments		(1,350	)		—

Net change in net unrealized appreciation of portfolio securities		(1,350	)		—

Net increase (decrease) in net assets resulting from operations	$	(2,395	)	$	(1,131	)

Net increase (decrease) in net assets resulting from operations per share:
Basic and diluted	$	(0.17	)	$	(0.08	)
Weighted average shares outstanding:
Basic and diluted		13,586			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, 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

Balances as of January 1, 2024		13,586	$	14	$	74,785	$	(26,512	)	$	48,287

Net decrease in net assets resulting from operations		—		—		—		(2,395	)		(2,395	)

Balances as of March 31, 2024		13,586	$	14	$	74,785	$	(28,907	)	$	45,892

Name and Location of			Date of Initial					Cost of		Fair
Portfolio Company ⁽¹⁾	Industry		Investment		Investment	Principal		Investment		Value⁽²⁾

Control Investments: Majority-owned ⁽³⁾:
Equus Energy, LLC ⁽⁴⁾ Houston, TX		Energy		December 2011	Member interest (100%)			$	8,111	$	10,000
Morgan E&P, LLC ⁽⁴⁾ Houston, TX		Energy		April 2023	Member interest (100%)				—		21,250
					12% senior secured promissory note due 5/26 ⁽⁵⁾	$	10,500		10,500		10,500
									10,500		31,750
Total Control Investments: Majority-owned (represents 44.1% of total investments at fair value)									18,611		41,750
Temporary Cash Investments
U.S Treasury Bill
U.S. Treasury Bill		Government		March 2024	UST 0% 4/24		52,970		52,970		52,970
Total Temporary Cash Investments (represents 55.9% of total investments at fair value)									52,970		52,970
Total Investments								$	71,591	$	94,720

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

Limited liability company investments	$	8,111	$	31,250		68.1	%
Secured and subordinated debt		10,500		10,500		22.9	%

Total	$	18,611	$	41,750		91.0	%

			Fair Value Measurements as of March 31, 2024
(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	$	41,750	$	—	$	—	$	41,750
Total investments		41,750		—		—		41,750
U.S. Treasury bills		52,970		52,970		—		—
Total investments and U.S. Treasury bills	$	94,720	$	52,970	$	—	$	41,750

			Fair Value Measurements as of December 31, 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	$	40,853	$	—	$	—	$	40,853
Total investments		40,853		—		—		40,853
U.S. Treasury bills		44,955		44,955		—		—
Total investments and U.S. Treasury bills	$	85,808	$	44,955	$	—	$	40,853

	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, 2024	$	40,853		$	—	$	—	$40,853
Purchases of portfolio securities		2,247			—		—	2,247
Change in unrealized appreciation		(1,350	)		—		—	(1,350)
Fair value as of March 31, 2024	$	41,750		$	—	$	—	$41,750

	March 31, 2024			December 31, 2023
Accumulated undistributed net investment losses	$	(52,555	)	$	(51,465	)
Unrealized appreciation of portfolio securities, net		23,139			24,489
Accumulated undistributed net capital gains		509			464
Accumulated deficit	$	(28,907	)	$	(26,512	)

	March 31,		December 31,
	2024		2023
Cash and cash equivalents at end of period	$	3,050	$	6,533
Restricted cash at end of period		530		450
Cash and cash equivalents and restricted cash at end of period	$	3,580	$	6,983

	March 31			December 31,
	2024			2023


Assets
Current assets:
Cash and cash equivalents	$	71		$	71
Accounts receivable		171			167
Total current assets		242			238
Oil and gas properties		8,173			8,173
Less: accumulated depletion, depreciation and amortization		(8,100	)		(8,097	)
Net oil and gas properties		73			77
Total assets	$	315		$	315

Liabilities and member's deficit
Current liabilities:
Accounts payable and other	$	128		$	105
Due to affiliate		126			126
Total current liabilities		254			231
Asset retirement obligations		234			233
Total liabilities		488			464

Total member's deficit		(173	)		(149	)

Total liabilities and member's deficit	$	315		$	315

	Three months ended March 31,
	2022			2023

Cash flows from operating activities:

Net loss	$	(24	)	$	(549	)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depletion, depreciation and amortization		5			1
Changes in operating assets and liabilites:
Accounts receivable		(4	)		63
Accounts payable and other		23			139
Due to Parent		—			500
Net cash provided by operating activities		—			154
Net increase (decrease) in cash		—			154
Cash and cash equivalents at beginning of period		71			205
Cash and cash equivalents at end of period	$	71		$	360

	March 31, 2024			December 31, 2023
Assets:
Cash	$	428		$	2,441
Revenue receivables		657			464
Joint interest billing receivables		2,603			1,391
Other receivables		37			—
Prepaids and other current assets		98			133
Current assets		3,823			4,428

Property, plant and equipment
Oil and gas properties, net - full cost method		10,846			10,326
Operating lease right-of-use assets, net		253			270
Other property, plant and equipment, net		43			46
Total property, plant and equipment - net		11,142			10,643

Total assets	$	14,965		$	15,071

Liabilities and Member's Deficit:

Current liabilities
Accounts payable	$	6,177		$	2,372
Revenue payable		669			221
Prepayments from working interest owners		—			122
Current portion of operating lease liabilities		39			28
Due to parent		13			13
Accrued liabilities		57			5,383
Total current liabilities		6,955			8,139

Long-term liabilities
Asset retirement obligations		4			4
Long-term operating lease liabilities		242			254
Note payable - Due to parent		10,500			8,253
Long-term accrued liabilities - Due to parent		508			225
Total long-term liabilities		11,254			8,736
Total liabilities		18,209			16,875

Total member's deficit		(3,244	)		(1,804	)

Total liabilities and member's deficit	$	14,965		$	15,071

	Three Months Ended March 31,
	2024

Oil and gas revenue		1,075

Operating costs and expenses
Lease operating		1,368
Production and ad valorem taxes		103
Marketing, transportation and gathering		28
Depreciation, depletion, and amortization		225
General and administrative		514
Total operating costs and expenses		2,238
Loss from operations		(1,163	)
Other income (expense)
Interest income		6
Interest expense		(283	)
Total other income (expense), net		(277	)
Net loss	$	(1,440	)

	•	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.