10-Q 1 f10q_equus06302024.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, 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 June 30, 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	36
Item 3. Quantitative and Qualitative Disclosure about Market Risk	41
Item 4. Controls and Procedures	42
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	43
Item 1A. Risk Factors	43
Item 6. Exhibits	44
SIGNATURE	45

	June 30, 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)	$	46,500		$	40,853
Total investments in portfolio securities at fair value		46,500			40,853
U.S. Treasury bills		53,944			44,955
Cash and cash equivalents		1,878			6,533
Restricted cash		539			450
Accounts receivable from affiliates		139			139
Accrued interest		826			225
Other assets		18			392
Total assets		103,844			93,547
Liabilities and net assets
Accounts payable		106			172
Accrued compensation		2			29
Accounts payable to related parties		—			104
Borrowing under margin account		53,944			44,955
Total liabilities		54,052			45,260

Commitments and contingencies (See Note 2)

Net assets
Common stock, $.001 par value per share; 100,000,000 shares authorized as of June 30, 2024 and December 31, 2023, respectively, and 13,586,173 shares outstanding as of June 30, 2024 and December 31, 2023, respectively

Preferred stock, $.001 par value per share; 10,000,000 shares authorized as of June 30, 2024 and December 31, 2023 respectively
Common stock, par value	$	14		$	14
Capital in excess of par value		74,785			74,785
Accumulated deficit		(25,007	)		(26,512	)
Total net assets	$	49,792		$	48,287
Shares of common stock issued and outstanding, $.001 par value, 100,000 and 50,000 shares authorized, respectively		13,586			13,586
Net asset value per share	$	3.66		$	3.55

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2024			2023			2024			2023
Investment income:
Interest income:
Control investments	$	319		$	8		$	602		$	8
Total interest income		319			8			602			8
Interest from U.S. Treasury bills		12			4			12			10
Total investment income		331			12			614			18

Expenses:
Professional fees		367			126			934			526
Compensation expense		477			393			905			810
Professional liability expenses		148			181			298			365
Director fees and expenses		95			103			179			183
Mailing, printing and other expenses		16			30			81			52
General and administrative expenses		63			35			96			70
Taxes		11			7			25			7
Interest expense		34			1			66			2
Total expenses		1,211			876			2,584			2,015

Net investment loss		(880	)		(864	)		(1,970	)		(1,997	)

Net realized gain:
U.S. Treasury bills		30			9			75			11
Net realized gain		30			9			75			11

Net unrealized appreciation of portfolio securities:
Control investments		4,750			6,800			3,400			6,800
Net change in net unrealized appreciation of portfolio securities		4,750			6,800			3,400			6,800

Net increase in net assets resulting from operations	$	3,900		$	5,945		$	1,505		$	4,814

Net increase in net assets resulting from operations per share:
Basic and diluted	$	0.29		$	0.44		$	0.11		$	0.36
Weighted average shares outstanding:
Basic and diluted		13,586			13,518			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

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

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

Net increase in net assets resulting from operations		—		—		—		3,900			3,900

Balances as of June 30, 2024		13,586	$	14	$	74,785	$	(25,007	)	$	49,792

	Six months ended June,
	2024			2023

Investment income	$	0.05		$	—
Expenses		(0.20	)		(0.15	)
Net investment loss		(0.15	)		(0.15	)
Net change in unrealized appreciation of portfolio securities		0.26			0.50
Net increase in net assets		0.11			0.35
Net assets at beginning of period		3.55			2.61
Net assets at end of period, basic and diluted	$	3.66		$	2.96
Weighted average number of shares outstanding during period,
in thousands		13,586			13,518
Market price per share:
Beginning of period	$	1.45		$	1.43
End of period	$	1.32		$	1.52
Selected information and ratios:
Ratio of expenses to average net assets		(5.27	%)		(5.35	%)
Ratio of net investment loss to average net assets		(4.02	%)		(5.30	%)
Ratio of net increase in net assets resulting from operations to average net assets		3.07	%		12.79	%
Return on net asset value		3.12	%		(3.45	%)
Total return on market price ⁽¹⁾		(8.97	%)		6.29	%

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%)				—		26,000
					12% senior secured promissory note due 5/26 ⁽⁵⁾	$	10,500		10,500		10,500
									10,500		36,500
Total Control Investments: Majority-owned (represents 46.3% of total investments at fair value)									18,611		46,500
U.S Treasury Bills
U.S. Treasury Bills		Government		July 2024	UST 0% 7/24		53,944		53,944		53,944
Total U.S. Treasury Bills (represents 53.7% of total investments at fair value)									53,944		53,944
Total Investments								$	72,555	$	100,444

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

Limited liability company investments	$	8,111	$	36,000		72.3	%
Secured and subordinated debt		10,500		10,500		21.1	%

Total	$	18,611	$	46,500		93.4	%

			Fair Value Measurements as of June 30, 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	$	46,500	$	—	$	—	$	46,500
Total investments		46,500		—		—		46,500
U.S. Treasury bills		53,944		53,944		—		—
Total investments and U.S. Treasury bills	$	100,444	$	53,944	$	—	$	46,500

			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
Change in unrealized appreciation		4,750			—		—	4,750
Fair value as of June 30, 2024	$	46,500		$	—	$	—	$46,500

	June 30, 2024			December 31, 2023
Accumulated undistributed net investment losses	$	(53,435	)	$	(51,465	)
Unrealized appreciation of portfolio securities, net		27,889			24,489
Accumulated undistributed net capital gains		539			464
Accumulated deficit	$	(25,007	)	$	(26,512	)

	June 30,		December 31,
	2024		2023
Cash and cash equivalents at end of period	$	1,878	$	6,533
Restricted cash at end of period		539		450
Cash and cash equivalents and restricted cash at end of period	$	2,417	$	6,983

	June 30, 2024			December 31, 2023
Assets:
Cash	$	417		$	2,441
Revenue receivables		571			464
Joint interest billing receivables		2,228			1,391
Other receivables		87			—
Prepaids and other current assets		47			133
Current assets		3,350			4,429

Property, plant and equipment
Oil and gas properties, net - full cost method		11,301			10,326
Other property, plant and equipment, net		40			46
Total property, plant and equipment - net		11,341			10,372

Other noncurrent assets
Operating lease right-of-use assets, net		247			270
Total noncurrent assets		247			270

Total assets	$	14,938		$	15,071

Liabilities and Member's Deficit:

Current liabilities
Accounts payable	$	5,317		$	2,372
Revenue payable		717			221
Prepayments from working interest owners		—			122
Current portion of operating lease liabilities		43			28
Due to parent		13			13
Accrued liabilities		1,171			5,383
Total current liabilities		7,261			8,139

Long-term liabilities
Asset retirement obligations		3			4
Long-term operating lease liabilities		232			254
Note payable - Due to parent		10,500			8,253
Long-term accrued liabilities - Due to parent		826			225
Total long-term liabilities		11,561			8,736
Total liabilities		18,822			16,875

Retained earnings - beginning of year		(1,804	)		—
Current year deficit		(2,080	)		(1,804	)
Member's deficit		(3,884	)		(1,804	)

Total liabilities and member's deficit	$	14,938		$	15,071

	Three months ended June 30,						Six months ended June 30,			From inception through June 30,
	2024			2023			2024			2023
Oil and gas revenues
Oil revenues	$	1,294		$	—		$	2,310		$	—
Gas revenues		16			—			31			—
Natural gas liquid revenues		81			—			125			—
Oil and gas revenue		1,391			—			2,466			—

Operating costs and expenses
Lease operating		628			—			1,996			—
Production and ad valorem taxes		132			—			235			—
Marketing, transportation and gathering		50			—			78			—
Depreciation, depletion, and amortization		273			—			498			—
General and administrative		624			128			1,138			128
Total operating costs and expenses		1,707			128			3,945			128
Loss from operations		(316	)		(128	)		(1,479	)		(128	)
Other income (expense)
Interest income		—			—			6			—
Interest expense		(324	)		(8	)		(607	)		(8	)
Total other income (expense), net		(324	)		(8	)		(601	)		(8	)
Net loss	$	(640	)	$	(136	)	$	(2,080	)	$	(136	)

	Six months ended June 30,			From inception through June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(2,080	)		(136	)
Adjustments to reconcile net loss to cash flows provided by (used in) operating activities:
Depreciation, depletion, amortization		498
Amortization of right-of-use asset		23
Changes in operating assets and liabilities:
Revenue receivables		(107	)		(12	)
Joint interest billing receivables		652
Prepaids and other current assets		(1	)
Accounts payable		1,606			8
Revenue payable		496
Prepayments from working interest owners		(122	)
Payment of operating lease liability		(7	)
Accrued liabilities		(311	)
Due to parent		601			13
Net cash provided by (used in) operating activities		1,248			(127	)

Cash flows from investing activities:
Additions to oil and gas properties		(5,519	)		(500	)
Net cash used in investing activities		(5,519	)		(500	)

Cash flows from financing activities:
Proceeds from Note payable - Due to parent		2,247			750
Net cash provided by financing activities		2,247			750

Net change in cash		(2,024	)		123
Cash at beginning of period		2,441			—

Cash at end of period	$	417		$	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.