What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-12-18 compared with 2025-12-18 · 258 added, 175 removed, 567 unchanged (43% of the section changed)

1 unchanged sentence

Index to Financial Statements

Report of Independent Registered Public Accounting Firm - (BDO USA, LLP;

Report of Independent Registered Public Accounting Firm - (BDO USA, P.C.;

PCAOB ID# 243 )

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(the “Fund”), including the schedules of investments, as of December 31, 2023 and 2022, the related statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Table of Contents in Item 15(a)(1) (collectively referred to as the “ financial statements”) and the selected per share data and ratios for each of the five years in the period then ended.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022 and 2021, and the results of its operations, changes in net assets, and its cash flows for each of the three years in the period ended December 31, 2022, and the selected per share data and ratios for each of the five years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2023 and 2022, and the results of its operations, changes in net assets and its cash flows for each of the three years in the period ended December 31, 2023, and the selected per share data and ratios for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Control Investment

The Fund's Control Investment at fair value was $15.65 million at December 31, 2022.

As described in Note 3 to the financial statements, the Fund’s investment portfolio is comprised of limited liability company investments, which has been determined to be a Level 3 investment and utilizes inputs that are unobservable and significant to the fair value measurement.

Management engaged an independent third-party firm to assist in the determination of the fair value estimate of the Fund’s Control Investment.

We identified the valuation of the Control Investment as a critical audit matter.

The principal considerations for our determination are the valuation techniques utilized to value this investment such as the guideline transaction method and the discounted cash flow method, and the use of unobservable inputs in these valuation techniques which include acreage value, proved reserve multiple, daily production multiple and discount rate.

As described in Note 3 to the financial statements, the Fund’s control investment portfolio has a total estimated fair value of $40.9 million at December 31, 2023, which includes $32.6 million of limited liability company investments.

These limited liability company investments have been determined to be Level 3 investments and utilize inputs that are unobservable and significant to the fair value measurement.

Management engaged an independent third- party firm to assist in the determination of the fair value estimate of the Fund’s limited liability company Investments.

We identified the valuation of the Fund’s limited liability company investments as a critical audit matter.

The principal considerations for our determination are significant judgments involved in the determination of (i) the valuation techniques utilized to value these investments which include the guideline transaction method, guideline public company method and the discounted cash flow method, and (ii) the use of unobservable inputs in these valuation techniques which include acreage value, proved reserve multiple, daily production multiple and discount rate.

Auditing these elements was complex because it involved especially subjective auditor judgment, including the extent of specialized skills and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

Testing the completeness and accuracy of the underlying information used as inputs in both the guideline transaction method and the discounted cash flow method.

Testing the completeness and accuracy of the underlying information used as inputs in both the guideline transaction method, guideline public company method and the discounted cash flow method.

Testing mathematical accuracy of the discounted cash flow method.

Utilizing personnel with specialized knowledge and skill in valuation to assist in:

(i) evaluating the appropriateness of the valuation models used, (ii) evaluating whether unobservable inputs, such as the acreage value, proved reserve multiple, daily production multiple, and discount rate were reasonable, and (iii) testing mathematical accuracy of the guideline transaction method.

/s/ BDO USA, LLP

(i) evaluating the appropriateness of the valuation models applied to each limited liability company investment (ii) evaluating whether unobservable inputs, including the acreage value, proved reserve multiple, daily production multiple, and discount rate were reasonable, and (iii) testing mathematical accuracy of the guideline transaction method and guideline public company method.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2014.

Houston, Texas

March 28, 2023

April 1, 2024

EQUUS TOTAL RETURN, INC.

4 unchanged sentences

Total investments in portfolio securities at fair value

Temporary cash investments

Treasury bills

Cash and cash equivalents

1 unchanged sentence

Accounts receivable from affiliates

Accrued interest

Liabilities and net assets

6 unchanged sentences

Common stock, $ 0.001 par value per share;

100,000,000 and 50,000,000 shares authorized and 13,518,000 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively

100,000,000 shares authorized as of December 31, 2023 and December 31, 2022, respectively, and 13,586,173 and 13,518,146 shares outstanding as of December 31, 2023 and December 31, 2022, respectively

Preferred stock, $ 0.001 par value per share;

10,000,000 and 5,000,000 shares authorized, respectively

10,000,000 shares authorized as of December 31, 2023 and December 31, 2022 respectively

Common stock, par value

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Total net assets

Shares of common stock issued and outstanding, $ 0.001 par value, 100,000 and 50,000 shares authorized, respectively

Net asset value per share

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Interest and dividend income:

Non-affiliate investments - related party

Control investments

Total interest and dividend income

Interest from temporary cash investments

Other income - director fees

Interest from U.S.

Treasury bills

Total investment income

1 unchanged sentence

Professional fees

Director fees and expenses

Professional liability expenses

Director fees and expenses

General and administrative expenses

3 unchanged sentences

Net investment loss

Net realized gain (loss):

Affiliate investments

Non-affiliate investments - related party

Non-affiliate investments

Net realized gain:

Escrow receivable

Temporary cash investments

Net realized gain (loss)

Net unrealized appreciation (depreciation) of portfolio securities:

Treasury bills

Net realized gain

Net unrealized appreciation of portfolio securities:

Control investments

Affiliate investments

Non-affiliate investments - related party

Net change in net unrealized appreciation (depreciation) of portfolio securities

Net change in net unrealized appreciation of portfolio securities

Federal and state income, excise and other taxes

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(in thousands)

Capital in Excess

Excess of Par Value

Accumulated Deficit

Total Net Assets

Balances as of January 1, 2021

Share-based incentive compensation

Net decrease in net assets resulting from operations

Balances as of December 31, 2020

Recharacterization of net capital gains

3 unchanged sentences

Balances as of December 31, 2022

Issuance of shares

Net increase in net assets resulting from operations

Balances as of December 31, 2023

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

3 unchanged sentences

(in thousands)

Reconciliation of (decrease) increase in net assets resulting from operations to net cash (used in) provided by operating activities:

Net (decrease) increase in net assets resulting from operations

Reconciliation of increase (decrease) in net assets resulting from operations to net cash (used in) provided by operating activities:

Net increase (decrease) in net assets resulting from operations

Adjustments to reconcile net (decrease) increase in net assets resulting from operations to net cash (used in) provided by operating activities:

Net realized (gain) loss:

Affiliate investments

Non-affiliate investments -related party

Non-affiliate investments

Net realized (gain):

Escrow receivable

Temporary cash investments

Treasury bills

Net change in unrealized appreciation of portfolio securities:

Control investments

Affiliate investments

Non-affiliate investments -related party

Share-based incentive compensation

Purchase of portfolio securities

Dividends exchanged for portfolio securities

Net proceeds from dispositions of portfolio securities

(Purchases) sales of temporary cash investments, net

(Purchases) sales of U.S.

Treasury bills, net

Changes in operating assets and liabilities:

1 unchanged sentence

Accrued interest and dividend receivable

Accrued esrow receivable

Accrued escrow receivable

Accounts payable and accrued liabilities

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Repayments under margin account

Issuance of common stock

Net cash provided by (used in) financing activities

Net (decrease) increase in cash and cash equivalents

Net (decrease) in cash and cash equivalents

Cash and cash equivalents and restricted cash at beginning of period

Cash and cash equivalents and restricted cash at end of period

Non-cash operating and financing activities:

Accrued interest or dividends exchanged for portfolio securities - related party

Supplemental disclosure of cash flow information:

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Shares issued for portfolio securities

Dilutive effect of shares issued

Decrease in net assets resulting from capital transactions

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Member interest ( 100 %)

Morgan E&P, LLC (4)

Member interest ( 100 %)

12 % senior secured

promissory note due 5/26 (5)

Total Control Investments:

Majority-owned (represents 47.6%of total investments at fair value)

Temporary Cash Investments

Treasury Bill

Treasury Bills

December 2023

Total Temporary Cash Investments (represents 27.7 % of total investments at fair value)

Treasury bills (represents 52.4% of total investments at fair value)

Total Investments

(1) Under Section 55 (a) of the 1940 Act, qualifying assets must represent at least 70% of total assets at the time of acquisitions of any non-qualifying assets.

As of none of the Fund's total assets were considered non-qualifying assets.

See Note 3 to the financial statements, Valuation of Investments.

(2) 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.

(3) Level 3 Portfolio Investment.

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

(2) See Note 3 to the financial statements, Valuation of Investments.

(3) Majority-owned investments are generally defined under the Investment Company Act of 1940 as companies in which we own more than 50% of the voting secu

(4) Level 3 Portfolio Investments

(5) Income-producing

SCHEDULE OF INVESTMENTS – (Continued)

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(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”) or other relevant regulatory authority.

We 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.

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 December 31, 2023, we had invested 43.7% 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.

As of December 31, 2023, none of our investments are considered non-qualifying assets as all of our investments are in enterprises that are considered eligible portfolio companies 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 December 31, 2023.

The value of one segment called “Energy” includes our two remaining portfolio companies and was 70.1% of our net asset value, 50.4% of our total assets and 100% of our investments in portfolio company securities (at fair value) as of December 31, 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.

1 unchanged sentence

Type of Securities

Fair Value as Percentage of Net Assets

Fair Value as Percentage of

Limited liability company investments

Secured and subordinated debt

The following is a summary by industry of the Fund’s investments in portfolio securities as of December 31, 2023 (in thousands):

Fair Value as Percentage of Net Assets

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

EQUUS TOTAL RETURN, INC.

13 unchanged sentences

Temporary Cash Investments

Treasury Bill

Treasury Bills

December 2022

1 unchanged sentence

Total Investments

(1) Under Section 55 (a) of the 1940 Act, qualifying assets must represent at least 70% of total assets at the time of acquisitions of any non-qualifying assets.

As of none of the Fund's total assets were considered non-qualifying assets.

See Note 3 to the financial statements, Valuation of Investments.

(2) 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.

(3) Level 3 Portfolio Investment.

(2) See Note 3 to the financial statements, Valuation of Investments.

(3) Majority-owned investments are generally defined under the Investment Company Act of 1940 as companies in which we own more than 50% of the voting secu

(4) Level 3 Portfolio Investments

(5) Income-producing

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

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(in thousands, except share data)

Our portfolio securities are restricted from public sale without prior registration under the Securities Act or other relevant regulatory authority.

Our portfolio securities are restricted from public sale without prior registration under the Securities Act of 1933 (hereafter, the “Securities Act”) or other relevant regulatory authority.

We 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 BDC, we may invest up to 30 % of our assets in non-qualifying portfolio investments, as permitted by the 1940 Act.

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 37.6% of our assets in securities of portfolio companies that constituted qualifying investments under the 1940 Act.

As of December 31, 2021, our investments are in enterprises that are considered eligible portfolio companies under the 1940 Act.

As of December 31, 2022, all of 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.

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.

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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 prior to February 28, 2023 and will likely do so again in the future.

We elected to be treated as a BDC under the Investment Company Act of 1940 Act (“1940 Act”), although our shareholders have previously authorized us to withdraw this election and, although such authorization has expired, 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.

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We had $ 40.9 million of our net assets of $ 48.3 million invested in portfolio securities.

We also had $ 6.0 million of temporary cash investments and restricted cash, including primarily the proceeds of a quarter-end margin loan that we incurred to maintain the diversification requirements applicable to a RIC.

We also had $ 45.4 million of U.S.

Treasury bills and restricted cash, 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, $ 45.0 million was invested in U.S.

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We had $ 15.7 million of our net assets of $ 35.2 million invested in portfolio securities.

We also had $ 2.5 million of temporary cash investments and restricted cash, including primarily the proceeds of a quarter-end margin loan that we incurred to maintain the diversification requirements applicable to a RIC.

We also had $ 6.0 million of U.S.

Treasury bills and restricted cash, 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.

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If we continue to be a BDC, failure to continue to qualify as a RIC could be material to us and our stockholders.

None of our cash deposits are insured by the FDIC in excess of $ 250,000 .

(3) SIGNIFICANT ACCOUNTING POLICIES

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

Earnings Per Share —Basic earnings per share is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted-average number of shares of common stock outstanding for the period.

Other potentially dilutive common stock, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

Use of Estimates —The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“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.

We have identified valuation of investments and revenue recognition as our most critical accounting estimates.

Consolidation —In accordance with Article 6 of Regulation S-X under the Securities Act of 1933, we do not consolidate portfolio company investments.

Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants (“AICPA”) Audit and Accounting Guide for Investment Companies, codified in Accounting Standards Committee (“ASC”) 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.

Under Accounting Standards Committee (“ASC”) 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.

Valuation of Investments— For most of our investments, market quotations are not available.

25 unchanged sentences

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.

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.

31 unchanged sentences

(in thousands)

Quoted Prices in

Active Markets

for Identical

Significant Other

Quoted Prices in Active Markets for Identical

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Control investments

Total investments

Temporary cash investments

Total investments and temporary cash investments

Treasury bills

Total investments

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:

2 unchanged sentences

Quoted Prices in

Active Markets

for Identical

Significant Other

Active Markets for Identical

Significant Other Observable Inputs (Level 2)

Significant Unobservable

Control investments

Total investments

Temporary cash investments

Total investments and temporary cash investments

Treasury bills

Total investments

The following table provides a reconciliation of fair value changes during 2023 for all investments for which we determine fair value using significant unobservable (Level 3) inputs:

1 unchanged sentence

(in thousands)

Control Investments

Affiliate Investments

Non-affiliate Investments

4 unchanged sentences

The following table provides a reconciliation of fair value changes during 2022 for all investments for which we determine fair value using significant unobservable (Level 3) inputs:

Fair Value Measurements as of December 31, 2021

Fair value measurements using significant unobservable inputs (Level 3)

(in thousands)

Quoted Prices in

Active Markets

for Identical

Significant Other

Control investments

Total investments

Temporary cash investments

Total investments and temporary cash investments

Non-affiliate

Fair value as of January 1, 2022

Change in unrealized appreciation

Purchases of portfolio securities

Fair value as of December 31, 2022

The following table provides a reconciliation of fair value changes during 2021 for all investments for which we determine fair value using significant unobservable (Level 3) inputs:

1 unchanged sentence

(in thousands)

Control Investments

Affiliate Investments

Non-affiliate Investments

Fair value as of January 1, 2021

Realized gain (loss)

Change in unrealized appreciation

Purchases of portfolio securities

Proceeds from sales/dispositions

Fair value as of December 31, 2021

2 unchanged sentences

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 holding in Equus Energy, we also consider acreage value, proved reserve multiples, daily production multiples, and discount rates.

In the case of our holdings in Morgan and Equus Energy, we may 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.

1 unchanged sentence

(in thousands)

Valuation Techniques

Unobservable Inputs

Weighted Average

Acreage Value (per acre)

Limited liability company investments

Equus Energy, LLC

Acreage Value (per acre)

Guideline Transaction Method

3 unchanged sentences

Discount Rate

Guideline Public Company Method

Proved Reserve Multiple

Daily Production Multiple

Morgan E&P, LLC

Guideline Transaction Method

Proved Reserve Multiple

Daily Production Multiple

Discounted Cash Flow

Discount Rate

Morgan E&P, LLC

Yield analysis

Discount for lack of marketability

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:

(in thousands)

Valuation Techniques

Unobservable Inputs

Weighted Average

Acreage Value (per acre)

Limited liability company investments

Acreage Value (per acre)

Equus Energy, LLC

Guideline Transaction Method

3 unchanged sentences

Discount Rate

Because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values, amounting to $ 15.7 million and $ 13.0 million as of December 31, 2022 and 2021, respectively, our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities.

The various weighted averages in the table above were determined based on acreage, reserves, production and, in the case of discount rates, an arithmetic average of minimum and maximum rates.

Because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values, our fair value determinations may materially differ from the values that would have been used had a ready market existed for the 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 .

Escrowed Receivables, at Estimated Fair Value — In December 2020, we sold our interest in PalletOne, Inc (“PalletOne”).

A portion of the proceeds from the sale was placed in a cash escrow account to secure the representations and warranties made to the purchaser.

The escrow receivable was valued at $ 3.4 million as of December 31, 2020.

During 2021, we received $ 3.8 million in cash from PalletOne.

We recognized a capital gain of $ 0.4 million due to the change in our estimated fair value of this receivable.

Investment Transactions —Investment transactions are recorded on the accrual method.

Investment Transactions — Investment transactions are recorded at fair value on the trade date.

Current-period changes in fair value of investments are reflected as a component of the net unrealized appreciation of portfolio securities on the Statements of Operations.

The net change in unrealized appreciation primarily reflects the change in investment fair values as of the last business day of the reporting period, including the reversal of previously recorded unrealized gains or losses for investments sold during the period.

Realized gains or losses are recognized as the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments written off during the period, net of recoveries.

As of December 31, 2023, we have no assets going through foreclosure.

Realized gains and losses on investments sold are computed on a specific identification basis.

15 unchanged sentences

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.

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.

Cash and Cash Equivalents and Restricted Cash — Cash includes unrestricted demand deposits at highly rated financial institutions and highly liquid investments with original maturities of three months or less.

The Company’s cash balances may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits from time to time.

Although the Company bears risk to amounts in excess of those insured by the FDIC, it does not anticipate any losses as a result due to the financial position and creditworthiness of the depository institutions in which those deposits are held.

We include our investing activities within cash flows from operations.

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

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 December 31, 2023, 2022 and 2021:

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All corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a franchise tax.

As a result, we paid Delaware Franchise tax in the amount of $ 0.02 million for the year ended December 31, 2022, $ 0.03 million for the year ended December 31, 2021 and $ 0.02 million for the years ended December 31, 2020, respectively.

As a result, we paid Delaware Franchise tax in the amount of $ 0.03 million for the year ended December 31, 2023, $ 0.02 million for the year ended December 31, 2022, $ 0.03 million for the year ended December 31, 2021, respectively.

Texas margin tax applies to legal entities conducting business in Texas.

20 unchanged sentences

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.

For the years ended December 31, 2022, 2021 and 2020, we recorded compensation expense of $ 0 , $ 0 , and $ 0.08 million, respectively, in connection with these awards.

Inasmuch as all existing awards under the Incentive Plan became fully-vested prior to 2021, we recorded no compensation expense relating to awards made under the Incentive Plan for the years ended December 31, 2023, 2022 and 2021.

(4) RELATED PARTY TRANSACTIONS AND AGREEMENTS

6 unchanged sentences

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 services rendered.

During the years ended December 31, 2020 we paid Kenneth I.

Denos, P.C., a professional corporation owned by Kenneth I.

Denos, a director of the Fund, $ 349,725 , for services provided to the Fund on an hourly basis pursuant to a month-to-month agreement.

Effective November 1, 2020, we entered into a written agreement with Mr.

Denos providing, in lieu of an hourly fee, base compensation of $ 360,000 per annum, as well as various annual and periodic bonuses based upon achievement of certain criteria, such as transformative acquisitions made by the Fund, and a percentage of the amount received in connection with the disposition of the Fund’s existing portfolio investments, as well as a percentage of the net amount received in connection with the disposition of future portfolio investments.

(5) FEDERAL INCOME TAX MATTERS

3 unchanged sentences

While we incurred net investment losses and had net realized capital gains for the year ended December 31, 2021, we accrued $ 0.04 million in corporate level income and excise tax in lieu of making a distribution.

This tax is was paid in March 2022.

This tax was paid in March 2022.

Our year-end for determining capital gains for purposes of Section 4982 of the Internal Revenue Service Code (the “Code”) is October 31.

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Accordingly, this recharacterization has increased capital in excess of par and decreased accumulated deficit.

There are no material book-to-tax differences for net investment income/losses, realized gains or unrealized appreciation/depreciation.

There were no material book-to-tax differences for net investment income/losses, realized gains or unrealized appreciation/depreciation.

For the years ended December 31, 2023 and December 31, 2022, there are no capital loss carryforwards.

For the years ended December 31, 2020, we had approximately $ 0.3 million in capital losses of which can be carried forward indefinitely.

Reclassification of returns of capital had no material book to tax differences for the three years ended December 31, 2023 and therefore has no material book to tax differences impacting accumulated earnings during that three-year period.

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The Fund’s accounting policy related to income tax penalties and interest assessments is to accrue for these costs and record a charge to expenses during the period that the Fund takes an uncertain tax position through resolution with the taxing authorities or expiration of the applicable statute of limitations.

All of the Fund’s federal and state tax returns for 2019 through 2022 remain open to examination (the State of Texas may be longer).

All of the Fund’s federal and state tax returns for 2020 through 2023 remain open to examination.

We believe that there are no tax positions taken or expected to be taken that would significantly increase or decrease unrecognized tax benefits within twelve months of the reporting date.

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Our current office space lease is month-to-month.

Rent expense under the operating lease agreement, inclusive of common area maintenance costs, was $ 90,000 , $ 90,000 , and $ 104,000 for the years ended December 31, 2022, December 31, 2021, and December 31, 2020, respectively.

Rent expense under the operating lease agreement, inclusive of common area maintenance costs, was $ 93,000 for the years ended December 31, 2023, December 31, 2022, and December 31, 2021, respectively.

We have no other leases.

Portfolio Companies.

As of December 31, 2022 and December 31, 2021, we had $ 0 and $ 0.15 million in outstanding commitments to our portfolio company investments.

As of December 31, 2023 and December 31, 2022, we had $ 1.7 million and $ 0 in outstanding commitments to our portfolio company investments.

Under certain circumstances, we may be called on to make follow-on investments in certain portfolio companies.

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Portfolio Company

Follow-On Cash

Equus Energy, LLC

Morgan E&P, LLC

During 2023, we recorded an increase of $ 17.0 million in net unrealized appreciation, from an unrealized appreciation of $ 7.5 million as of December 31, 2022 to a net unrealized appreciation of $ 24.5 million as of December 31, 2023.

Such change in unrealized appreciation resulted primarily from the increase in the fair value of our holdings in Equus Energy, LLC of $ 2.65 million, principally due to increases in the cost basis of this investment, as well as increases in oil and gas prices, as well as increases in the short- and long-term forward pricing curves for these commodities during 2022.

Such change in unrealized appreciation resulted primarily from the increase in the fair value of our holdings in Morgan E&P, LLC of $ 22.6 million, principally due to substantial increases in Morgan’s reserves and the reclassification of certain of its proved reserves from undeveloped to producing.

The increase in the fair value of Morgan was offset by the decrease in fair value of our holding in Equus Energy, LLC of $ 5.7 million, principally due to decreases in the forward curve for natural gas and its effect on the economic prospects of Equus Energy regarding future development of its gas properties.

2022 Portfolio Activity

During, 2021, we received $ 3.8 million in cash from the escrow receivable related to the sale of PalletOne.

We recognized a capital gain of $ 0.4 million due to the settlement of the escrow receivable in connection with this sale.

The following table summarizes significant investment activity during the year ended December 31, 2022 (in thousands):

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Portfolio Company

Follow-On Cash

Equus Energy, LLC

During 2021, we recorded an increase of $ 5.6 million in net unrealized appreciation, from an unrealized depreciation of $ 0.6 million as of December 31, 2020 to a net unrealized appreciation of $ 5.0 million as of December 31, 2021.

Such change in unrealized appreciation resulted primarily from the increase in the fair value of our holdings in Equus Energy, LLC of $ 6.0 million, principally due to an increase in the cost basis of this investment, as well as increases in oil and gas prices, as well as increases in the short- and long-term forward pricing curves for these commodities during 2021.

During 2022, we recorded an increase of $ 2.5 million in net unrealized appreciation, from an unrealized appreciation of $ 5.0 million as of December 31, 2021 to a net unrealized appreciation of $ 7.5 million as of December 31, 2022.

2021 Portfolio Activity

During 2020, we liquidated our investment in 5 th Element Tracking, LLC, receiving $ 1.2 million in cash, realizing a capital loss of $ 0.3 million.

During 2020, we received 19,164 shares of MVC in the form of stock dividend payments.

We sold our shares in MVC Capital, Inc.

for approximately $ 4.5 million in cash, realizing a capital loss of $ 2.5 million.

We also sold our interest in PalletOne, Inc., receiving $ 18.2 million in cash, $ 3.4 million in escrow, realizing a capital gain of $ 21.3 million.

We also realized capital gains of $ 8 thousand as a result of disposition of temporary cash investments.

During, 2021, we received $ 3.8 million in cash from the escrow receivable related to the sale of PalletOne.

We recognized a capital gain of $0.4 million due to the settlement of the escrow receivable in connection with this sale.

The following table summarizes significant investment activity during the year ended December 31, 2021 (in thousands):

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Portfolio Company

Follow-On Non-cash

MVC Capital, Inc.

Equus Energy, LLC

During 2020, we recorded a decrease of $ 26.0 million in net unrealized appreciation, from $ 25.4 million as of December 31, 2019 to a net unrealized depreciation of $ 0.6 million as of December 31, 2020.

Such change in unrealized appreciation resulted primarily from the following changes:

Transfer of unrealized depreciation to realized loss of our holdings in MVC of $ 1.7 million in connection with the sale of our shares of MVC;

Transfer of unrealized appreciation to realized gain of our holdings in PalletOne, Inc.

of $ 26.1 million in connection with the sale of our common shares of PalletOne, Inc.;

Decrease in the fair value of our holdings in Equus Energy, LLC of $ 1.6 million, principally due to decreases in gas prices and decreases in the short- and long-term forward pricing curve for oil.

(8) EQUUS ENERGY, LLC

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Condensed Consolidated Balance Sheets

Current assets:

Assets Current assets:

Cash and cash equivalents

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Total liabilities

Total member's (deficit) equity

Total liabilities and member's (deficit) equity

Total member's deficit

Total liabilities and member's deficit

EQUUS ENERGY, LLC and SUBSIDIARY

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Total operating expenses

Loss from operations

Non-operating income

Total other income

Net income (loss)

EQUUS ENERGY, LLC and SUBSIDIARY

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Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

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Accounts payable and accrued liabilities

Net cash used in operating activities

Due to parent

Net cash provided by (used in) operating activities

Cash flows from investing activities:

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Capital contribution

Net cash (used in) provided by investing activities

Net (decrease) increase in cash

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

(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, and acquired approximately 1,100 additional acres on September 26, 2023.

The acreage and associated mineral rights were acquired from Pro Energy I LLC (“Pro Energy”).

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.

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 December 31, 2023, Morgan had drawn $ 8.3 million under this facility.

(See Subsequent Events below where we increased the total amount of the facility to

$ 10.5 million and where we advanced, subsequent to year-end, an additional $ 2.0 million under the facility).

Below is summarized audited condensed consolidated financial information for Morgan E&P, LLC as of December 31, 2023 and for the period from inception (April 3, 2023) through December 31, 2023, respectively, (in thousands):

MORGAN E&P, LLC

Condensed Balance Sheets

December 31, 2023

Cash and cash equivalents

Oil and gas receivables:

Revenue receivables

Joint interest billing receivables

Prepaids and other current assets

Current assets

Property, plant and equipment

Oil and gas properties, net-full cost method

Operating lease - right-of-use assets

Other property, plant and equipment, net

Total property, plant and equipment - net

Liabilities and member's deficit

Current liabilities

Accounts payable

Revenue payable

Prepayments from working interest owners

Current portion of lease liabilities

Due to parent

Net cash provided by investing activities

Net increase (decrease) in cash

Accrued liabilities

Total current liabilities

Long-term liabilities

Asset retirement obligations

Long-term operating lease liabilities

Note payable - Due to parent

Long-term accrued liabilities

Total long-term liabilities

Total liabilities

Retained deficit

Total member's deficit

Total liabilities and member's deficit

MORGAN E&P, LLC

Condensed Statements of Operations

From inception (April 3, 2023) to December 31, 2023

Oil and gas revenues

Operating costs and expenses

Lease operating expense

Production and ad valorem taxes

Depreciation, depletion, and amortization

General and administrative

Total operating costs and expenses

Loss from operations

Other income (expense)

Interest income

Interest expense

Total other income and expenses, net

MORGAN E&P, LLC

Condensed Statements of Cash Flows

From inception (April 3, 2023) through

December 31, 2023

Cash flows from operating activities:

Adjustments to reconcile net income to cash flows used in operating activities:

Depreciation, depletion, amortization

Amortization of right-of-use assets

Changes in operating assets and liabilities:

Revenue receivables

Joint interest billing receivables

Prepaids and other current assets

Accounts payable

Revenue payable

Prepayments from working interest owners

Accounts payable - Due to parent

Accrued liabilities

Net cash provided used in operating activities

Cash flows from investing activities:

Additions to oil and gas properties

Acquisition of oil and gas properties

Additions to other property, plant and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from note payable - Due to parent

Net cash used by financing activities

Net change in cash

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Non-cash operating and financing activities:

Conversion of related party payable to member’s (deficit) equity

(10) RECENT ACCOUNTING PRONOUNCEMENTS

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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.

Accounting Standards Not Yet Adopted —In November 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”.

The amendments in this ASU require improved reportable segment information on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses.

This update will be effective for financial statements issued for fiscal years beginning after December 15, 2023, and interim periods for fiscal years beginning after December 15, 2024.

The Company is currently evaluating the impact of this standard on the consolidated financial statements

In December 2023, FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”.

The amendments in this ASU require improved annual income tax disclosures surrounding rate reconciliation, income taxes paid, and other disclosures.

This update will be effective for financial statements issued for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact of this standard on the consolidated financial statements.

Accounting Standards Recently 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 Company is currently evaluating the impact of the new standard on the Company's financial statements and related disclosures.

Accounting Standards Recently Adopted —In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or acquired funds (the “Final Rules”).

The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act.

Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules amend the definition of “significant subsidiary” in a manner that is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment company.

The Final Rules became effective on January 1, 2021, but voluntary compliance was permitted in advance of the effective date.

The Company elected to comply with the Final Rules effective June 30, 2020 which reduced the requirement for the Company to provide separate audited financial statements and summarized financial information for its controlled portfolio companies going forward.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes.

The new standard is effective for the Company beginning on January 1, 2021.

There was no impact on the financial statements or financial statement disclosures.

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Treasury Bills matured and we repaid our year-end margin loan.

On February 26, 2024, we amended our credit facility with Morgan and increased the total amount that may be drawn under the facility from $ 10.0 to $ 10.5 million.

Also, during February and March 2024, we advanced Morgan an additional $ 2.2 million under this facility.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K/A

Item 8. Financial Statements and Supplementary Data