What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-12-18 compared with 2025-12-17 · 144 added, 100 removed, 203 unchanged (55% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are incorporating by reference Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the fiscal year 2023 compared to fiscal year 2022.

Equus is a BDC that provides financing solutions for privately held middle market and small capitalization companies.

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Our investment objective is to seek the highest total return, consisting of capital appreciation and current income.

Consistent with our announced intention to transform Equus into an operating company or a permanent capital vehicle, our shareholders have previously authorized our Board to withdraw our BDC election and, although this authorization has since expired, we expect to receive a further authorization from our stockholders in the future.

Consistent with our announced intention to transform Equus into an operating company or a permanent capital vehicle, on November 1, 2022, our shareholders authorized our Board to withdraw our BDC election and, although this authorization expired on February 28, 2023, we expect to receive a further authorization from our stockholders in the future.

Nevertheless, we will not withdraw this election unless and until we have entered into a definitive agreement to convert Equus into an operating company or a permanent capital vehicle.

Further, we will also require a subsequent affirmative vote from holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our business.

Further, we will require a subsequent affirmative vote from holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our business.

See Significant Developments – Authorization to Withdraw BDC Election above.

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government securities and short-term high-quality debt investments.

Prior to the fourth quarter of 2024, Equus qualified as a RIC under Subchapter M of the Code and may seek to requalify as a RIC in the future.

Equus is a RIC under Subchapter M of the Code.

To qualify as a RIC, we must meet certain source of income and asset diversification requirements.

If we comply with the provisions of Subchapter M, the Fund generally would not have to pay corporate-level income taxes on any income that is distributed to our stockholders.

If we comply with the provisions of Subchapter M, the Fund generally does not have to pay corporate-level income taxes on any income that is distributed to our stockholders.

Investment Income .

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Under the 1940 Act, we have the ability to borrow funds and issue debt securities or preferred stock that are referred to as senior securities, subject to certain restrictions, including an overall limitation on the amount of outstanding debt, or leverage, relative to equity of 1.5:1.

Because of the nature and size of our portfolio investments, we have periodically borrowed funds to make qualifying investments in order to maintain our qualification as a RIC.

During the first three quarters of 2024 and all of 2023, we borrowed such funds by accessing a margin account with a securities brokerage firm.

We invested the proceeds of these margin loans in high-quality securities such as U.S.

Treasury securities until they were repaid.

Because of the nature and size of our portfolio investments, we periodically borrow funds to make qualifying investments in order to maintain our qualification as a RIC.

During 2022 and 2021, we borrowed such funds by accessing a margin account with a securities brokerage firm.

We invest the proceeds of these margin loans in high-quality securities such as U.S.

Treasury securities until they are repaid.

We refer to these high-quality investments as “restricted assets” because they are not generally available for investment in portfolio companies under the terms of borrowing.

If, in the future, we seek to requalify as a RIC and cannot borrow funds to make such qualifying investments at the end of any future quarter, we would not so requalify and would, as a non-RIC, be subject to corporate-level income tax on our net investment income and realized capital gains, if any.

If, in the future, we cannot borrow funds to make such qualifying investments at the end of any future quarter, we may not qualify as a RIC and would become subject to corporate-level income tax on our net investment income and realized capital gains, if any.

In addition, our distributions to stockholders would be taxable as ordinary dividends to the extent paid from earnings and profits.

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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.

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, 2024, 2023 and 2022.

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

Critical Accounting Estimates

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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.

See Note 3 to the financial statements included in Item 8.

As of December 31, 2019, one of our portfolio investments, MVC Capital, Inc., was publicly listed on the NYSE with 563,894 common shares.

In the fourth quarter of 2020, we disposed of these shares, together with additional shares of MVC that were received as dividends during the first three quarters of that year.

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 .

Federal Income Taxes

Because we are not required to satisfy RIC requirements as a BDC, we may seek to grow the Fund as a BDC but not necessarily as a RIC.

If we continue as a RIC, we will need to comply with the requirements of the Code necessary for us to qualify as a RIC.

So long as we comply with these requirements, we generally will not be subject to corporate-level federal income taxes on otherwise taxable income (including net realized capital gains) distributed to stockholders.

For the year ended December 31, 2022, we have not accrued any income or excise tax.

For the year ended December 31, 2021, we accrued $38,000 in corporate level income tax and excise tax in lieu of making a distribution of net capital gains for the sale of PalletOne, Inc.

This tax was paid in March 2022.

We may borrow money from time to time to maintain our status as a RIC under the Code.

See “ Overview – Financing Activities ” above.

Interest Income Recognition

We record interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis to the extent that we expect to collect such amounts.

We stop accruing interest on investments when we determine that interest is no longer collectible.

We may also impair the accrued interest when we determine that all or a portion of the current accrual is uncollectible.

If we receive any cash after determining that interest is no longer collectible, we treat such cash as payment on the principal balance until the entire principal balance has been repaid, before we recognize any additional interest income.

We accrete or amortize discounts and premiums on securities purchased over the life of the respective security using the effective yield method.

The amortized cost of investments represents the original cost adjusted for the accretion of discount and/or amortization of premium on debt securities.

Payment in Kind Interest

We may have loans in our portfolio that may pay PIK interest.

We add PIK interest, if any, computed at the contractual rate specified in each loan agreement, to the principal balance of the loan and recorded as interest income.

To maintain our status as a RIC, we must pay out to our stockholders this non-cash source of income in the form of dividends even if we have not yet collected any cash in respect of such investments.

Current Market Conditions

GDP increased at an annualized rate of 2.3% in the fourth quarter of 2024, which was relatively consistent with consensus estimates for the quarter, but lower than GDP growth for the third quarter of 2024 (3.1%), as well as the fourth quarter of 2023 (3.2%).

Overall GDP growth for the full year 2024 was 2.8% compared to 2.9% in 2023.

The increase in GDP during the fourth quarter of 2024 was driven principally by consumer spending, offset by a decrease in business investment during the quarter.

The Congressional Budget Office is projecting GDP growth of 1.9% for 2025 and 1.8% for 2026.

The CBO report was released prior to the inauguration of the new U.S.

President and the administration’s imposition of tariffs which has resulted in a downward adjustment to GDP forecasts.

Citing tariff concerns, Morgan Stanley revised its GDP growth forecast for 2025 and 2026 from 1.9% and 1.3%, respectively, to 1.5% and 1.2%.

Bureau of Economic Analysis;

Morgan Stanley;

GDP increased at an annualized rate of 2.7% in the fourth quarter of 2022, compared to an annualized increase of 7.0% for the fourth quarter of 2021, and 3.2% for the third quarter of 2022.

Overall, GDP growth was 2.1% for all of 2022, as compared to 5.9% for all of 2021.

The slower GDP growth in 2022 was largely due to decreases in consumer spending, exports, and inventories.

The Conference Board is projecting negative growth for the first three quarters of 2023 and an overall projected increase of only 0.3% for the entire year, increasing to 1.6% in 2024.

The Congressional Budget Office is predicting 0.1% GDP growth for 2023.

The Conference Board, The Wall Street Journal;

Congressional Budget Office ).

As of February 2023, the U.S.

unemployment rate stood at 4.1%, and has remained largely stable for a considerable period, fluctuating between 3.4% and 4.1% for the previous 36 months.

With the advent of tariffs, government layoffs, and a more aggressive deportation policy for undocumented immigrants, most economists are projecting the unemployment rate to increase during the remainder of 2025.

unemployment rate stood at 3.4%, the lowest since 1969.

Most economists, however, do not project this level to continue, as recessionary headwinds and lower growth forecasts suggest an increase during the remainder of 2023.

Moreover, the labor participation rate remains at approximately 62.5%, below the pre-pandemic high of 63.3% of February 2020.

Most of the recent employment gains in 2023 and 2024 were due to gains in the leisure and hospitality industry, construction, trade, transportation, and utilities.

Most of the recent employment gains in 2022 were due to gains in the leisure and hospitality industry, healthcare, construction, and social assistance.

Bureau of Labor Statistics;

Trading Economics ).

Beginning in 2021 and continuing through 2022, consumer prices increased the most in four decades, reaching a high of 8.3%, before steadily declining, more or less, throughout 2023 and 2024, finishing the year at 2.9%.

This trend has continued into January 2025, where the U.S.

Consumer prices, which had largely been held in check during the pandemic, began to rise steadily beginning in the second half of 2021.

By the third quarter of 2022, inflation had increased to an annualized rate of 8.3%, the highest in over four decades, before tapering in the fourth quarter and rounding out 2022 at 6.5% for the entire year.

The slight downward trend has continued into January 2023, where the U.S.

Bureau of Labor Statistics reported an annualized rate of 6.4%.

Notwithstanding a projected slowing of the U.S.

economy for 2025, most economists are projecting similar rates of inflation for 2025 as compared to 2024, principally due to the effect of expected tariffs on imported goods.

Bureau of Labor Statistics;

Morgan Stanley ).

Global merger and acquisition activity in 2024 was approximately $2.2 trillion, a slight increase from $2.1 trillion in 2023, but well off the high of $4.1 trillion in 2021.

Financial services, materials, industrials, and information technology were the sectors that experienced the most significant dealmaking activity during the year.

Most analysts expect consolidation activity in 2025 to increase over 2024, principally due to expected lower costs of capital.

Ernst & Young ).

Private equity activity increased from $1.9 trillion in 2023 to $2.1 trillion in 2024, reversing a downward trend from 2021 and 2022 and the highs experienced during the Covid-19 pandemic.

Nevertheless, private equity fundraising was lower for the third straight year due to a weak exit environment that has constrained liquidity, with fund flows down 30% in 2024 as compared to 2023.

Trading Economics ).

Global merger and acquisition activity in 2022 was $3.6 trillion, a 28% drop from 2021’s all-time high of $5.0 trillion, with larger M&A transactions dropping by 31% compared to 2021.

Technology, energy, and healthcare were the sectors that experienced the most significant dealmaking activity during the year.

Higher interest rates were the principal cause of the decline in dealmaking, which slowed considerably in the second half of 2022.

Wall Street Journal ).

Private equity firms experienced a similar slowdown in activity during 2022, with investment activity falling to $1.3 trillion, a 38.6% decrease from $2.21 trillion in 2021.

First round investments comprised the largest component of PE activity, amounting to $452.3 billion across approximately 16,000 transactions.

Technology, media, and telecommunications were again the industries most represented in private equity transactions in 2022.

During 2022, our net asset value decreased from $2.69 per share as of December 31, 2021 to $2.61 per share as of December 31, 2022.

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We use cash primarily to make additional investments, either in new companies or as follow-on investments in the existing portfolio companies and to pay the dividends to our stockholders.

Because of the nature and size of the portfolio investments, we have, until the fourth quarter of 2024, periodically borrowed funds to make qualifying investments to maintain our prior tax status as a RIC.

As a RIC, we often borrowed such funds by utilizing a margin account with a securities brokerage firm.

If we seek to requalify as a RIC, there is no assurance that such arrangement will be available in the future.

If the Fund is unable to borrow funds to make qualifying investments, it may no longer requalify as a RIC.

The Fund would then continue to be subject to corporate income tax on its net investment income and realized capital gains, and distributions to stockholders would be subject to income tax as ordinary dividends.

Because of the nature and size of the portfolio investments, we may periodically borrow funds to make qualifying investments to maintain our tax status as a RIC.

We often borrow such funds by utilizing a margin account with a securities brokerage firm.

There is no assurance that such arrangement will be available in the future.

If the Fund is unable to borrow funds to make qualifying investments, it may no longer qualify as a RIC.

The Fund would then be subject to corporate income tax on its net investment income and realized capital gains, and distributions to stockholders would be subject to income tax as ordinary dividends.

The Fund has the ability to borrow funds and issue forms of senior securities representing indebtedness or stock, such as preferred stock, subject to certain restrictions.

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however, we are cognizant of current market conditions that might affect future valuations of portfolio securities.

Our operating cash flow and cash on hand is not sufficient to meet operating requirements or to finance routine capital expenditures through the next twelve months.

We are therefore seeking liquidity from the sale of our portfolio interests, as well as seeking external debt and equity financing from third parties.

Should either or both of the foregoing events not occur as contemplated, the Fund will not have the necessary funds to maintain normal operations and, therefore, substantial doubt would exist about the Fund’s ability to continue as a going concern.

Further, if we effect a transformation of the Fund into an operating company as described under “ Significant Developments – Authorization to Withdraw BDC Election ” above, we may utilize some or a substantial portion of our current liquidity in connection with a contemplated transaction as payment of the purchase price and to pay associated legal, due diligence, accounting, and other fees.

We believe that our operating cash flow and cash on hand will be sufficient to meet operating requirements and to finance routine capital expenditures through the next twelve months.

If we effect a Consolidation of the Fund as described under “ Significant Developments – Authorization to Withdraw BDC Election ” above, we may utilize some or a substantial portion of our current liquidity in connection with a contemplated transaction as payment of the purchase price and to pay associated legal, due diligence, accounting, and other fees.

Further, we may borrow funds from financial institutions or other providers of debt capital to provide and pay for a part of the consideration and expenses necessary to effect a conversion of Equus into an operating company.

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As of December 31, 2022, we had total assets of $41.7 million, of which $15.7 million were invested in portfolio investments and $19.3 million were invested in cash and cash equivalents.

As of December 31, 2022, we also had $6.1 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.

Of this amount, $6.0 million was invested in U.S.

Treasury bills and $0.06 million represented a required 1% brokerage margin deposit.

These securities were held by a securities brokerage firm and pledged along with other assets to secure repayment of the margin loan.

Treasury bills matured on January 3, 2023 and we subsequently repaid this margin loan.

The margin interest was paid on February 3, 2023.

Operating Activities.

We generated $38.2 million in cash for operating activities in 2024 principally due to $45.1 million sales in net investments in U.S.

Treasury bills, offset by $2.2 million in investments, along with $4.6 million in fees to professional advisors, directors and other fees.

We used $7.7 million in cash for operating activities in 2022.

In 2022, we made a $0.2 million investment in the form of a cash advance in a portfolio company.

We paid fees to our professional advisers, directors, banks and others of $3.6 million.

Financing Activities .

We used $45.0 million in cash from financing activities for 2024, principally in connection with repayments net of borrowings on margin.

We provided $3.5 million in cash from financing activities for 2022.

We did not declare any dividends in 2022.

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As of December 31, 2021, we had total assets of $39.7 million, of which $13.0 million were invested in portfolio investments and $23.5 million were invested in cash and cash equivalents.

As of December 31, 2023, 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.

As of December 31, 2021, 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.

Of this amount, $2.5 million was invested in U.S.

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Operating Activities.

We used $51.4 million in cash for operating activities in 2023 principally due to $8.3 million in investments, $4.3 million in fees to professional advisors, director and other fees, along with $38.9 million increase in net investments in U.S.

Treasury bills.

We provided $21.1 million in cash for operating activities in 2021.

In 2021, we made a $0.3 million investment in the form of a cash advance in a portfolio company.

We paid fees to our professional advisers, directors, banks and others of $3.4 million, while realizing a gain of $0.4 million from the disposition of one portfolio company.

Financing Activities.

We provided $39.1 million in cash from financing activities for 2023, principally in connection with net borrowings on margin.

We used $21.5 million in cash from financing activities for 2021.

We did not declare any dividends in 2021.

Year Ended December 31, 2020

As of December 31, 2020, we had total assets of $58.8 million, of which $7.0 million were invested in portfolio investments and $23.6 million were invested in cash and cash equivalents.

As of December 31, 2020, we also had $24.2 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.

Of this amount, $24.0 million was invested in U.S.

Treasury bills and $0.2 million represented a required 1% brokerage margin deposit.

These securities were held by a securities brokerage firm and pledged along with other assets to secure repayment of the margin loan.

Treasury bills matured on January 5, 2021 and we subsequently repaid this margin loan.

The margin interest was paid on February 3, 2021.

Operating Activities.

We provided $24.6 million in cash for operating activities in 2020.

In 2020, we made a non-cash equity conversion of $0.6 million and a $0.3 million investment in the form of a cash advance in a portfolio company.

We paid fees to our professional advisers, directors, banks and others of $5.2 million, while realizing net capital gains of $18.5 million from the disposition of three portfolio companies.

Financing Activities.

We used $5.0 million in cash from financing activities for 2020.

We did not declare any dividends in 2020.

Results of Operations Investment Income and Expense

Year Ended December 31, 2022 as compared to Year Ended December 31, 2021

Total income from portfolio securities was $1.3 million for 2024 and $0.3 for 2023.

Compensation expense decreased to $1.8 million in 2024 from $1.9 million in 2023.

Total income from portfolio securities was unchanged at $0 for 2022 and 2021.

Compensation expense was comparable from 2021 to 2022, at $1.6 million.

Professional liability expense increase to $0.7 million in 2022 from $0.5 million in 2021, primarily due to a increase in premiums.

As a result of the factors described above, net investment loss after expenses was relatively unchanged at $3.6 million for 2022 as compared to a net investment loss of $3.5 million in 2021.

Year Ended December 31, 2021 as compared to Year Ended December 31, 2020

Total income from portfolio securities was $0 for 2021, compared to $0.3 million in 2020.

The decrease was due to the sale of interest-bearing securities in 2020.

Compensation expense in 2021 totaled $1.6 million, a decrease of $1.5 million.

Compensation expense in 2020 was $3.1 million.

The 2020 amount included bonus accruals of $990,000, which amount will be paid out over the next three fiscal years.

The difference in compensation expense from 2020 to 2021 was a result of bonuses earned in connection with dispositions of certain of the Fund’s portfolio investments in 2020.

Professional fees decreased to $0.7 million in 2021 from $1.1 million in 2020, primarily due to a decrease in consulting and legal fees.

General and administrative expenses were comparable from 2020 to 2021 and were $0.14 million and $0.17 million respectively.

As a result of the factors described above, net investment loss after expenses was $3.4 million for 2021 as compared to a net investment loss of $4.9 million in 2020.

Year Ended December 31, 2020 as compared to Year Ended December 31, 2019

Total income from portfolio securities was comparable from 2019 to 2020 and were $0.3 million respectively.

Compensation expense in 2019 was $1.7 million.

Compensation expense in 2020 totaled $3.1 million, an increase of $1.4 million.

This amount included bonus accruals of $990,000, which amount will be paid out over the next three fiscal years.

The difference in compensation expense from 2019 to 2020 was a result of bonuses earned in connection with dispositions of certain of the Fund’s portfolio investments in 2020.

Professional fees increased to $1.1 million in 2020 from $1.0 million in 2019, primarily due to an increase in consulting and legal fees.

General and administrative expenses were comparable from 2019 to 2020 and were $0.2 million respectively.

As a result of the factors described above, net investment loss after expenses was $4.9 million for 2020 as compared to a net investment loss of $3.4 million in 2019.

Summary of Portfolio Investment Activity

Year Ended December 31, 2022

During 2024, we made an $2.2 million investment in Morgan E&P, LLC.

During 2022, we made a $0.15 million follow-on investment in Equus Energy, LLC.

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

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Follow-On Cash

Morgan E&P, LLC

Equus Energy, LLC

Year Ended December 31, 2021

During 2023, we made an $8.3 million investment in Morgan E&P, LLC.

During 2021, we made a $0.35 million non-cash follow-on investment in Equus Energy, LLC.

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

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Follow-On Cash

Morgan E&P, LLC

Equus Energy, LLC

Year Ended December 31, 2020

During 2022, we made a $0.15 million follow-on investment in Equus Energy, LLC.

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

During 2020, we made a $0.6 million non-cash follow-on investment in Equus Energy, LLC.

The following table includes summarizes investment activity during the year ended December 31, 2020 (in thousands):

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Portfolio Company

Follow-On Cash

Morgan E&P, LLC

Follow-On Non-cash

MVC Capital, Inc.

Equus Energy, LLC

Realized Gains and Losses

Year Ended December 31, 2022

We realized capital gains of $138 thousand as a result of disposition of U.S.

Treasury bills.

We realized capital gains of $1.0 thousand as a result of disposition of temporary cash investments.

Year Ended December 31, 2021

We realized capital gains of $34 thousand as a result of disposition of U.S.

Treasury bills.

During 2021, we received a combination of escrowed and contingent payments of $3.8 million from the sale of our interest in PalletOne, Inc.

in December 2020, realizing a capital gain of $0.4 million.

Year Ended December 31, 2020

We realized capital gains of $1.0 thousand as a result of disposition of U.S.

Treasury bills.

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.

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 a combination of escrowed and contingent payments, realizing a capital gain of $21.3 million.

Changes in Unrealized Appreciation of Portfolio Securities

Year Ended December 31, 2022

During 2024, we recorded a decrease of $15.6 million in net unrealized appreciation, from an unrealized appreciation of $24.5 million at December 31, 2023 to a net unrealized appreciation of $8.9 million at December 31, 2024.

Such change in unrealized appreciation resulted primarily from the decrease in the fair value of our holdings in Morgan E&P, LLC of $9.6 million, principally due to a lower forward price curve for oil, as well as the reclassification of certain of its proved reserves from producing to non-producing.

The change in unrealized appreciation also resulted from the decrease in fair value of our holding in Equus Energy, LLC of $6.0 million, principally due to decreases in the forward curve for oil and natural gas and its effect on the economic prospects of Equus Energy regarding future development of its oil and gas properties.

See Subsequent Events below where we sold our interest in Equus Energy in March 2025 for a combination of cash and preferred stock valued at $4.0 million.

Year Ended December 31, 2023

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

Year Ended December 31, 2022

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 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 2022.

Year Ended December 31, 2021

During 2021, we recorded an increase of $5.6 million in net unrealized appreciation, from an unrealized depreciation of $0.6 million at December 31, 2020 to a net unrealized appreciation of $5.0 million at 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 foward pricing curves for these commodities during 2021.

Year Ended December 31, 2020

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

Portfolio Securities

As of December 31, 2024, we had active investments in the following portfolio companies:

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”), a company whose principals have decades of oil and gas experience and who have themselves drilled over 1,800 horizontal wells in the Williston Basin over a 10-year period.

In May 2023, we entered into an agreement with Morgan to provide it up to $10.0 million in senior debt financing, which amount was subsequently amended to $10.5 million, subject to a schedule of disbursements and draws that we determine.

As of December 31, 2024, we advanced Morgan $10.5 million under this facility.

During 2023 and 2024, Morgan substantially increased its reserves and completed the drilling of two new wells.

However, due to mechanical issues, these two wells were classified as non producing during the fourth quarter of 2024.

As a result, the fair value of our debt and equity interest in Morgan was $23.5 million at December 31, 2024.

As of December 31, 2022, we had active investments in the following portfolio company:

Equus Energy, LLC

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In December 2011, we contributed $250,000 to the capital of Equus Energy.

On December 27, 2012, we invested an additional $6.8 million in Equus Energy for the purpose of additional working capital and to fund the purchase of $6.6 million in working interests that, as of December 31, 2024, consisted of 136 producing and non-producing oil and gas wells, including associated development rights of approximately 21,520 acres situated on 9 separate properties in Texas and Oklahoma.

On December 27, 2012, we invested an additional $6.8 million in Equus Energy for the purpose of additional working capital and to fund the purchase of $6.6 million in working interests presently represented by 136 producing and non-producing oil and gas wells, including associated development rights of approximately 21,520 acres situated on 10 separate properties in Texas and Oklahoma.

On September 30, 2020, the Fund provided an additional $0.6 million in capital to Equus Energy for the purpose of additional working capital.

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The assets were purchased from Warren American Oil Company, LLC, a Tulsa-based oil and gas firm.

The fair value of our holding in Equus Energy decreased from $10.0 million at December 31, 2023 to $4.0 million at December 31, 2024, principally due to decreases in the forward curve for oil and natural gas and its effect on the economic viability of Equus Energy’s gas reserves for future development.

See Subsequent Events below where we sold our interest in Equus Energy in March 2025 for a combination of cash and preferred stock valued at $4.0 million.

Following sharp price decreases of oil and gas in the first and second quarters of 2020, short and long-term prices of oil began to recover in the second half of the year.

As a result, the fair value of this holding increased to $15.7 million at December 31, 2022 from $13.0 million at December 31, 2021.

Off Balance Sheet Arrangements

We had an operating lease for office space that expired in September 2014.

Our current office space lease since December 31, 2020 is on a month-to-month basis.

5 unchanged sentences

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

Issuance of Convertible Note and Warrants .

On February 10, 2025, we issued a 1-year senior convertible promissory note bearing interest at the rate of 10.0% per annum in exchange for $2.0 million in cash (“Equus Note”).

The Equus Note is convertible into shares of the Fund’s common stock at a conversion price of $1.50 per share.

Contemporaneously with the issuance of the Note, the Fund also issued two common stock purchase warrants to acquire an aggregate of 2,000,000 shares of the Fund’s common stock at an exercise price of $1.50 per share.

New Portfolio Investment .

On February 10, 2025, we purchased from General Enterprise Ventures, Inc., a developer of fire suppression products (“GEVI”), a 1- year senior convertible promissory note bearing interest at the rate of 10% per annum, in exchange for $1.5 million in cash (“GEVI Note”).

The GEVI Note is convertible into shares of GEVI’s common stock at a conversion price of $0.40 per share.

Contemporaneously with the purchase of the GEVI Note, the Fund also received a common stock purchase warrant to acquire an aggregate of 1,875,000 shares of GEVI common stock at an exercise price of $0.50 per share.

Sale of Equus Energy .

On March 3, 2025, we sold Equus Energy to North American Energy Opportunities Corp., a developer of upstream oil and gas assets (“NAEOC”).

The consideration provided by NAEOC consisted of $1.25 million in cash and 27,500 shares of preferred stock, redeemable within 6 months of the date of issuance at $100.00 per share based upon fulfillment of certain conditions.

On January 3, 2023, our holding in $6.0 million in U.

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

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 7. Management’s Discussion and Analysis