What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-12-18 compared with 2025-12-17 · 251 added, 406 removed, 491 unchanged (57% of the section changed)

1 unchanged sentence

Index to Financial Statements

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

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

PCAOB ID# 243 )

Balance Sheets As of December 31, 2024 and 2023 40

Balance Sheets—As of December 31, 2022 and December 31, 2021

Statements of Operations—For the years ended December 31, 2022, 2021 and 2020

7 unchanged sentences

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors Equus Total Return, Inc.

Shareholders and Board of Directors

Equus Total Return, Inc.

Houston, Texas

1 unchanged sentence

We have audited the accompanying balance sheets of Equus Total Return, Inc.

(the “Fund”), including the schedules of investments, as of December 31, 2024 and 2023, the related statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2024, 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 ended December 31, 2024.

(the “Fund”), including the schedules of investments, as of December 31, 2022 and 2021, the related statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2022, 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.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming that the Fund will continue as a going concern.

As discussed in Note 2 to the financial statements, the Fund has insufficient operating cash flows and cash on hand that raises substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 2.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Limited Liability Company Investments

As described in Note 3 to the financial statements, the Fund’s control investment portfolio has a total estimated fair value of $27.5 million at December 31, 2024, which includes $17.0 million of limited liability company investments.

Management has determined that these limited liability company investments are Level 3 investments in accordance with Accounting Standards Codification Topic 820 and utilize inputs that are unobservable and significant to the fair value measurement.

Management engaged an independent third-party valuation firm and reserve engineers 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, the discounted cash flow method and transaction price method, and (ii) the use of unobservable inputs in these valuation techniques, which include, acreage value multiples, estimated future production, proved reserve multiple, daily production multiple and discount rate.

Auditing these elements was complex because it involved especially subjective auditor judgment, including the use of personnel with specialized skill and knowledge.

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.

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.

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 reasonableness of the estimated future production by:

(i) comparing to historical production volumes and historical production decline analyses and (ii) assessing the consistency with evidence obtained in other areas of the audit.

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

(i) evaluating the appropriateness of the valuation techniques applied to each limited liability company investment and (ii) evaluating whether unobservable inputs, including the acreage value multiples, proved reserve multiple, daily production multiple, and discount rate were reasonable by comparing to independent data sources.

/s/ BDO USA, P.C.

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

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 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

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

Houston, Texas

April 10, 2025

March 28, 2023

EQUUS TOTAL RETURN, INC.

BALANCE SHEETS

December 31, 2024

December 31, 2023

(in thousands, except shares and per share amounts)

2 unchanged sentences

Total investments in portfolio securities at fair value

Treasury Bills

Temporary cash investments

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 shares authorized as of December 31, 2024 and December 31, 2023, and 13,586,173 shares outstanding as of December 31, 2024 and 31-Dec-23

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

Preferred stock, $ 0.001 par value per share;

10,000,000 shares authorized as of December 31, 2024 and December 31, 2023

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

Common stock, par value

2 unchanged sentences

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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Investment income:

Interest income:

Control investments

Total interest income

Interest from U.S.

Treasury Bills

Interest and dividend income:

Non-affiliate investments - related party

Total interest and dividend income

Interest from temporary cash investments

Other income - director fees

Total investment income

1 unchanged sentence

Professional fees

Professional liability expenses

Director fees and expenses

Professional liability expenses

General and administrative expenses

3 unchanged sentences

Net investment loss

Net realized gain:

Treasury Bills

Net realized gain

Net realized gain (loss):

Affiliate investments

Non-affiliate investments - related party

Non-affiliate investments

Escrow receivable

Temporary cash investments

Net realized gain (loss)

Net unrealized appreciation (depreciation) of portfolio securities:

Control investments

Affiliate investments

Non-affiliate investments - related party

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

Federal income taxes

Federal and state income, excise and other taxes

Net increase (decrease) in net assets resulting from operations

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(in thousands)

Number of Shares

Capital in Excess of Par Value

Accumulated Deficit

Total Net Assets

Balances as of December 31, 2024

Capital in Excess

Balances as of January 1, 2020

Share-based incentive compensation

Net decrease in net assets resulting from operations

Balances as of December 31, 2020

Issuance of shares

Recharacterization of net capital gains

Net increase in net assets resulting from operations

6 unchanged sentences

Year Ended December 31,

Cash flow from operating activities:

(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

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

Treasury Bills

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

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

Escrow receivable

Temporary cash investments

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

Sales (purchases) of U.S.

Treasury Bills, net

(Purchases) sales of temporary cash investments, net

Changes in operating assets and liabilities:

Accounts receivable from affiliates

Accrued interest

Accrued interest and dividend receivable

Accrued esrow receivable

Accounts payable and accrued liabilities

Accounts payable to related parties

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Cash flows from financing activities:

1 unchanged sentence

Repayments under margin account

Issuance of common stock

Net cash (used in) provided by financing activities

Net (decrease) in cash and cash equivalents

Net cash provided by (used in) financing activities

Net (decrease) increase 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:

9 unchanged sentences

Net change in unrealized appreciation of portfolio securities

Net (decrease) increase in net assets resulting from operations

Net change in unrealized depreciation of portfolio securities - related party

Net increase (decrease) in net assets resulting from operations

Capital transactions:

Shares issued for portfolio securities

Dilutive effect of shares issued

Decrease in net assets resulting from capital transactions

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Member interest

Morgan E&P, LLC (4)

Member interest ( 100 %)

12 % senior secured

promissory note due 5/26 (5)

Total Control Investments:

Majority-owned (represents 72.3 % of total investments at fair value)

Temporary Cash Investments

Treasury Bill

December 2022

Total Temporary Cash Investments (represents 27.7 % 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.

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

(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 securities of the company.

(4) Level 3 Portfolio Investments

(5) Income-producing

(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.

SCHEDULE OF INVESTMENTS – (Continued)

1 unchanged sentence

(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”).

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”).

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.

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, 2024, 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, 2024.

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 issuer.

The value of one segment called “Energy” includes our two remaining portfolio companies and was 93.2% of our net asset value, 91.9% of our total assets and 100% of our investments in portfolio company securities (at fair value) as of December 31, 2024.

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.

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.

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.

3 unchanged sentences

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, 2022 (in thousands):

Fair Value as Percentage of Net Assets

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

EQUUS TOTAL RETURN, INC.

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Member interest

Morgan E&P, LLC (4)

Member interest ( 100 %)

12 % senior secured

promissory note due 5/26 (5)

Total Control Investments:

Majority-owned (represents 83.9 % of total investments at fair value)

Treasury Bills

Temporary Cash Investments

Treasury Bill

December 2021

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

Total Temporary Cash Investments (represents 16.1 % 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.

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

(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 securities of the company.

(4) Level 3 Portfolio Investments

(5) Income-producing

(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.

SCHEDULE OF INVESTMENTS – (Continued)

1 unchanged sentence

(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”).

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”).

Our portfolio securities are restricted from public sale without prior registration under 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 of December 31, 2021, we had invested 32.7 % of our assets in securities of portfolio companies that constituted qualifying investments under the 1940 Act.

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 84.6% of our net asset value, 43.7% of our total assets and 100% of our investments in portfolio company securities (at fair value) as of December 31, 2023.

As of December 31, 2021, 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, 2021.

The value of one segment called “Energy” includes one portfolio company and was 35.7 % of our net asset value, 32.7 % of our total assets and 100 % of our investments in portfolio company securities (at fair value) as of December 31, 2021.

3 unchanged sentences

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, 2021 (in thousands):

Fair Value as Percentage of Net Assets

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

EQUUS TOTAL RETURN, INC.

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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 have previously authorized us to withdraw this election and, although such authorization has expired, will likely do so again in the future.

Prior to the fourth quarter of 2024, we qualified as a regulated investment company (“RIC”) for federal income tax purposes and, therefore, were not required to pay corporate income taxes on any income or gains that we would have distributed distribute to our stockholders.

During the fourth quarter of 2024, we elected to not qualify as a RIC and, consequently, we will be subject to normal corporate rates of taxation of our income and gains and will not be permitted to deduct distributions paid to our stockholders.

We have certain wholly owned taxable subsidiaries (“Taxable Subsidiaries”) that were created to help us maintain our RIC status, each of which holds one or more portfolio investments listed on our Schedules of Investments.

The purpose of these Taxable Subsidiaries was to permit us to hold certain income- producing investments or portfolio companies organized as limited liability companies, or LLCs, (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross revenue for income tax purposes must consist of investment income.

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 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.

We have certain wholly owned taxable subsidiaries (“Taxable Subsidiaries”) each of which holds one or more portfolio investments listed on our Schedules of Investments.

The purpose of these Taxable Subsidiaries is to permit us to hold certain income- producing investments or portfolio companies organized as limited liability companies, or LLCs, (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross revenue for income tax purposes must consist of investment income.

Absent the Taxable Subsidiaries, a portion of the gross income of these income-producing investments or of any LLC (or other pass-through entity) portfolio investment, as the case may be, would flow through directly to us for the 90% test.

Since we have elected to not qualify as a RIC, the income of these Taxable Subsidiaries may be taxable to Equus, which is now classified as a Subchapter C or corporation.

To the extent that such income did not consist of investment income, it could jeopardize our ability to requalify as a RIC and, therefore, cause us to incur federal income taxes as described above.

The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiaries is taxed to the Taxable Subsidiaries and does not flow through to us, thereby helping us obtain (or preserve, as the case may be) RIC status and the resultant tax advantages.

To the extent that such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur significant federal income taxes.

The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiaries is taxed to the Taxable Subsidiaries and does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages.

We do not consolidate the Taxable Subsidiaries for income tax purposes, with the exception of Texas Margins Tax, which is an entity level tax.

3 unchanged sentences

As of December 31, 2022, we had cash and cash equivalents of $ 19.3 million.

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.

In addition, we are actively seeking to fulfill the conditions of redemption relating to certain shares of preferred stock received in connection with our recent sale of Equus Energy as described in Note II Subsequent Events .

Should any or all 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.

During the first three quarters of 2024 and all of 2023, we borrowed sufficient funds to maintain the Fund’s RIC status 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 we are unable to borrow funds to make qualifying investments, we may not requalify as a RIC.

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

If we continue to be a BDC and generate significant income and gains, but do not requalify as a RIC, we will be subject to corporate level tax and the non-deductibility of dividends, any of which could be material to us and our stockholders.

We had $ 15.7 million of our net assets of $ 35.2 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.

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 January 3, 2023 and we subsequently repaid this margin loan.

The margin interest was paid on February 3, 2023.

As of December 31, 2021, we had cash and cash equivalents of $ 23.5 million.

We had $ 13.0 million of our net assets of $ 36.4 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.

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

Treasury bills and $ 0.02 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 January 4, 2022 and we subsequently repaid this margin loan.

The margin interest was paid on February 3, 2022.

During 2022 and 2021, we borrowed sufficient funds to maintain the Fund’s RIC status by utilizing a margin account with a securities brokerage firm.

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

If we are unable to borrow funds to make qualifying investments, we may no longer qualify as a RIC.

We would then be subject to corporate income tax on the Fund’s net investment income and realized capital gains, and distributions to stockholders would be subject to income tax as ordinary dividends.

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 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 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.

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.

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.

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.

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 Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

Quoted Prices in

Active Markets

for Identical

Significant Other

Control investments

Total investments

Temporary cash investments

Total investments and temporary cash investments

As of December 31, 2021, 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:

1 unchanged sentence

(in thousands)

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

Quoted Prices in

Active Markets

for Identical

Significant Other

Control investments

Total investments

Treasury Bills

Total investments and U.S.

Treasury Bills

Temporary cash investments

Total investments and temporary cash investments

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:

3 unchanged sentences

Affiliate Investments

Non-affiliate

Non-affiliate Investments

Fair value as of January 1, 2022

3 unchanged sentences

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:

Fair value measurements using significant unobservable inputs (Level 3)

Fair Value Measurements as of December 31, 2021

(in thousands)

Quoted Prices in

Active Markets

for Identical

Significant Other

Control investments

Affiliate Investments

Non-affiliate

Fair value as of January 1, 2023

Change in unrealized appreciation

Purchases of portfolio securities

Fair value as of December 31, 2023

Total investments

Temporary cash investments

Total investments and temporary cash investments

The following table provides a reconciliation of fair value changes during 2020 for all investments for which we determine fair value using significant unobservable (Level 3) inputs:

5 unchanged sentences

Fair value as of January 1, 2020

Realized gain (loss)

Change in unrealized appreciation

Purchases of portfolio securities

Proceeds from sales/dispositions

Fair value as of December 31, 2020

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

In the case of our holding in Equus Energy, we 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.

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Unobservable Inputs

Limited liability company investments

Weighted Average

Acreage Value (per acre)

Guideline Transaction Method

Proved Reserve Multiple

Equus Energy, LLC

Daily Production Multiple

Discounted Cash Flow

Discount Rate

Transaction Price

Proved Reserve Multiple

Guideline Public Company Method

Daily Production Multiple

Morgan E&P, LLC

Limited liability company investments

Guideline Transaction Method

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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, 2021:

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Unobservable Inputs

Limited liability company investments

Weighted Average

Acreage Value (per acre)

Guideline Transaction Method

Proved Reserve Multiple

Equus Energy, LLC

Daily Production Multiple

Discounted Cash Flow

Discount Rate

Proved Reserve Multiple

Guideline Public Company Method

Daily Production Multiple

Morgan E&P, LLC

Limited liability company investments

Guideline Transaction Method

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Discount Rate

Morgan E&P, LLC

Yield analysis

Discount for lack of marketability

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.

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.

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 .

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, 2024, we have no assets going through foreclosure.

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.

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

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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.

If we seek to requalify as a RIC, we must pay out to 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.

To maintain our status as a RIC, we must pay out to 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.

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 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.

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.

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, 2022, 2021 and 2020:

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Cash and cash equivalents and restricted cash at end of period

Taxes — Historically, the Company has filed an income tax return as Regulated Investment Company.

However, as a result of the Company’s election to not qualify as a RIC in the fourth quarter of 2024, the Company is now classified as a C corporation for income tax purposes and subject to guidance under ASC 740, accounting for income taxes.

This change in tax status is reflected in the footnotes below.

Taxes —Although we are not required to maintain our RIC status as a BDC, historically, we have nevertheless complied with the requirements of the Code necessary to qualify as a RIC and, as such, are generally not subject to federal income taxes on otherwise taxable income (including net realized capital gains) if distributed to stockholders.

For the year ended December 31, 2022, no tax accrual for income or excise tax was made.

For the year ended December 31, 2021, we accrued a $ 0.04 million in corporate level income and excise tax in lieu of making a distribution of the net capital gain for the sale of PalletOne, Inc.

This tax was paid in March 2022.

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

See Note 1 for discussion of Taxable Subsidiaries and see Note 2 for further discussion of the Fund’s RIC borrowings.

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

As a result, the Company paid Delaware Franchise tax in the amount of $ 0.03 million for the year ended December 31, 2024, $ 0.03 million for the year ended December 31, 2023, $ 0.02 million for the year ended December 31, 2022, respectively.

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.

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

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Distributable Earnings —The components that make up distributable earnings (accumulated undistributed deficit) on the Balance Sheet as of December 31, 2022 and 2021 are as follows:

December 31, 2024

December 31, 2023

Accumulated undistributed net investment losses

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Share-Based Incentive Compensation —On June 13, 2016, our shareholders approved the adoption of our 2016 Equity Incentive Plan (“Incentive Plan”).

On January 10, 2017, the SEC issued an order approving the Incentive Plan and certain awards intended to be made thereunder.

The Incentive Plan is intended to promote the interests of the Fund by encouraging officers, employees, and directors of the Fund and its affiliates to acquire or increase their equity interest in the Fund and to provide a means whereby they may develop a proprietary interest in the development and financial success of the Fund, to encourage them to remain with and devote their best efforts to the business of the Fund, thereby advancing the interests of the Fund and its stockholders.

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As of December 31, 2020, all shares were vested.

We account for share-based compensation using the fair value method, as prescribed by ASC 718, Compensation—Stock Compensation .

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.

Segments —Equus operates as a single segment with a principal investment objective to maximize total return from generating current income from debt investments and current income and capital appreciation from equity and equity-related investments.

The Company’s Investment Committee and Chief Executive Officer collectively perform the function that allocates resources and assesses performance, and thus together, serve as the Company’s chief operating decision maker (the “CODM”).

Among other metrics, the CODM uses net investment income as a primary GAAP profit or loss metric used in making operating decisions, which can be found on the Statement of Operations along with significant expenses.

The measure of segment assets is reported on the Balance Sheets as total assets.

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.

(4) RELATED PARTY TRANSACTIONS AND AGREEMENTS

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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.

As of December 31, 2024, we accrued $ 62,000 in director fees.

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

Deferred income tax assets and liabilities are recorded based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled.

For the tax years ended December 31, 2024, the Company’s U.S Federal statutory tax rate was 21 %.

The Company is also subject to the Texas Gross Margin tax of .

75 % of modified taxable income as determined for Texas purposes.

This combination results in a marginal blended tax rate of approximately 21.6 %.

At each of December 31, 2024, and 2023, the tax effected amount of U.S.

Federal net operating loss carryforwards (“NOLs”) totaled $ 6.8 and $ 6.1 million respectively.

As of December 31, 2024, $1.4 million in NOLs will begin to expire in varying amounts between 2036 and 2037, and the remaining $5.4 million can be carried forward indefinitely .

The Company has determined, after weighing both positive and negative evidence, that the net deferred tax asset (DTA) for the Company is not more-likely- than-not to be realizable.

Therefore, a valuation allowance of $ 4.9 million was established at December 31, 2024 to completely offset the DTA as of that date.

During the current period, the Company has estimated a taxable loss.

This NOL will be carried forwarded indefinitely with no expiration and is fully offset with a valuation allowance.

As such, the Company has not recorded any current income tax expense or benefit for the period.

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

The provision for income taxes for the years ended December 31, 2024 consisted of the following:

Years Ended December 31,

Current (expense) benefit:

Total current (expense) benefit

Deferred (expense) benefit:

Total deferred (expense) benefit

Total benefit (expense):

Total benefit (expense)

As of December 31, 2024, the Company has not recorded a reserve for uncertain tax positions.

The components of the net deferred tax assets (liabilities) in the Fund’s balance sheets were as follows:

As of December 31,

Deferred tax assets:

Charitable Contributions

Net operating loss carryforwards

Total Deferred Tax Assets

Valuation allowance

( 4,892,336 )

Deferred Tax Assets after Valuation Allowance Deferred tax liabilities:

Mark to Market Unrealized Gain/Loss

( 1,866,690 )

Total net deferred tax assets (liabilities)

The provision for income taxes varies from the maximum federal statutory rate of 21% for the year ended December 31, 2024, as follows:

Years Ended December 31,

Income tax expense (benefit) at federal statutory rate

$ ( 3,939,998 )

Change in tax status

Effect of state income taxes

Non-deductible Permanent Items

2023 Return to Provision Adjustment

Change in valuation allowance

The Fund’s accounting policy related to income tax penalties and interest assessments is to accrue for these costs and record a charge to income tax 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 2021 through 2024 remain open to examination.

As a RIC, our tax liability is dependent upon whether an election is made to distribute taxable investment income and capital gains above any statutory requirement.

For the year ended December 31, 2022, we have incurred net investment losses and no net capital gains or losses.

As such, no income or excise tax was accrued or paid.

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.

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

In general, we may take certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which may include differences in the book and tax basis of certain assets and liabilities, and undistributed net capital gains for which we have loss carryforwards, among other items.

During the year ended December 31, 2021, according and pursuant to ASC 946-20-50, we recharacterized $ 18.5 million in accumulated undistributed net capital gains for which we had loss carryforwards, among other items.

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.

For the years ended December 31, 2022 and December 31, 2021, 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, 2022 and therefore has no material book to tax differences impacting accumulated earnings during that three-year period.

We believe that any aggregate exposure for uncertain tax positions should not have a material impact on our financial statements as of December 31, 2022 or December 31, 2021.

An uncertain tax position is measured as the largest amount of tax return benefits that does not have a greater than 50% likelihood of being realized upon ultimate settlement.

We have not recorded an adjustment to our financial statements related to any uncertain tax positions.

We will continue to evaluate our tax positions and recognize any future impact of uncertain tax positions as a charge to income in the applicable period in accordance with promulgated standards.

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).

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 $ 93,000 for the years ended December 31, 2024, 2023, and 2022, respectively.

We have no other leases.

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.

Portfolio Companies.

As of December 31, 2024 and, 2023, we had $ 0 and $ 1.7 million in outstanding commitments to our portfolio company investments.

As of December 31, 2022 and December 31, 2021, we had $ 0 and $ 0.15 million 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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Follow-On Cash

Morgan E&P, LLC

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 various factors, including (i) 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, and (ii) indications of interest from third parties regarding the possible sale of these properties during the fourth quarter of 2024.

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.

Equus Energy, LLC

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.

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.

2021 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, 2021 (in thousands):

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Follow-On Cash

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 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.

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.

2020 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.

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

Investment Activity

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Portfolio Company

Follow-On Cash

Morgan E&P, LLC

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

Equus Energy, LLC (“Equus Energy”) was formed in November 2011 as a wholly-owned subsidiary of the Fund to make investments in companies in the energy sector, with particular emphasis on income-producing oil & gas properties.

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.

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 consisting of 136 producing and non- producing oil and gas wells.

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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Also included in the interests acquired by Equus Energy are working interests of 7.5 % and 2.5 % in the Burnell and North Pettus Units, respectively, which collectively comprise approximately 13,000 acres located in the area known as the “Eagle Ford Shale” play.

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

Below is selected financial information from the audited financial statements of Equus Energy as of December 31, 2022 and 2021, and for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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Accounts receivable

Other current assets

Total current assets

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Total liabilities

Total member's deficit

Total liabilities and member's deficit

Total member's (deficit) equity

Total liabilities and member's (deficit) equity

EQUUS ENERGY, LLC and SUBSIDIARY

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Direct operating expenses

Gain on sale of oil and gas properties

Depletion, depreciation, amortization and accretion

Impairment of oil and gas properties

Professional fees

1 unchanged sentence

Total operating expenses

Net operating loss

Non-operating income

Total other income

Net (loss) income

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:

Depletion, depreciation and amortization

Gain on sale of oil and gas properties

Accretion expense

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Accounts payable and accrued liabilities

Due to Parent

Net cash used in operating activities

1 unchanged sentence

Investment in oil & gas properties

Sale of oil & gas properties

Net cash used in investing activities

1 unchanged sentence

Capital contribution

Due to parent

Net cash provided by investing activities

Net decrease in cash

Net increase (decrease) 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.

During 2023, Morgan acquired 5,897 net acres, in the Bakken/Three Forks formation in the Williston Basin of North Dakota, and acquired approximately 810 additional net acres during the second quarter of 2024.

The acreage and associated mineral rights were acquired from Pro Energy I LLC (“Pro Energy”) who received a carried working interest of 20 % in the acquired acreage.

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.

This amount was subsequently amended in 2024 to $ 10.5 million.

As of December 31, 2024, Morgan had drawn the full $ 10.5 million under this facility.

During the fourth quarter of 2024, Morgan entered into an agreement to acquire the carried working interest held by Pro Energy in exchange for a payment of

$ 2.4 million in cash.

Below is summarized audited condensed consolidated financial information for Morgan E&P, LLC as of December 31, 2024 and 2023 and for the year ended December 31, 2024 and the period from inception (April 3, 2023) through December 31, 2023, respectively, (in thousands):

Mo rg an E&P, LLC

Condensed Balance Sheets

December 31, 2024

December 31, 2023

Revenue receivables

Joint interest billing receivables

Other receivables

Prepaids and other current assets

Current assets

Property, plant and equipment

Oil and gas properties, net - full cost method

Other property, plant and equipment, net

Total property, plant and equipment - net

Other noncurrent assets

Operating lease right-of-use assets, net

Total noncurrent assets

Liabilities and Member's Deficit:

Current liabilities

Accounts payable

Revenue payable

Prepayments from working interest owners

Current portion of operating lease liabilities

Due to parent

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 - Due to parent

Total long-term liabilities

Commitments and contingencies (Note 10)

Member's deficit

Total liabilities and member's deficit

Mo rg an E&P, LLC

Condensed Statements of Operations

Year Ended December 31,

Period from inception (April 3, 2023)

Oil, natural gas and natural gas liquid revenues

Lease operating

Production and other taxes

Marketing, transportation and gathering expense

Depreciation, depletion and amortization

Impairment of oil and gas properties

General and administrative

Total expenses

Other income (expense)

Interest income

Interest expense

Total other expense, net

Mo rg an E&P, LLC

Condensed Statements of Cash Flows

Year Ended December 31, 2024

Period from inception (April 3, 2023)

through December 31, 2023

Cash flows from operating activities

Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities

Depreciation, depletion, and amortization

Amortization of right-of-use asset

Impairment of oil and gas properties

Changes in operating assets and liabilities

Accounts receivable – oil and natural gas sales

Accounts receivable – joint interest billings

Other receivables

Prepaids and other current assets

Accounts payable

Revenue payable

Prepayments from owners

Due to parent

Current portion of operating lease liabilities

Accrued liabilities

Long-term accrued liabilities - due to parent

Net cash provided (used in) by operating activities

Cash flows from investing activities

Capital expenditures

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 - affiliate

Net cash provided by financing activities

Net change in cash

Beginning of period

End of period

Supplemental disclosure for noncash financing and investing activities

Operating lease right-of-use assets additions

Acquisition of oil and natural gas working interests funded by accrued liabilities

Change in capital accounts payable and capital accruals

Prepayments applied to joint interest receivables

Change in asset retirement costs

Non-cash operating and financing activities:

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

(9) 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 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.

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

In November 2024, FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220- 40), Disaggregation of Income Statement Expenses”.

The amendments in this Update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses.

This update will be effective for financial statements issued for fiscal years beginning after December 15, 2026.

Early adoption is permitted.

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

In January 2025, FASB issued ASU 2025-01, “Income Statement – Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), Clarifying the Effective Date”.

The amendment in this Update amends the effective date of Update 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026.

Early adoption of Update 2024-03 is permitted.

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

In November 2024, FASB issued ASU 2024-04, “Debt with Conversion and Other Options (Subtopic 470-20), Induced Conversions of Convertible Debt Instruments”.

The amendments in this Update clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion.

Under the amendments, to account for a settlement of a convertible debt instrument as an induced conversion, an inducement offer is required to provide the debt holder with, at a minimum, the consideration (in form and amount) issuable under the conversion privileges provided in the terms of the instrument.

An entity should assess whether this criterion is satisfied as of the date the inducement offer is accepted by the holder.

If, when applying this criterion, the convertible debt instrument had been exchanged or modified (without being deemed substantially different) within the one-year period leading up to the offer acceptance date, an entity should compare the terms provided in the inducement offer with the terms that existed one year before the offer acceptance date.

The amendments do not change the other criteria that are required to be satisfied to account for a settlement transaction as an induced conversion.

The amendments in this Update also make additional clarifications to assist stakeholders in applying the guidance.

Under the amendments, the incorporation, elimination, or modification of a VWAP formula does not automatically cause a settlement to be accounted for as an extinguishment;

an entity should instead assess whether the form and amount of conversion consideration are preserved (that is, provided for in the inducement offer) using the fair value of an entity’s shares as of the offer acceptance date.

The amendments in this Update also clarify that the induced conversion guidance applies to a convertible debt instrument that is not currently convertible as long as it had a substantive conversion feature as of both its issuance date and the date the inducement offer is accepted.

This update will be effective for financial statements issued for fiscal years beginning after December 15, 2025.

Early adoption is permitted for all entities that have adopted the amendments in update 2020-06.

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

Accounting Standards Recently Adopted —On January 1, 2024, we adopted 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.

See Note 3 – Segments for the incremental disclosures.

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.

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.

(10) SUBSEQUENT EVENTS

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.

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