Item 1. Business
Item 1. Business
Equus Total
Return, Inc. (“we,” “us,” “our,” “Equus” the “Company” or the “Fund”),
a Delaware corporation, was formed by Equus Investments II, L.P. (the “Partnership”) on August 16, 1991. On July 1, 1992,
the Partnership was reorganized and all of the assets and liabilities of the Partnership were transferred to the Fund in exchange for
shares of common stock of the Fund. On August 11, 2006, our shareholders approved the change of the Fund’s investment strategy to
a total return investment objective. This strategy seeks to provide the highest total return, consisting of capital appreciation and current
income. In connection with this strategic investment change, the shareholders also approved the change of name from Equus II Incorporated
to Equus Total Return, Inc.
We attempt
to maximize the return to stockholders in the form of current investment income and long-term capital gains by investing in the debt and
equity securities of companies with a total enterprise value between $5.0 million and $75.0 million, although we may engage in transactions
with smaller or larger investee companies from time to time. We seek to invest primarily in companies pursuing growth either through acquisition
or organically, leveraged buyouts, management buyouts and recapitalizations of existing businesses or special situations. Our income-producing
investments consist principally of debt securities, including bonds, subordinated debt, debt convertible into common or preferred stock,
or debt combined with warrants and common and preferred stock. Debt and preferred equity financing may also be used to create long-term
capital appreciation through the exercise and sale of warrants received in connection with a financing. We seek to achieve capital appreciation
by making investments in equity and equity-oriented securities issued by privately-owned companies or smaller public companies in transactions
negotiated directly with such companies.
Equus is
a closed-end management investment company that has elected to be treated as a business development company (“BDC”) under
the Investment Company Act of 1940 (“1940 Act”). In order to remain a BDC, we must meet certain specified requirements under
the 1940 Act, including investing at least 70% of our assets in eligible portfolio companies and limiting the amount of leverage we incur.
Prior to the fourth quarter of 2024, Equus was also a regulated investment company (“RIC”) under Subchapter M of the U.S.
Internal Revenue Code of 1986. A BDC that is also a RIC is not required to pay corporate-level income tax on its investment income. During
the fourth quarter of 2024, we elected to not qualify as a RIC. Consequently, in the event that we incur operating income or net investment
income, we will be taxed at regular corporate rates. Notwithstanding our present election, we may seek to requalify as a RIC in the future.
For a discussion of requirements necessary to maintain our status as a BDC and as a RIC, please see “ Business Development Company
Requirements ” and “ Regulated Investment Company Tax Status ,” respectively.
Our principal
office is located at 700 Louisiana St., 41 st Floor, Houston, Texas, 77002, and the telephone number is 1-800-856-0901. Our
corporate website is located at www.equuscap.com . We make available free of charge on our website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after
such material is electronically filed or furnished to the Securities and Exchange Commission (“SEC”). Our shares are traded
on The New York Stock Exchange (“NYSE”) under the ticker symbol “EQS”.
Significant Developments
Recent
Financing and Investment Transactions . In the first quarter of 2025, we undertook the following transactions:
· 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.
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· 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,
or an aggregate of $2.75 million, conditional upon Equus facilitating NAEOC’s acquisition of operating rights with respect to Equus
Energy’s holdings in the Conger Field, as well as the acquisition of the working interests associated with the Conger Field not
already held by Equus Energy.
Impact
of Geopolitical Events on the Oil and Gas Sector . The substantial volatility in world markets has been prominent in the oil and gas
sector, with WTI and gas prices reaching multi-year highs in 2022, largely due to increased post-Covid demand and the buildup and subsequent
invasion of Ukraine by Russian forces. Prices began to moderately rise and fall in successive quarters between the third quarter of 2023
and the fourth quarter of 2024, and stood at $72.44 as of December 31, 2024. Natural gas prices experienced high volatility in 2022 before
collapsing in 2023 and have thereafter remained relatively stable, finishing the year ended December 31, 2024 at $3.40 per MMBTU. Recent
oil price stability has been a significant factor in increased consolidation activity in the Williston Basin region in North Dakota where
Morgan E&P, LLC holds its development rights.
Authorization
to Withdraw BDC Election . Holders of a majority of our outstanding common stock have previously approved our cessation as a BDC under
the 1940 Act and have authorized our Board to cause the Fund’s withdrawal of its election to be classified as a BDC, effective as
of a date designated by the Board and our Chief Executive Officer. Although this authorization has since expired, we expect to receive
an additional authorization from our stockholders in the future. This authorization is a consequence of our expressed intent to transform
Equus into an operating company or a permanent capital vehicle. Notwithstanding any such authorization to withdraw our BDC election, we
will not submit any such withdrawal unless and until Equus has entered into a definitive agreement to effect a transformative transaction.
Further, even if we are again authorized to withdraw our election as a BDC, 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. While
we are presently evaluating various opportunities that could enable us to accomplish this transformation, we cannot assure you that we
will be able to do so within any particular time period or at all. Moreover, we cannot assure you that the terms of any such transformative
transaction would be acceptable to us.
Outlook .
Our Board and management of the Fund (“Management”) continue to believe that current market conditions and recent portfolio
performance dictate the need to pursue a more active role in the management of our remaining investments and to seek liquidity events
at the appropriate time to protect and enhance shareholder value. These activities include continuous monitoring and intensive reviews
of portfolio company performance and expectations, providing follow-on capital when necessary, and the exploration of liquidity events
for certain portfolio companies to position the Fund to maximize investment returns and, to the extent we intend to remain a BDC, actively
pursuing suitable new investments for the Fund.
Investment Objective
To the extent
we remain a BDC and do not complete the transformation of Equus into an operating company as described above, our investment objective
is to maximize the total return to our stockholders in the form of current investment income and long-term capital gains by investing
in the debt and equity securities of small and middle market capitalization companies that are generally not publicly traded at the time
of our investment. As a result of our endeavors in the energy sector, we may also seek to purchase or develop working interests, mineral
interests, and revenue leasehold interests in oil and gas properties, although we remain open to exploring investment opportunities in
a variety of other sectors. Should we continue to grow and develop Equus as a closed-end fund or permanent capital vehicle instead of
an operating company, we intend to include investments in progressively larger enterprises.
Investment Strategy
Our investment
strategy attempts to strike a balance between the potential for gain and the risk of loss. With respect to capital appreciation, Equus
is a “growth-at-reasonable-price” investor that seeks to identify and acquire securities that meet our criteria for selling
at reasonable prices. We give priority to cash producing investments wherein we invest principally in debt or preferred equity financing
with the objective of generating regular interest and dividend income back to the Fund. Debt and preferred equity financing may also be
used to create long-term capital appreciation through the exercise and sale of warrants received in connection with a financing. Given
market conditions over the past several years and the performance of our portfolio, our Management and Board believe it prudent to continue
to review alternatives to refine and further clarify the current strategies.
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Investment Criteria
Consistent
with our investment objective and strategy, our Management evaluates prospective investments based upon the criteria set forth below.
We may modify some or all of these criteria from time to time.
Management
Competency and Ownership . We seek to invest in companies with experienced management teams who have demonstrated a track record of
successful performance. Further, we desire to invest in companies with significant management ownership. We believe that significant management
ownership in small capitalization and middle market companies provides appropriate incentives and an alignment of interests for management
to maximize shareholder value. In addition, we will seek to design compensation and incentive arrangements that align the interests of
the portfolio company’s management with those of the Fund to enhance potential returns.
Substantial
Target Market . We desire to focus on companies whose products or services have favorable growth potential and strong competitive positions
in their respective markets. These positions may be as leadership positions within a given industry or market niche positions in which
the product or service has a demonstrated competitive advantage. The market in which a potential portfolio company operates should either
be sizeable or have significant growth potential.
History
of Profitability and Favorable Growth Potential . We target companies that have demonstrated a history of profitability or a reasonable
expectation of a return to profitability in the near future.
Ability to Provide
Regular Cash Interest and Distributions . We look for companies with strong cash flow models sufficient to provide regular and consistent
interest and/or preferred dividend payments.
Management
Assistance and Substantial Equity . Given the requirements of a BDC under the 1940 Act, we seek to invest in companies that will permit
substantial managerial assistance, including representation on the board of directors of the company or its equivalent. With regard to
equity investments, we desire to obtain a substantial investment position in portfolio companies. This position may be as a minority shareholder
with certain contractual rights and powers, or as a majority shareholder, and should otherwise allow us to have substantive input on the
direction and strategies of the portfolio company.
Plausible
Exit and Potential for Appreciation . Prior to investing in a portfolio company, we will seek to analyze potential exit strategies
and pursue those investments with such strategies as may be achievable.
Investment Operations
Our investment operations consist principally of the following
basic activities:
Investment
Selection. Historically, many of our investment opportunities have come from Management, members of our Board, other private equity
investors, direct approaches from prospective portfolio companies and referrals from investment banks, business brokers, commercial, regional
and local banks, attorneys, accountants and other members of the financial community. Subject to the approval of our Board, we may compensate
certain referrals with finder’s fees to the extent permissible under applicable law and consistent with industry practice.
Due Diligence.
Once a potential investment is identified, we undertake a due diligence review using information provided by the prospective portfolio
company and publicly available information. Management may also seek input from consultants, investment bankers and other knowledgeable
sources. The due diligence review will typically include, but is not limited to:
• Review of historical and prospective financial information, including audits and budgets;
• On-site visits;
• Interviews with management, employees, customers and vendors;
• Review of existing loan documents and credit arrangements, if any;
• Background checks on members of management; and
• Research relating to the company, its management, industry, markets, products
and services and competitors.
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Structuring Investments. We typically
negotiate investments in private transactions directly with the owner or issuer of the securities acquired. Management structures the
terms of a proposed investment, including the purchase price, the type of security to be purchased and our future involvement in the portfolio
company’s business. We seek to structure the terms of the investment to provide for the capital needs of the portfolio company while
maximizing our opportunities for current income and capital appreciation. In addition, we may invest with other co-investors including
private equity firms, business development companies, small business investment companies, venture capital groups, institutional investors
and individual investors.
Providing Management Assistance
and Monitoring of Investments . Successful private equity investments typically require active monitoring of, and significant participation
in, major business decisions of portfolio companies. In several cases, officers and directors of the Fund serve as members of the governing
boards of portfolio companies. Such management assistance is required of a BDC under the 1940 Act. We seek to provide guidance and management
assistance with respect to such matters as capital structure, acquisitions, budgets, profit goals, corporate strategy, portfolio management
and potential sale of the company or other exit strategies. In connection with their service as directors of portfolio companies, officers
and directors of the Fund may receive and retain directors’ fees or reimbursement for expenses incurred, and may participate in
incentive stock option plans for non-employee directors, if any. When necessary and as requested by any portfolio company, Management,
on behalf of the Fund, may also assign staff professionals with financial or management expertise to assist portfolio company management.
Follow-On Investments
Following our
initial investment, a portfolio company may request that we make follow-on investments by providing additional equity or loans needed
to fully implement its business plans to develop a new line of business or to recover from unexpected business problems or other purposes.
In addition, follow-on investments may be made to exercise warrants or other preferential rights granted to the Fund or otherwise to increase
our position in a portfolio company. We may make follow-on investments in portfolio companies from cash on hand or borrow all or a portion
of the funds required. If we are unable to make follow-on investments due to lack of available capital, the portfolio company in need
of the investment may be negatively impacted, we may be required to subordinate our debt interest in the portfolio company to a new lender,
and/or our equity interest in the portfolio company may be diluted if outside equity capital is required.
Disposition of Investments
The method and
timing of the disposition of our investments in portfolio companies are critical to our ability to realize capital gains and minimize
capital losses. We may dispose of our portfolio securities through a variety of transactions, including recapitalizations, refinancings,
management buyouts, repayments from cash flow, acquisitions of portfolio companies by a third party and outright sales of the Fund’s
securities in a portfolio company. In addition, under certain circumstances we may distribute our portfolio securities in-kind to our
stockholders. In structuring our investments, we endeavor to reach an understanding with the management of the prospective portfolio company
as to the appropriate method and timing of the disposition of the investment. In some cases, we seek registration rights for our portfolio
securities at the time of investment which typically provide that the portfolio company will bear the cost of registration. To the extent
not paid by the portfolio company, the Fund typically bears the costs of disposing of our portfolio investments.
Current Portfolio Companies
For a description
of our portfolio company investments as of December 31, 2024, see “ Management’s Discussion and Analysis of Financial Condition
and Results of Operations–Portfolio Securities .”
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Valuation
On a quarterly
basis, Management values our portfolio investments. These valuations are subject to the approval and adoption of the Board. Valuations
of our portfolio securities at “fair value” are performed in accordance with accounting principles generally accepted in the
United States (“GAAP”).
The fair value
of investments for which no market exists (which includes most of our investments) is determined through procedures established in good
faith by the Board. As a general principle, the current “fair value” of an investment is the amount the Fund might reasonably
expect to receive upon its sale in an orderly manner. There are a range of values that are reasonable for such investments at any particular
time.
We base our
adjustments to fair value upon such factors as the portfolio company’s earnings, cash flow and net worth, the market prices for
similar securities of comparable companies, an assessment of the company’s current and future financial prospects and various other
factors and assumptions. In the case of unsuccessful or substantially declining operations, we may base a portfolio company’s fair
value upon the company’s estimated liquidation value. Fair valuations are inherently subjective, and our estimate of fair value
may differ materially from amounts actually received upon the disposition of our portfolio securities. Also, any failure by a portfolio
company to achieve its business plan or obtain and maintain its financing arrangements could result in increased volatility and result
in a significant and rapid change in its value.
Our general
intent is to hold our loans to maturity when appraising our privately held debt investments. As such, we believe the fair value will not
exceed the cost of the investment; however, we perform a yield analysis to determine if a debt security has been impaired.
Our Management
may engage independent, third-party valuation firms to conduct independent appraisals and review Management’s preliminary valuations
of each privately-held investment in order to make their own independent assessment. Any third- party valuation data would be considered
as one of many factors in a fair value determination. Management would then present its fair value recommendations to the Audit Committee
of the Board of Directors for review. Following review and any adjustments required thereby, the Audit Committee would, in turn, recommend
the fair values for all of the Fund’s portfolio investments to the Board of Directors for final approval.
To the
extent that market quotations are readily available for our investments and such investments are freely transferable, we value them at
the closing market price on the date of valuation. For securities which are of the same class as a class of public securities but are
restricted from free trading (such as Rule 144 stock), we establish our valuation by discounting the closing market price to reflect the
estimated impact of illiquidity caused by such restrictions. We generally hold investments in debt securities to maturity. Accordingly,
we determine the fair value of debt securities on the basis of the terms of the debt securities and the financial condition of the issuer.
We value certificates of deposit at their face value, plus interest accrued to the date of valuation.
Our Board reviews
the valuation policies on a quarterly basis to determine their appropriateness and reserves the right to hire and, from time to time,
utilizes independent valuation firms to review Management’s valuation methodology or to conduct an independent valuation.
Competition
We compete with
a large number of public and private equity and mezzanine funds and other financing sources, including traditional financial services
companies such as finance companies and commercial banks. Many of our competitors are substantially larger and have considerably greater
financial, technical and marketing resources. Our competitors may have a lower cost of funds and many have access to funding sources not
available to us. In addition, certain of our competitors may have higher risk tolerances or different risk assessments, which could allow
them to consider a wider variety of investments and establish more relationships and build their respective market shares. In addition,
many of our competitors are not subject to the regulatory restrictions imposed by the 1940 Act imposes on BDCs.
We cannot
assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results
of operations. In addition, because of this competition, we may not be able to take advantage of attractive investment opportunities and
may not be able to identify and make investments that satisfy our investment objectives or meet our investment goals.
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Properties
Our principal
executive offices are located at 700 Louisiana St., 48 th Floor, Houston, Texas 77002. Should we remain a BDC and not transform
into an operating company or a permanent capital vehicle, we believe our office facilities are suitable and adequate for our operations
as currently conducted and contemplated.
Business Development Company Requirements
Qualifying Assets .
As a BDC, we may not acquire any asset other than qualifying assets, as defined by the 1940 Act, unless, at the time the acquisition is
made, the value of our qualifying assets represents at least 70% of the value of our total assets. The principal categories of qualifying
assets relevant to our business are the following:
· Securities purchased in transactions not involving any public offering
from an issuer that is an eligible portfolio company. An eligible portfolio company is any issuer that (a) is organized and has its principal
place of business in the United States, (b) is not an investment company other than a small business investment company wholly-owned by
the BDC, and (c) either (i) (A) does not have any class of securities with respect to which a broker or dealer may extend margin credit,
(B) is controlled by the BDC either singly or as part of a group and an affiliated person of the BDC is a member of the issuer’s
board of directors, or (C) has total assets of not more than $4 million and capital and surplus of at least $2 million, or (ii) does not
have any class of securities listed on a national securities exchange, unless the total market capitalization of such issuer does not
exceed $250 million. Qualifying assets may also include follow-on
investments in a company that was a particular type of eligible portfolio company at the time of the BDC’s initial investment, but
subsequently did not meet the definition;
· Securities received in exchange for or distributed with respect to securities
described above, or pursuant to the exercise of options, warrants or rights relating to such securities; and
· Cash, cash items, government securities, or high quality debt securities
maturing in one year or less from the time of investment.
To include certain
securities above as qualifying assets for the purpose of the 70% test, a BDC must make available to the issuer of those securities significant
managerial assistance, such as providing significant guidance and counsel concerning the management, operations, or business objectives
and policies of a portfolio company. We offer to provide significant managerial assistance to each of our portfolio companies.
We may not
change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of the holders of
the majority of our outstanding voting securities, as defined in the 1940 Act. As noted above, we have previously received this authorization
from our shareholders to withdraw our BDC election and, although this authorization has expired, we expect to receive an additional authorization
by our stockholders in the future. This authorization was a consequence of our plan to effect a transformation of Equus by: (i) acquiring
or merging with an operating company based in the energy, natural resources, technology, or financial services sectors, and (ii) terminating
the Fund’s election to be classified as a BDC under the 1940 Act. Notwithstanding any future authorization to withdraw our BDC election,
we will also require a separate affirmative vote of the holders of a majority of our outstanding voting securities to consummate a transformation
of Equus and change the nature of our business (see “ Significant Developments−Authorization to Withdraw BDC Election”
above).
Temporary Investments.
Pending investment in portfolio companies, we invest our available funds in interest- bearing bank accounts, money market mutual funds,
U.S. Treasury securities and/or certificates of deposit with maturities of less than one year (collectively, “Temporary Investments”).
Temporary Investments may also include commercial paper (rated or unrated) and other short-term securities. Temporary Investments constituting
cash, cash items, securities issued or guaranteed by the U.S. Treasury or U.S. Government agencies and high quality debt securities (commercial
paper rated in the two highest rating categories by Moody’s Investor Services, Inc. or Standard & Poor’s Corporation,
or if not rated, issued by a company having an outstanding debt issue so rated, with maturities of less than one year at the time of investment)
will qualify for determining whether we have 70% of our total assets invested in qualifying assets or in qualified Temporary Investments
for purposes of the BDC provisions of the 1940 Act.
Leverage.
We are permitted by the 1940 Act, under specified conditions, to issue multiple classes of senior debt and a single class of preferred
stock senior to the common stock if our asset coverage, as defined in the 1940 Act, is at least 150% after the issuance of the debt or
the senior stockholders’ interests. In addition, provisions must be made to prohibit any distribution to common stockholders or
the repurchase of any shares unless the asset coverage ratio is at least 150% at the time of the distribution or repurchase.
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Fund Share
Sales Below Net Asset Value . To the extent we remain a BDC, we generally may sell our common stock at a price that is below the prevailing
net asset value per share only upon the approval of the policy by stockholders holding a majority of our issued shares, including a majority
of shares held by nonaffiliated stockholders. We may, in accordance with certain conditions established by the SEC, sell shares below
net asset value in connection with the distribution of rights to all of our stockholders. We may also issue shares at less than net asset
value in payment of dividends to existing stockholders.
No Redemption
Rights . Since we are a closed-end BDC, our stockholders have no right to present their shares to the Fund for redemption. Recognizing
the possibility that our shares might trade at a discount, our Board has determined that it would be in the best interest of our stockholders
for the Fund to be authorized to attempt to reduce or eliminate a market value discount from net asset value. Accordingly, from time to
time we may, but are not required to, repurchase our shares (including by means of tender offers) to attempt to reduce or eliminate any
discount or to increase the net asset value of our shares.
Affiliated
Transactions . Many of the transactions involving the Fund and its affiliates (as well as affiliates of such affiliates) require the
prior approval of a majority of the independent directors and a majority of the independent directors having no financial interest in
the transactions. However, certain transactions involving closely affiliated persons of the Fund require the prior approval of the SEC.
Regulated Investment Company Tax Status
As a BDC,
we have historically operated to qualify as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
although RIC qualification is not a prerequisite to qualifying as a BDC. During the fourth quarter of 2024, we elected to not qualify
as a RIC, although we may seek to requalify at a later date. Because we do not presently qualify as a RIC, in the event that we generate
operating income or net investment income, we will be subject to regular corporate rates of taxation.
If we requalify
as a RIC and annually distribute to our stockholders in a timely manner at least 90% of our investment company taxable income, we will
not be subject to federal income tax on the portion of our taxable income and capital gains we distribute to our stockholders. Taxable
income generally differs from net income as defined by accounting principles generally accepted in the United States due to temporary
and permanent timing differences in the recognition of income and expenses, returns of capital and net unrealized appreciation or depreciation.
While we are not
required to qualify as a RIC to maintain our BDC status, we must continue to qualify as an investment company to obtain RIC status under
the Code, among other requirements. To obtain (or maintain, as the case may be) RIC status, we must (i) continue to qualify as an investment
company; (ii) distribute to our stockholders in a timely manner at least 90% of our investment company taxable income, as defined by the
Code; (iii) derive in each taxable year at least 90% of our gross investment company income from dividends, interest, payments with respect
to securities loans, gains from the sale of stock or other securities or other income derived with respect to our business of investing
in such stock or securities as defined by the Code; and (iv) meet investment diversification requirements. The diversification requirements
generally require us, at the end of each quarter of the taxable year, to have (a) at least 50% of the value of our assets consist of cash,
cash items, government securities, securities of other RICs and other securities if such other securities of any one issuer do not represent
more than 5% of our assets and 10% of the outstanding voting securities of the issuer and (b) no more than 25% of the value of our assets
invested in the securities of one issuer (other than U.S. government securities and securities of other RICs), or of two or more issuers
that are controlled by us and are engaged in the same or similar or related trades or businesses.
In addition,
should we choose not to distribute at least 98.2% of our net income consisting of capital gains for each one-year period ending on October
31, we will be subject to a 4.0% nondeductible Federal exercise tax.
If we fail to satisfy
the 90% distribution requirement or otherwise fail to requalify as a RIC in any taxable year, we will be subject to tax in such year on
all of our taxable income, regardless of whether we make any distribution to our stockholders. In addition, in that case, all of our distributions
to our stockholders will be characterized as ordinary income (to the extent of our current and accumulated earnings and profits). We have
distributed and currently intend to distribute sufficient dividends to eliminate our investment company taxable income; however, none
have been necessary in recent years.
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Custodian
We act as the
custodian of our securities to the extent permitted under the 1940 Act and are subject to the restrictions imposed on self- custodians
by the 1940 Act and the rules and regulations thereunder. We have also entered into an agreement with Amegy Bank with respect to the safekeeping
of our securities. The principal business office of Amegy Bank is 1717 West Loop South, Houston, Texas 77027.
Transfer and Disbursing Agent
We employ
Equiniti Group as our transfer agent to record transfers of our shares, maintain proxy records and to process distributions. The principal
business office of our transfer agent is 6201 15th Avenue, 2nd Floor, Brooklyn, NY 11219.
Certifications
In July
2024, pursuant to Section 303A.12(a) of the NYSE Listed Company Manual, we submitted to the NYSE an unqualified certification of our Chief
Executive Officer. In addition, certifications by our Chief Executive Officer and Chief Financial Officer have been filed as exhibits
to this annual report on Form 10-K as required by the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002.
Forward-Looking Statements
All statements
contained herein that are not historical facts including, but not limited to, statements regarding anticipated activity are “forward-looking
statements” within the meaning of the federal securities laws, involve a number of risks and uncertainties, and are based on the
beliefs and assumptions of Management, based on information currently available to Management. Actual results may differ materially. In
some cases, readers can identify forward- looking statements by words such as “may,” “will,” “should,”
“expect,” “objective,” “plan,” “intend,” “anticipate,” “believe,”
“Management believes,” “estimate,” “predict,” “project,” “potential,” “forecast,”
“continue,” “strategy,” or “position” or the negative of such terms or other variations of them or
by comparable terminology. In particular, statements, express or implied, concerning future actions, conditions, or events, future operating
results, or the ability to generate sales, income, or cash flow are forward-looking statements.
Among the
factors that could cause actual results to differ materially are the following: (i) changes in the economic conditions in which we operate,
including changes related to the evolving impact of the coronavirus, which might negatively impacting our financial resources; (ii) the
substantially greater resources of certain of our competitors than the Fund, potentially reducing the number of suitable investment opportunities
offered or reducing the yield necessary to consummate the investment; (iii) the uncertainty regarding the value of our privately held
securities that require a good faith estimate of fair value for which a change in estimate could affect the Fund’s net asset value;
(iv) the illiquidity of our investments in securities of privately held companies which could affect our ability to realize a gain; (v)
the default of one or more of our portfolio companies on their loans or the failure of such companies to provide any returns on our investments
which could affect the Fund’s operating results; (vi) our dependence on external financing to grow our business; (vii) our ability
to retain key management personnel; (viii) an economic downturn or recession that could impair our portfolio companies and therefore harm
our operating results; (iv) our borrowing arrangements, which could impose certain restrictions; (x) changes in interest rates that may
affect our cost of capital and net operating income; (xi) our inability to incur additional indebtedness unless the Fund maintains an
asset coverage of at least 150%, which may affect returns to our stockholders; (xii) the possible failure of the Fund to continue to qualify
for our pass-through treatment as a RIC which could have an effect on stockholder returns; (xiii) the volatility of the price of our common
stock; (xiv) general business and economic conditions and other risk factors described in its reports filed from time to time with the
SEC; and (xv) risks related to our plan to transform Equus into an operating company or a permanent capital vehicle. We caution readers
not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Securities Litigation
Reform Act of 1995 and, as such, speak only as of the date made.
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