Workflow
Equus Total Return(EQS) - 2024 Q2 - Quarterly Report
EQSEquus Total Return(EQS)2024-08-19 20:50

Investment Strategy - Equus Total Return, Inc. aims to maximize returns through investments in companies with a total enterprise value between 5.0millionand5.0 million and 75.0 million [147]. - The company’s investment strategy includes debt securities, subordinate debt, and equity-oriented securities to achieve capital appreciation [147]. - The Fund's liquidity initiatives included internalizing management and modifying investment strategies to enhance shareholder value and protect capital [162]. Financial Performance - The net asset value per share increased from 3.55to3.55 to 3.66, a rise of 3.1%, while common stock traded at a 63.9% discount to net asset value as of June 30, 2024 [161]. - The Fund recorded a net investment loss of 0.9millionforthethreemonthsendedJune30,2024,unchangedfromthesameperiodin2023[169].−Compensationexpensesincreasedto0.9 million for the three months ended June 30, 2024, unchanged from the same period in 2023 [169]. - Compensation expenses increased to 0.5 million for Q2 2024 from 0.4millioninQ22023,whileprofessionalfeesroseto0.4 million in Q2 2023, while professional fees rose to 0.4 million from 0.1millioninthesameperiod[169].EconomicIndicators−U.S.GDPincreasedatanannualizedrateof2.80.1 million in the same period [169]. Economic Indicators - U.S. GDP increased at an annualized rate of 2.8% in Q2 2024, surpassing consensus estimates of 2.1% [156]. - The unemployment rate rose to 4.3% in July 2024, with predictions of reaching 4.7% before tapering off to 4.5% in 2025 [157]. - As of June 30, 2024, the consumer price index increased by 3.0% over the previous 12 months, down from 3.3% in May 2024 [158]. - The Federal Reserve raised the federal funds rate to 5.5% in July 2023, the highest in 22 years, with expectations for a potential decrease of at least 25 basis points in September 2024 due to rising unemployment and decreasing consumer prices [159]. Market Activity - Global merger and acquisition activity increased to 555 billion in Q1 2024 and 552billioninQ22024,with8,551transactions,indicatingapotentialcontinuationofconsolidationsinhealthcare,technology,andenergysectors[160].−Privateequityactivitysawa24552 billion in Q2 2024, with 8,551 transactions, indicating a potential continuation of consolidations in healthcare, technology, and energy sectors [160]. - Private equity activity saw a 24% increase in aggregate deal value, rising from 250 billion in H1 2023 to 310billioninH12024,withafocusonAI−drivenenterprisesandenergyinfrastructure[161].CompanyOperations−In2024,Morganundertook310 billion in H1 2024, with a focus on AI-driven enterprises and energy infrastructure [161]. Company Operations - In 2024, Morgan undertook 5.5 million in capital expenditures for oil and gas development, primarily for its initial two wells [155]. - Equus Energy plans to secure equity or debt financing, request operators to shut-in wells, or sell certain oil and gas holdings to conserve cash resources [154]. - The company is evaluating opportunities to transform into an operating company, with a potential shareholder authorization expected in 2024 or 2025 [149]. Risk Management - The Fund's investments are subject to financial market risks, including interest rate changes and foreign currency fluctuations, without the use of derivative instruments to mitigate these risks [173]. - Management identified a material weakness in internal control over financial reporting as of June 30, 2024, which could lead to potential misstatements in portfolio valuations [179]. Asset Management - The company has reduced its asset coverage ratio from 200% to 150%, allowing it to borrow up to twice the value of its net assets [150]. - A follow-on debt investment of 2.2 million was made in Morgan E&P, LLC, with a 3.4 million increase in the fair value of equity holdings due to reclassification of reserves and acquisition of additional acreage [170].