Equus Total Return, Inc.: Form 10-Q/A for the period ended Jun 30, 2025

Equus Total Return, Inc. (“we,” “us,” “our,” “Equus,” and the “Fund”), a Delaware corporation, was formed on August 16, 1991. Our shares trade on the New York Stock Exchange under the symbol ‘EQS’. Our investment strategy seeks to provide the highest total return, consisting of capital appreciation and current income.

The information contained in this section should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Quarterly Report and in conjunction with the financial statements and notes thereto in the Fund’s Form 10-K for the year ended December 31, 2024, as filed with the SEC. In addition, some of the statements in this report constitute forward-looking statements. The matters discussed in this Quarterly Report, as well as in future oral and written statements by management of Equus, that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward- looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, and the availability of additional capital. In light of these and other uncertainties, the inclusion of a forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward- looking statements contained in this Quarterly Report include statements as to:

• our future operating results;
• our business prospects and the prospects of our existing and prospective portfolio companies;
• the return or impact of current and future investments;
• our contractual arrangements and other relationships with third parties;
• the dependence of our future success on the general economy and its impact on the industries in which we invest;
• the financial condition and ability of our existing and prospective portfolio companies to achieve their objectives;
• our expected financings and investments;
• our regulatory structure and tax treatment;
• our ability to qualify and operate as a BDC and a RIC, including the impact of changes in laws or regulations governing our operations, or the operations of our portfolio companies;
• the adequacy of our cash resources and working capital;
• the timing of cash flows, if any, from the operations of our portfolio companies;
• the impact of fluctuations in interest rates on our business;
• the valuation of our investments in portfolio companies, particularly those having no liquid trading market;
• our ability to recover unrealized losses;
• market conditions and our ability to access additional capital, if deemed necessary;
• changes in interest rates and overall investment activity;
• developments in the global economy and resulting demand and supply for oil and natural gas;
• natural or man-made disasters and other external events that may disrupt our operations; and
• continued volatility of oil and natural gas prices.

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There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements. For a discussion of factors that could cause our actual results to differ from forward- looking statements contained in this Quarterly Report, please see the discussion in Part II, “Item 1A. Risk Factors”, and in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (“10-K”). In particular, you should carefully consider the risks we have described in the 10-K and elsewhere in this Quarterly Report concerning our efforts to transform Equus into an operating company, as well as the coronavirus pandemic and the economic impact of the coronavirus on the Fund and our sole remaining portfolio company, as well as on oil and gas markets generally. You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date this Quarterly Report is filed with the SEC.

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 of 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 subordinate 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 the financing. To the extent that we remain a BDC, we will seek to achieve capital appreciation by making investments in equity and equity-oriented securities issued by privately-owned companies (and smaller public companies) in transactions negotiated directly with such companies. Given market conditions over the past several years and the performance of our portfolio, our management and Board of Directors believe it is prudent to continue to review alternatives to refine and further clarify the current strategies.

We elected to be treated as a BDC under the 1940 Act. 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.

From time to time, we may have certain wholly-owned taxable subsidiaries (“Taxable Subsidiaries”) each of which may hold 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. 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. We do not consolidate the Taxable Subsidiaries for income tax purposes, with the exception of Texas Margin Tax, which is an entity level tax. The Taxable Subsidiaries may generate income tax expense because of the Taxable Subsidiaries’ ownership of the portfolio companies. We reflect any such income tax expense on our Statements of Operations.

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Conversion to an Operating Company

Authorization to Withdraw BDC Election. In previous years, holders of a majority of the outstanding common stock of the Fund approved our cessation as a BDC under the 1940 Act and 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 may receive a further authorization from our shareholders in the future as a consequence of our expressed intent to transform Equus into an operating company. 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, and, although we expect that our shareholders will grant a further authorization, we do not expect to cause the Fund to withdraw its election to be classified as BDC prior to December 31, 2025. Moreover, we cannot assure you that the terms of any such transformative transaction would be acceptable to us.

Reduction in Asset Coverage Ratio

On November 14, 2019, our shareholders approved a reduction in our asset coverage ratio from 200% to 150%. Prior to the reduction, we were restricted in the amount that we could borrow to the value of our net assets. The reduction in our asset coverage from 200% to 150% means that we may now borrow up to twice the value of our net assets. Except for a margin loan that we have previously procured each quarter to acquire U.S. Treasury bills as part of the maintenance of our RIC status, we have not incurred any additional borrowings as a consequence of this authorization.

2016 Equity Incentive Plan

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. The Incentive Plan is also intended to enhance the ability of the Fund and its affiliates to attract and retain the services of individuals who are essential for the growth and profitability of the Fund. The Incentive Plan permits the award of restricted stock as well as common stock purchase options. The maximum number of shares of common stock that are subject to awards granted under the Incentive Plan is 2,434,728 shares. The term of the Incentive Plan will expire on June 13, 2026. On March 17, 2017, we granted awards of restricted stock under the Plan to certain of our directors and executive officers in the aggregate amount of 844,500 shares. The awards were each subject to a vesting requirement over a 3-year period unless the recipient thereof was terminated or removed from their position as a director or executive officer without “cause”, or as a result of constructive termination, as such terms are defined in the respective award agreements entered into by each of the recipients and the Fund. As of June 30, 2020, all awards granted under the Incentive Plan were fully vested. We account for share- based compensation using the fair value method, as prescribed by ASC 718. 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. See Subsequent Events below, where the Board of Directors approved the issuance of additional shares of restricted stock under the Incentive Plan.

Critical Accounting Policies

See the Fund’s Critical Accounting Policies from the disclosure set forth in the Fund’s Annual Report on Form 10-K for the year ended December 31, 2024.

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Current Market Conditions

Impact of Economic and Geopolitical Events on the Oil and Gas Sector. Beginning in the second quarter of 2022, crude prices began a steady decline following increases that were largely due to increased post-Covid demand and the buildup and subsequent invasion of Ukraine by Russian forces. Prices began to increase and fall in successive quarters between the third quarter of 2023 and the third quarter of 2024 before stabilizing, and stood at $65.11 as of June 30, 2025. Natural gas prices experienced high volatility in 2022 before collapsing in 2023 and then steadily increasing each quarter thereafter with a modest decrease in the second quarter of 2025, finishing the quarter ended June 30, 2025 at $3.26 per MMBTU. Relative 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.

Morgan undertook significant capital expenditures for oil and gas development during the third and fourth quarters of 2023. During 2024, Morgan undertook an additional $6.4 million in capital expenditures, principally consisting of accruals and additional costs related to the development of its initial two wells. The company is expected to incur additional capital expenditures related to drilling and completion of additional wells in the second half of 2025.

The U.S. Economy. U.S. GDP increased sharply in the second quarter of 2025, growing at an annualized rate of 3.0% as compared to a 0.5% contraction in the first quarter of 2025. Second quarter 2025 GDP growth surpassed consensus estimates of 2.3% for the period and was almost double the increase of 1.6% generated during the second quarter of 2024. The principal drivers of the recovery were a steep decline in imports—down 30.3% after a 37.9% surge in the first quarter of 2025—and a renewed acceleration in consumer spending, which rose 1.4% compared to 0.5% in the prior quarter. Federal spending continued to decline, but gains in private-sector activity, including manufacturing and auto output, helped offset the drag. The Congressional Budget Office continues to project full-year GDP growth of 1.9% for 2025, with a modest slowdown to 1.8% in 2026. (Sources: Bureau of Economic Analysis; The Congressional Budget Office).

Employment and Housing. The U.S. added 73,000 jobs in July 2025, capping a weak second quarter in which job growth averaged just 35,000 per month—its slowest pace since early 2020. The unemployment rate held steady at 4.2%, unchanged from April, but downward revisions to May and June figures revealed that only 19,000 and 14,000 jobs were added in those months, respectively. The labor force participation rate edged down to 62.2% in July, reflecting a modest decline from 62.6% in April. The Congressional Budget Office now projects the unemployment rate will average 4.3% for 2025, rising to 4.5% in early 2026. Persistently high borrowing costs continue to suppress sales volumes of both new and existing homes, with housing starts down 11.4% in March and inventory levels remaining historically low. Despite these headwinds, mid-level home prices have continued to rise, outpacing inflation and driven by constrained supply. Conflicting economic signals—such as stable unemployment amid weak job creation and negative revisions—have kept mortgage rates elevated, with the 30-year fixed rate averaging 6.8% in April. Acquisition and refinancing activity is unlikely to rebound meaningfully until late 2025 or early 2026 (Sources: Bureau of Labor Statistics; Congressional Budget Office).

Consumer Prices. After experiencing substantial increases in 2022 and into 2023, consumer price growth continued to moderate through 2024 and into the first half of 2025. As of June 2025, the consumer price index was up 2.2% over the previous 12-month period, down from 2.4% in March and 2.8% in February, marking the sixth consecutive quarter of relatively stable inflation. However, following the implementation of new tariffs in the first and second quarters of 2025, many analysts now anticipate upward pressure on prices, with inflation expected to accelerate through the second half of 2025 and into 2026. (Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Morgan Stanley Research; Goldman Sachs).

Interest Rates. Principally as a response to declining rates of GDP growth and inflation, on September 18, 2024, the Federal Reserve cut interest rates for the first time in four years, decreasing the federal funds rate by 50 basis points, and indicated that further cuts may be on the horizon. However, with stable unemployment and inflation data, the Federal Reserve declined to reduce the rate further in the Federal Open Market Committee’s May and July 2025 meetings. Given the uncertainty regarding the U.S. economy and the implementation of tariffs, commentators are mixed in forecasting further rate cuts in the second half of 2025. (Sources: The Wall Street Journal; The Federal Reserve Board).

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Mergers and Acquisitions. Global merger and acquisition activity in 2024 totaled approximately $2.2 trillion, a modest increase from $2.1 trillion in 2023, though still significantly below the $4.1 trillion peak in 2021. Financial services, materials, industrials, and information technology remained the most active sectors throughout the year. Heading into 2025, expectations for increased consolidation were high, particularly before the shift in U.S. trade policy in the first quarter of 2025. That optimism was initially validated, with first quarter 2025 deal volume reaching $699 billion, the highest quarterly total since 2021, driven largely by transactions in the technology sector, especially in AI, cloud infrastructure, and financial services. In the second quarter of 2025, deal activity remained elevated, with an estimated $645 billion in volume, suggesting continued momentum. However, some analysts caution that this strength may reflect a backlog of deals initiated in late 2024, and uncertainty surrounding trade policy and interest rates has led to more conservative forecasts for the second half of the year. (Sources: Ernst & Young; Bloomberg).

Private Equity. Private equity activity, both in the U.S. and globally, continued to soften in the first half of 2025, with deal volume declining from $464 billion in the fourth quarter of 2024 to $445 billion in the first quarter of 2025 and an estimated $428 billion in the second quarter of 2025. The U.S. remained the dominant market, accounting for approximately half of global totals. Fundraising trends remained subdued, extending the three-year decline that began in 2022, as limited partners exercised greater caution amid macroeconomic uncertainty. While average transaction size increased—driven by a handful of large-cap deals—overall deal volume in the second quarter of 2025 reached its lowest level since 2020. Despite persistent uncertainty surrounding global trade policies and interest rate trajectories, analysts now project a modest 1.2% increase in total private equity activity for 2025 compared to 2024, though still roughly 12.5% below the 2018–2019 annual average. (Sources: Statista; Ernst & Young).

During the six months ended June 30, 2025, our net asset value increased from $2.17 per share to $2.51 per share, an increase of 15.7%. As of June 30, 2025, our common stock is trading at a 45.8% discount to our net asset value as compared to 49.3% as of December 31, 2024.

Over the past several years, we have executed certain initiatives to enhance liquidity, achieve a lower operational cost structure, provide more assistance to portfolio companies and realize certain of our portfolio investments. Specifically, we changed the composition of our Board of Directors and Management, terminated certain of our follow-on investments, internalized the management of the Fund, suspended our managed distribution policy, modified our investment strategy to pursue shorter term liquidation opportunities, pursued non-cash investment opportunities, and sold certain of our legacy and underperforming investment holdings. We believe these actions continue to be necessary to protect capital and liquidity in order to preserve and enhance shareholder value. Because our Management is internalized, certain of our expenses should not increase commensurate with an increase in the size of the Fund and, therefore, to the extent we remain a BDC, we expect to achieve efficiencies in our cost structure if we are able to grow the Fund.

Liquidity and Capital Resources

We generate cash primarily from maturities, sales of securities and borrowings, as well as capital gains realized upon the sale of portfolio investments. We use cash primarily to make additional investments, either in new companies or as follow-on investments in the existing portfolio companies and to pay the dividends to our stockholders.

Because of the nature and size of the portfolio investments, in the event we seek to requalify as a RIC, we may periodically borrow funds to make qualifying investments to maintain this tax status. In such case, we will borrow such funds by utilizing a margin account with a securities brokerage firm. There is no assurance that such arrangement will be available in the future. If we seek to requalify as a RIC and are unable to borrow funds to make qualifying investments, Equus would continue to be subject to corporate income tax on its net investment income and realized capital gains, and distributions to stockholders would continue to be subject to income tax as ordinary dividends.

The Fund has the ability to borrow funds and issue forms of senior securities representing indebtedness or stock, such as preferred stock, subject to certain restrictions. Net taxable investment income and net taxable realized gains from the sales of portfolio investments are intended to be distributed at least annually, to the extent such amounts are not reserved for payment of expenses and contingencies or to make follow-on or new investments.

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We reserve the right to retain net long-term capital gains in excess of net short-term capital losses for reinvestment or to pay contingencies and expenses. Such retained amounts, if any, will be taxable to the Fund as long-term capital gains and stockholders will be able to claim their proportionate share of the federal income taxes paid on such gains as a credit against their own federal income tax liabilities. Stockholders will also be entitled to increase the adjusted tax basis of their Fund shares by the difference between their undistributed capital gains and their tax credit.

We are evaluating the impact of current market conditions on our portfolio company valuations and their ability to provide current income. We believe we have followed valuation techniques in a reasonably consistent manner; however, we are cognizant of current market conditions that might affect future valuations of portfolio securities.

It is possible the Fund will require loans, capital investment from one or more sources, or will be required to dispose of certain of its investments, to cover a potential cash shortfall. The Fund does not presently have any existing commitments to fund any such shortfall, should it occur, and cannot guarantee that it will be able to execute on such plans in the future.

Results of Operations Investment Income and Expense

Net investment loss was $0.6 million and $0.9 million for the three months ended June 30, 2025 and 2024, respectively and

$1.7 million and $2.0 million for the six months ended June 30, 2025 and 2024, respectively primarily due to a decrease in professional fees and professional liability expenses.

Total investment income was comparable at $0.4 million and $0.3 million for the three months ended June 30, 2025 and 2024, respectively, and $0.7 million and $0.6 million for the six months ended June 30, 2025 and 2024, respectively.

Compensation expense was $0.4 million and $0.5 million for the three months ended June 30, 2025 and 2024, respectively and $1.0 million and $0.9 million for the six months ended June 30, 2025 and 2024 respectively, due to the officer bonuses related to dispositions.

Professional fees were $0.2 million and $0.4 million for the three months ended June 30, 2025 and 2024, respectively and $0.6 million and $0.9 million for the six months ended June 2025 and 2024, respectively.

Transaction costs, relating to the issuance of a convertible promissory note described in Note 5 of the financial statement footnotes above were $0.3 million for the six months ended June 30, 2025 as compared to $0 for the six months ended June 30, 2024.

General and administrative expenses were comparable and were $0.1 million for the three months ended June 30, 2025 and 2024 and $0.1 million for the six months ended June 30, 2025 and 2024.

Changes in Unrealized Appreciation/Depreciation of Portfolio Securities

During the six months ended June 30, 2025, we recorded a decrease of $0.7 million in fair value of our equity holding in Morgan E&P, LLC (“Morgan”).

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”). Contemporaneously with the purchase of the GEVI Note, the Fund also received a common stock purchase warrant (“GEVI Warrant”) to acquire an aggregate of 1,875,000 shares of GEVI common stock at an exercise price of $0.50 per share. The shares of GEVI are publicly traded and, as of June 30, 2025, the closing trading price of GEVI shares was $1.95 as compared to $1.20 at March 31, 2025. Accordingly, during the three months ended June 30, 2025, we recorded an increase of $2.8 million in the fair value of the GEVI Note and a $2.0 million increase in the fair value of the GEVI Warrant.

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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.

At March 31, 2025, we valued our preferred stock in NAEOC at $2.7 million. Because the conditions to redemption of the preferred stock have not yet been fulfilled, we recorded a decrease of $2.7 million in the fair value of this investment during the three months ended June 30, 2025.

During the six months ended June 30, 2025, with respect to our holding in Equus Energy, LLC, we recorded a reversal of the unrealized depreciation of $4.1 million of the fair value of this investment.

During the six months ended June 30, 2024, we made a $2.2 million follow-on debt investment in Morgan E&P, LLC (“Morgan”). During this period, we also recorded an increase of $3.4 million in the fair value of our equity holding in Morgan. The increase was primarily due to the reclassification of a significant portion of Morgan’s proved reserves as proved developed producing, as well as the acquisition of approximately 810 additional net acres.

During the six months ended June 30, 2024, with respect to our holding in Equus Energy, LLC, we recorded no change in the fair value of this investment.

Dividends

We will pay out net investment income and/or realized capital gains, if any, on an annual basis as required under the Investment Company Act of 1940.

Subsequent Events

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

On July 1, 2025, the Fund’s Board of Directors approved the issuance of an aggregate of 419,523 restricted shares of Equus common stock pursuant to the Fund’s 2016 Equity Incentive Plan. As of the filing date of this Report on Form 10-Q, such shares have not yet been issued.

We are subject to financial market risks, including changes in interest rates with respect to investments in debt securities and outstanding debt payable, as well as changes in marketable equity security prices. In the future, we may invest in companies outside the United States, including in Europe and Asia, which would give rise to exposure to foreign currency value fluctuations. We do not use derivative financial instruments to mitigate any of these risks. The return on investments is generally not affected by foreign currency fluctuations.

Our investments in portfolio securities consist of some fixed-rate debt securities. Since the debt securities are generally priced at a fixed rate, changes in interest rates do not directly affect interest income. In addition, changes in market interest rates are not typically a significant factor in the determination of fair value of these debt securities, since the securities are generally held to maturity. We determine their fair values based on the terms of the relevant debt security and the financial condition of the issuer.

A major portion of our investment portfolio consists of debt and equity investments in private companies. Modest changes in public market equity prices generally do not significantly impact the estimated fair value of these investments. However, significant changes in market equity prices can have a longer-term effect on valuations of private companies, which could affect the carrying value and the amount and timing of gains or losses realized on these investments. A small portion of the investment portfolio could also consist of common stock in publicly traded companies. These investments are directly exposed to equity price risk, in that a hypothetical ten percent change in these equity prices would result in a similar percentage change in the fair value of these securities.

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Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and other procedures that are designed to ensure that information required to be disclosed by the Fund in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Fund’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operations of the Fund’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2025. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.

Material Weakness in Internal Control over Financing Reporting Existing as June 30, 2025

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Management concluded that the previously disclosed material weakness relating to the Fund’s controls relating to the design and operation of management review over the valuation of the Fund’s portfolio investment, including management’s review procedures over the completeness and accuracy of the underlying data and information supplied to third parties assisting management by recommending a range of reasonable fair values continued to exist as of June 30, 2025.

Although this material weakness did not result in a material misstatement of our consolidated financial statements for the periods then presented, there is a possibility that, had the material weakness continued undetected, it could have led to a material misstatement of portfolio fair values and related disclosures. Accordingly, management has concluded that this control deficiency constitutes a material weakness.

Management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects the Fund’s financial condition, results of its operations, changes in its net assets and its cash flows for the periods presented. We believe that the consolidated financial statements included in this Quarterly Report on Form 10-Q are accurate.

We have begun the process of, and we are focused on, enhancing effective internal control measures to improve our internal control over financial reporting and remediate the material weaknesses. Our internal control remediation efforts include the following:

• Enhancing existing controls that address the completeness and accuracy of underlying data and information supplied to third parties assisting management in its determination of fair value and in the performance of management review controls over the valuation of the Fund’s portfolio securities; and
• Enhancing policies and procedures to improve the precision of review and evidence of review procedures performed to demonstrate effective design and operation of such controls.

We believe our planned actions to enhance our processes and controls will address the material weakness, but these actions are subject to ongoing management evaluation, and we will need a period of execution to demonstrate remediation. We are committed to the continuous improvement of our internal control over financial reporting and will continue to diligently review our internal control over financial reporting.

There were no other changes in our internal control over financial reporting during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

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In connection with our efforts to convert Equus into an operating company in furtherance of our plan to convert the Fund into an operating company, we may be subject to a number of risks associated with this process, the transactions that would embody a consolidation of Equus with another company, as well as specific risks associated with the commercial enterprise with which Equus may seek to combine itself. We intend to identify, as will be reasonably possible, such risks and include the same in our subsequent filings and reports with the SEC.

Readers should carefully consider these risks and all other information contained in our annual report on Form 10-K (“10-K”) for the year ended December 31, 2024, including the Fund’s financial statements and the related notes thereto. The risks and uncertainties described in our 10-K and throughout this 10-Q are not the only ones facing the Fund.

Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance.

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