Equus Total Return(US:EQS)2020-03-30 21:16Investment Strategy - Equus Total Return, Inc. aims to maximize shareholder returns through current investment income and long-term capital gains by investing in companies with total enterprise values between $5.0 million and $75.0 million[6]. - Equus intends to pursue a consolidation with an operating company in sectors such as energy, natural resources, technology, or financial services, while also considering transforming into a permanent capital vehicle[15]. - Equus seeks to invest in companies with experienced management teams and a history of profitability or a reasonable expectation of returning to profitability[27]. - The company emphasizes the importance of substantial target markets with favorable growth potential for its investment strategy[26]. - The company engages in investment selection through various channels, including management and referrals from financial community members[31]. Financial Performance - Total investment income for 2019 was $351,000, a decrease of 27% from $480,000 in 2018[257]. - Net investment loss for 2019 was $(3,391,000), an improvement from $(3,555,000) in 2018[257]. - Basic and diluted net increase in net assets resulting from operations per share was $0.16 in 2019, compared to $0.00 in 2018[257]. - The total return on market price was reported at (7.14%), compared to (18.33%) in the previous year, reflecting a recovery in market performance[268]. - The company reported a net increase in net assets resulting from operations of $0.16 per share, compared to no change in the previous period[268]. Asset Management - The company has authorized a decrease in its asset coverage ratio from 200% to 150%, effectively doubling its borrowing capacity[19]. - The company must maintain at least 70% of its total assets in qualifying assets as defined by the 1940 Act[50]. - The company operates to qualify as a Regulated Investment Company (RIC) to avoid federal income tax on distributed taxable income[59]. - The company must distribute at least 90% of its investment company taxable income to maintain its status as a RIC[60]. - The company intends to distribute 98% of its net capital gain income and 98.2% of its investment company net ordinary income to avoid a 4% nondeductible Federal excise tax[61]. Market Conditions - The company has experienced significant impacts from the COVID-19 pandemic, which has adversely affected market conditions and operational capabilities[10]. - The company expects to be materially impacted by the COVID-19 pandemic, as noted in its financial statements[249]. - The company is subject to financial market risks, including changes in interest rates and marketable equity security prices[241]. Valuation and Fair Value - The fair value of investments is determined based on earnings, cash flow, and market prices for similar securities[40]. - The company may engage independent valuation firms to assess the fair value of privately-held investments[42]. - The company employs a multi-step valuation process for investments, including independent valuations for investments exceeding $2.5 million held for over one year[304]. - Fair value measurement is based on a hierarchy, with Level 1 being quoted prices in active markets and Level 3 being unobservable inputs[311][313]. - The company assesses fair value quarterly, with no transfers among Level 1, 2, and 3 investments for the years ended December 31, 2019, and 2018[318]. Regulatory Compliance - The company is subject to regulatory restrictions under the 1940 Act, impacting its investment strategies and asset acquisitions[46]. - The company’s ability to maintain RIC status is critical, as failure could result in corporate income tax liabilities on net investment income and realized capital gains[302]. - Delaware franchise tax paid for 2019 was $30,000, reflecting compliance with state regulations[336]. Portfolio Composition - As of December 31, 2019, total investments in portfolio securities at fair value amounted to $40,648,000, an increase from $35,015,000 in 2018[253]. - The company's net assets as of December 31, 2019, were $45,989,000, compared to $43,495,000 in 2018[253]. - The company has a significant portion of its investment portfolio in private companies, with 57.6% of net asset value attributed to "Shipping products and services" and 17.4% to "Energy" as of December 31, 2019[243]. - The fair value of common stock investments was $31,671, representing 68.9% of net assets as of December 31, 2019[282]. - The fair value of the company's investments in the energy sector was $8,000, accounting for 17.4% of net assets as of December 31, 2019[282]. Operational Efficiency - Total expenses before merger termination fee decreased to $3,742,000 in 2019 from $4,035,000 in 2018, a reduction of approximately 7%[257]. - Professional fees decreased to $974,000 in 2019 from $1,254,000 in 2018, a decline of approximately 22%[257]. - The ratio of expenses to average net assets was 8.36%, a slight improvement from 9.33% in the previous year, indicating better cost management[268]. Shareholder Engagement - The maximum number of shares subject to awards under the 2016 Equity Incentive Plan is 2,434,728 shares, with 844,500 shares granted as restricted stock awards[338]. - For the years ended December 31, 2019, 2018, and 2017, the company recorded share-based compensation expenses of $0.3 million, $0.4 million, and $1.1 million, respectively[338].