Equus Total Return(EQS) - 2022 Q2 - Quarterly Report

Investment Strategy - Equus Total Return, Inc. aims to provide the highest total return through capital appreciation and current income by investing in companies with a total enterprise value between $5.0 million and $75.0 million [168]. - The company is evaluating various opportunities to transform into an operating company, although it cannot assure successful implementation within a specific timeframe [169]. - The Fund's ability to borrow funds and issue senior securities is subject to restrictions, impacting its investment strategy and tax status as a RIC [190]. Financial Performance - Net investment loss was $0.8 million for the three months ended June 30, 2022, unchanged from the same period in 2021, while the loss for the six months was $1.7 million compared to $1.8 million in 2021 [193]. - The fair value of Equus Energy, LLC increased by $2.5 million during the six months ended June 30, 2022, contributing to a net change in unrealized appreciation of $7.5 million due to rising mineral acreage prices and crude oil prices [199]. - The Fund's net asset value increased from $2.69 per share to $2.75 per share, reflecting a 2.23% increase [185]. Market Conditions - As of March 31, 2022, the global death toll from the coronavirus exceeded 6.3 million, impacting market conditions and economic forecasts [176]. - The U.S. GDP declined at an annualized rate of 0.9% in Q2 2022, following a 1.6% decline in Q1 2022, indicating potential recessionary conditions [179]. - Consumer prices reached an annualized rate of 9.1% by the end of Q2 2022, the highest since 1981, driven primarily by a nearly 60% increase in gasoline prices from June 2021 to June 2022 [182]. - The Federal Reserve raised the short-term federal funds rate by 0.5% on May 4, 2022, and by 0.75% in both June and July 2022, significantly increasing borrowing costs and recession risks [183]. Company Operations - The company has approved an increase in authorized shares from 50 million to 100 million to facilitate its transformation into an operating company and evaluate larger acquisition candidates [171]. - The company has not incurred additional borrowings beyond a margin loan for U.S. Treasury bills, despite a reduction in its asset coverage ratio from 200% to 150% [172]. - Equus Energy, a portfolio company, plans to secure equity or debt financing, shut-in additional wells, or sell certain holdings to conserve cash resources amid volatile oil and gas prices [178]. - Management has implemented initiatives to enhance liquidity and reduce operational costs, including internalizing management and modifying investment strategies [186]. - The company has taken steps to minimize employee exposure to the coronavirus by enabling remote work and utilizing cloud-based systems for operations [177]. Mergers and Acquisitions - Global merger and acquisition activity in 2021 exceeded $5.0 trillion, a 38.9% increase from 2020, with U.S. corporate acquirers accounting for over 50% of this activity [184]. - Private equity firms completed 8,548 transactions worth $2.1 trillion in 2021, more than double the $1.0 trillion total for 2020, with technology, media, and telecommunications leading the sectors [185]. Employee Incentives - The 2016 Equity Incentive Plan allows for the award of up to 2,434,728 shares to promote the interests of the Fund and retain essential personnel [173]. Employment Statistics - The unemployment rate in the U.S. remained stable at 3.6% from March to June 2022, significantly lower than the 14.5% peak in April 2020 [180].