Equus Total Return(US:EQS)2023-08-13 16:00Investment Strategy - Equus Total Return, Inc. aims to maximize stockholder returns through capital appreciation and current income by investing in companies with an enterprise value between $5.0 million and $75.0 million [175]. - The company’s investment strategy includes engaging in leveraged buyouts and management buyouts to pursue growth opportunities [175]. - The company plans to pay out net investment income and/or realized capital gains annually as required under the Investment Company Act of 1940 [205]. Company Transformation - The company plans to transform into an operating company and expects to receive further shareholder authorization for this transition later in 2023 [177]. - The company has internalized management, which is expected to lead to efficiencies in the cost structure as the Fund grows [192]. Financial Performance - The net asset value increased from $2.61 per share to $2.96 per share, representing a 13.4% increase, while common stock is trading at a 48.6% discount to net asset value [191]. - Net investment income was $0.02 million for the six months ended June 30, 2023, while net investment loss was $2.0 million for the same period [199][200]. - A $0.75 million debt investment and $1.00 equity investment were made in Morgan E&P, LLC, with a recorded change in fair value of $6.8 million due to expected future cash flow generation [202]. Market Conditions - As of June 30, 2023, natural gas prices stood at $2.48 per MMBTU, while Brent crude oil is projected to reach $85.00 per barrel by the end of 2023 [181]. - U.S. GDP increased at an annualized rate of 2.4% in Q2 2023, surpassing consensus estimates of 2.0% [184]. - The unemployment rate in the U.S. was 3.6% as of June 30, 2023, with projections indicating it may rise to 4.5% by the end of 2023 [185]. - The annualized inflation rate in July 2023 was reported at 2.6%, with a trailing average of 3.0% for the previous 12 months [186]. - The Federal Reserve raised the federal funds rate to a range of 5.25%-5.5%, the highest level in 22 years, significantly increasing borrowing costs for homebuyers and small businesses [187]. - Global merger and acquisition activity in the first half of 2023 reached over $1.0 trillion, indicating a recovery from the slowdown experienced at the end of 2022 [188]. Cash Management - Equus Energy intends to secure equity or debt financing, request operators to shut-in wells, or sell certain oil and gas holdings to conserve cash resources [182]. - The company expects significant capital expenditures for oil and gas development from its subsidiary Morgan during Q3 and Q4 of 2023 [183]. - On July 6, 2023, the company repaid a margin loan after a $13.0 million holding in U.S. Treasury Bills matured [206]. Risk Management - The company is evaluating the impact of current market conditions on portfolio company valuations and their ability to provide current income [197]. - The company does not use derivative financial instruments to mitigate financial market risks, including interest rate changes and foreign currency fluctuations [209]. - The company has not incurred additional borrowings since the reduction of its asset coverage ratio from 200% to 150% approved by shareholders in November 2019 [178].