Equus Total Return(EQS) - 2023 Q3 - Quarterly Report

Investment Strategy - Equus Total Return, Inc. aims to maximize stockholder returns through capital appreciation and current income by investing in companies with a total enterprise value between $5.0 million and $75.0 million [169]. - Equus is evaluating opportunities to transform into an operating company, with a potential shareholder authorization expected in 2023 or 2024 [172]. Economic Indicators - During Q3 2023, oil prices increased from $70.64 to $90.79 per barrel, while gas prices rose from $2.48 to $2.68, indicating a recovery in the energy sector [177]. - The U.S. GDP grew at an annualized rate of 4.9% in Q3 2023, surpassing consensus estimates of 4.3%, driven by increased consumer spending and service consumption [180]. - The unemployment rate in the U.S. stood at 3.8% as of September 30, 2023, with projections suggesting it may rise to 4.0% to 4.5% in 2024 due to anticipated recession [181]. - The Conference Board projects a mild recession for the U.S. economy in 2024, with overall GDP growth of 2.2% for 2023 and 0.8% for 2024 [180]. - The annualized inflation rate in October 2023 was reported at 3.7%, up from 2.6% at the end of Q2 2023, driven by rising energy prices [182]. Financial Performance - Net asset value increased from $2.61 per share to $3.49 per share, a rise of 33.7% [187]. - Common stock is trading at a 57.6% discount to net asset value, compared to 45.2% as of December 31, 2022 [187]. - Net investment loss for the nine months ended September 30, 2023, was $3.2 million, up from $2.6 million in the same period of 2022 [195]. - Investment income was $0.04 million for the three months ended September 30, 2023, and $0.06 million for the nine months ended September 30, 2023 [196]. - A $2.4 million debt investment was made in Morgan E&P, LLC, with a recorded change in fair value of $15.0 million due to increased acreage rights and oil prices [198]. Operational Management - Management evaluated the impact of market conditions on portfolio company valuations, indicating sufficient operating cash flow for the next twelve months [194]. - Compensation expense increased to $1.5 million for the nine months ended September 30, 2023, from $1.1 million in the same period of 2022 [196]. - Professional fees remained stable at $0.7 million for the nine months ended September 30, 2023, compared to $0.6 million in 2022 [197]. - The company advanced an additional $3.9 million to Morgan under its existing credit facility during October and November 2023 [201]. Financial Risks - 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 [173]. - The Federal Reserve set the federal funds rate at 5.5% in July 2023, the highest in 22 years, with no further increases expected for the remainder of 2023 [184]. - The company is subject to financial market risks, including interest rate changes and marketable equity security price fluctuations [202].