EQUUS TOTAL RETURN, INC.

Previous wording

We have certain wholly-owned taxable subsidiaries (“Taxable Subsidiaries”) each of which holds one or more portfolio investments listed on our Schedules of Investments. The purpose of these Taxable Subsidiaries was 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 Margins 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.

Current wording

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.

Previous wording

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 expect to receive a further authorization from our shareholders later in 2025 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.

Current wording

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.

Previous wording

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 thereofwas 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.

Current wording

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 thereofwas 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. SeeSubsequent Events below, where the Board of Directors approved the issuance of additional shares of restricted stock under the Incentive Plan.

Previous wording

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 $71.48 as of March 31, 2025. Natural gas prices experienced high volatility in 2022 before collapsing in 2023 and then steadily increasing each quarter thereafter, finishing the quarter ended March 31, 2025 at $4.11 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.

Current wording

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.

Previous wording

Morgan has undertaken 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 2025.

Current wording

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.

Previous wording

Consumer Prices. After experiencing substantial increases in 2022 and into 2023, consumer price increases have significantly ebbed through 2024 and the first quarter of 2025. As of March 2025, the consumer price index was up 2.4% over the previous 12-month period, down from 2.8% in February 2025, and remain consistent with the prior five quarters. Largely as a result of the introduction of tariffs in the first quarter of 2025, most commentators are forecasting an increase in the rate of inflation throughout the remainder of 2025 and into 2026. (Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Morgan Stanley Research; Goldman Sachs).

Current wording

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).

Previous wording

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 2025 meeting. Given the uncertainty regarding the U.S. economy and the implementation of tariffs, commentators are mixed in forecasting further rate cuts in the second and third quarters of 2025. (Sources: The Wall Street Journal; The Federal Reserve Board).

Current wording

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).

Previous wording

Mergers and Acquisitions. Global merger and acquisition activity in 2024 was approximately $2.2 trillion, a slight increase from $2.1 trillion in 2023, but well off the high of $4.1 trillion in 2021. Financial services, materials, industrials, and information technology were the sectors that experienced the most significant dealmaking activity during the year. Prior to the first quarter of 2025 and the change in U.S. trade policy, most analysts were expecting consolidation activity in 2025 to increase over 2024. The first quarter of 2025 did, in fact, see such an increase, with deal volume at $699 billion, the highest since 2021, largely driven by the technology sector, specifically AI and cloud innovation. However, some analysts believe that the increased activity in the first quarter of 2025 was a residual effect of transactions that were initiated in 2024, and therefore remain guarded about a continuation of this level of activity through the remainder of the year. (Sources: Ernst & Young; Bloomberg).

Current wording

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).

Previous wording

Private Equity. Private equity activity, both in the U.S. and globally, decreased from $464 billion in the fourth quarter of 2024 as compared to $445 billion in the first quarter of 2025, with the U.S. accounting for roughly half of these totals. Private equity fundraising also continued to decline in 2024 for the third consecutive year. Although transaction size has increased, the first quarter of 2025 has seen total deal volume decrease to its lowest level in five years. Notwithstanding significant uncertainty regarding global trade policies, analysts are expecting overall annual PE activity to increase 1.0% in 2025 over 2024, still 13.0% below the 2018-2019 average. (Sources: Statista; Ernst & Young; Ropes & Gray).

Current wording

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).

Previous wording

During the three months ended March 31, 2025, our net asset value increased from $2.17 per share to $2.52 per share, an increase of 16.0%. As of March 31, 2025, our common stock is trading at a 59.9% discount to our net asset value as compared to 49.3% as of December 31, 2024.

Current wording

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.

Previous wording

Net investment loss was $1.1 million for the three months ended March 31, 2025 and 2024.

Current wording

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.

Previous wording

Compensation expense was $0.6 million for the three months ended March 31, 2025 as compared to $0.4 million for the three months ended March 31, 2025, due to the officer bonuses related to dispositions.

Current wording

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.

Previous wording

Professional fees were $0.4 million for the three months ended March 31, 2025 as compared to $0.6 million for the three months ended March 31, 2024.

Current wording

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.

Previous wording

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 three months ended March 31, 2025 as compared to $0 for the three months ended March 31, 2024.

Current wording

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.

Previous wording

General and administrative expenses were comparable and were $0.05 million and $0.03 million for the three months ended March 31, 2025 and 2024, respectively.

Current wording

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.

Previous wording

During the three months ended March 31, 2025, we recorded an increase of $1.0 million in fair value of our equity holding in Morgan E&P, LLC (“Morgan”).

Current wording

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”).

Previous wording

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 March 31, 2025, the closing trading price of GEVI shares was $1.20. Accordingly, during the three months ended March 31, 2025, we recorded an increase of $3.0 million in fair value of the GEVI Note and $1.3 million increase in the fair value of the GEVI Warrant.

Current wording

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.

Previous wording

With respect to our holding in Equus Energy, LLC, recorded a reversal of the unrealized depreciation of $4.1 million of the fair value of this investment.

Current wording

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.

Previous wording

During the three months ended March 31, 2024, we made a $2.2 million follow-on debt investment. We recorded a decrease of $1.35 million in the fair value of our equity holding in Morgan.

Current wording

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.

Previous wording

During the three months ended March 31, 2024, with respect to our holding in Equus Energy, LLC, we recorded no change in the fair value of this investment.

Current wording

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.

Previous wording

Management performed an evaluation of the Fund’s activity through the date the financial statements were issued, noting there were no subsequent events.

Current wording

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