Equus Total Return (EQS) risk factors, FY2024 10-K

Other

1. 01Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance

Risks Related to Our Investments

1. 02Investments in small capitalization companies present certain risks that may not exist to the same degree as investments in larger, more established companies and will cause such investments to be volatile and speculative
2. 03There is uncertainty regarding the value of our privately held securities
3. 04We depend upon Management for our future investment success
4. 05Management may not be able to implement our investment objective successfully
5. 06We may not realize gains from our equity investments
6. 07Our holdings in Morgan E&P are subject to commodity price declines endemic to oil and gas companies
7. 08We may not be able to make additional investments in our portfolio companies from time to time, which may dilute our interests in such companies
8. 09We have invested in a limited number of portfolio companies
9. 10The lack of liquidity of our privately held securities may adversely affect our business
10. 11In situations where we hold junior priority liens, our ability to control decisions with respect to our portfolio companies may be limited by lenders holding superior liens. In a default scenario, the value of collateral may be insufficient to repay us after the senior priority lenders are paid in full
11. 12As a debt or minority equity investor in a portfolio company, we may have little direct influence over the entity. The stockholders and management of the portfolio company may make decisions that could decrease the value of our portfolio holdings
12. 13We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of our investment in these companies
13. 14We expect to have limited public information regarding the companies in which we may invest
14. 15Our prospective portfolio companies may be highly leveraged
15. 16Our business depends on external financing
16. 17We have had net investment losses in the past five years
17. 18We do not currently intend to recommence our managed distribution policy and you might not receive dividends on your shares
18. 19We operate in a highly competitive market for investment opportunities
19. 20An economic downturn could affect our operating results
20. 21We may experience fluctuations in our quarterly results
21. 22The due diligence process that we undertake in connection with our investments may not reveal all facts that may be relevant in connection with an investment

Risks Related to Our Potential Use of Leverage

1. 23The use of leverage may adversely affect our performance
2. 24The use of leverage may cause us to sell our portfolio interests prematurely
3. 25The use of leverage will increase our exposure to changes in market rates of interest

Risks Related to Our Business and Structure

1. 26Our ability to invest in private companies may be limited in certain circumstances
2. 27Any failure on our part to maintain the Fund's status as a BDC could reduce our operating flexibility
3. 28We are not currently qualified as a RIC under the Code and will be subject to corporate level income tax
4. 29As discussed above in "Our business depends on external financing," we historically have borrowed funds necessary to make qualifying investments to satisfy the Subchapter M diversification requirements. We undertook no such borrowings during the fourth quarter of 2024
5. 30Because we intend to distribute substantially all of our income and net realized capital gains to our stockholders, if we continue to operate as a BDC, we will need additional capital to finance our growth
6. 31Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval

Risks Related to Our Operation as a BDC

1. 32Our ability to enter into transactions with our affiliates is restricted
2. 33Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital
3. 34Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could negatively affect the profitability of our operations

Risks Related to Our Plan to Transform Equus Into an Operating Company

1. 35If we reorganize as an operating company, we will likely not seek to requalify as a RIC under the Code
2. 36If we reorganize as an operating company or a permanent capital vehicle, we will not continue to operate as a BDC
3. 37If we reorganize as an operating company or a permanent capital vehicle, we may not be able to utilize our capital losses
4. 38If we reorganize as an operating company or a permanent capital vehicle, our stockholders will no longer have certain protections under the 1940 Act