EQS 10-K & 10-Q changes, risk factors and insider trading

The oil and gas business is fundamentally a commodity-based enterprise. This means that the operations and earnings of Morgan E&P, LLCInc. (“Morgan”) may be significantly affected by changes in prices of oil, gas and natural gas liquids. The prices of these products are also dependent upon local, regional and global events or conditions that affect supply and demand for the relevant commodity. In addition, the pricing of these commodities is highly dependent upon technological improvements in energy production and development, energy efficiency, and seasonal weather patterns. Moreover, as a worldwide commodity, the price of oil and natural gas is also influenced by global demand, changes in currency exchange rates, interest rates, and inflation. Morgan does not employ any hedging strategies in respect of its oil and gas holdings and is therefore subject to price fluctuations resulting from these and other factors. The operational results and financial condition of Morgan, as well as the economic attractiveness of future capital expenditures for new drilling, may be materially adversely affected as a result of lower oil and gas prices.

As 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 2024.2025.

Risks Related to Our Plan to Transform Equus Into an Operating Company In our efforts to pursue pursue the transformation of Equus into an operating company, we are exploring and evaluating strategic alternatives for the Fund and we cannot assure you that we will be successful in identifying a strategic alternative, that such strategic alternative will yield additional value value for our stockholders or that the process will not have an adverse impact on our business.

Operating Activities. We use cash to make new investments and follow-on investments in our existing portfolio companies. We record these investments at cost on the applicable trade date. Realized gains or losses are computed using the specific identification method. On an ongoing basis, we carry our investments in our financial statements at fair value, as determined by our board of directors. See “Critical Accounting PoliciesEstimates – Valuation of Investments” below. As of December 31, 2024,2025, we had invested 91.9%104.3% of our net assets in securities of portfolio companies that constituted qualifying investments under the 1940 Act. At that time, we had invested 100%0% of our net assets in membership interests in limited liability companies.

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 are each subject to a vesting requirement over a 3-year period unless the recipient thereof is 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. We account for share-based compensation compensation using the fair value method, as prescribed by ASC 718, Compensation—Stock Compensation. 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. Inasmuch as all existing awards under the Incentive Plan became fully-vested prior to 2021, we recorded no compensation expense relating to awards made under the Incentive Plan for the years ended December 31, 2024, 2023 and 2022. During the year ended December 31, 2025, we awarded an additional 380,523 shares of restricted stock under the Incentive Plan to officers of the Fund and to consultants of Morgan. These awards were fully vested as of the date of grant.

U.S. GDP increased at an annualized rate of 2.3%0.7% in the fourth quarter of 2024,2025, whichwell was relatively consistent withbelow consensus estimates of 3.0% for the quarter, butquarter and substantially lower than GDP growth for the third quarter of 20242025 (3.1%4.4%), as well as the fourth quarter of 20232024 (3.2%2.1%). Overall GDP growth forFor the full year 20242025, GDP growth was 2.8%2.1% as compared to 2.9%2.8% in 2023.2024. The increasesharp decrease in GDP during the fourth quarter of 20242025 was driven principally by decreases in government and consumer spending, offsetand byexports, as well as a decrease in business investment during the quarter. The Congressional Budget Office is projecting GDP GDP growth of 1.9%2.5% for 20252026 and 1.8% for 2026.2027. The CBO report was released prior to the inaugurationstart of thehostilities newwith U.S. PresidentIran and thea administration’ssharp increase impositionin ofshort-term tariffsenergy prices which has resulted in a downward adjustment to other, more recent, GDP forecasts. CitingGoldman tariffSachs, concerns,which Morganinitially predicted StanleyGDP growth of 2.9% for 2026, has now revised its GDP growthestimate forecastto for2.2%, 2025citing oil price spikes and 2026supply fromchain 1.9%risks, and 1.3%,has respectively,also increased its estimate of the probability of a U.S. recession to 1.5% and 1.2%.25%. (Sources: Bureau of Economic Analysis; Morgan StanleyGoldman Sachs; Congressional Budget Office).

As of February 2025, 2026, the U.S. unemployment rate stood at 4.1%,4.4%, and has remained largely stable for a considerable period, fluctuating between 3.4%3.54% and 4.1% 4.4% for the previous 36 months. With the advent of tariffs, government layoffs, and a more aggressive deportation policy for undocumented immigrants, immigrants, most economists are projecting the unemployment rate to increase slightly to 4.5% during the remainder of 2025.2026. Moreover, the labor participation rate remains at approximately 62.5%, the same rate as one year previously, and still below the pre-pandemic high of 63.3% of February 2020. Most of the recent employment gains in 2023 2024 and 20242025 were due to gains in the leisurehealthcare and hospitalityhealthcare industry,services, construction, trade, transportation,government, and utilities.retail trade. (Sources: U.S. Bureau of Labor Statistics; Trading Economics).

Beginning in 2021 and continuing through 2022, consumer prices increased the most in four decades, reaching a high of 8.3%, before steadily declining, more or less, throughout 2023 and 2024,continuing through 2025, finishing the year at 2.9%.2.7%. This trend has continued into January 2025,2026, where the U.S. Bureau of Labor Statistics reported an annualized rate of 3.0%.2.4%. Notwithstanding a projected slowing of the U.S. economy for 2025,2026, most economists are are projecting similar rates of inflation for 20252026 as compared to 2024,2025, principally due to the continued effect of expected tariffs on imported goods.goods and an increase in short-term energy prices. (Sources: U.S. Bureau of Labor Statistics; Morgan Stanley).

Private equity activity increased from $1.9 trillion in 2023 toplateaued at $2.1 trillion in 2025, matching the same amount in 2024, reversingwhich awas downwardonly trendup fromslightly over 2023, all of which years are substantially below the post-pandemic highs of 2021 and 20222022. and the highs experienced during the Covid-19 pandemic. Nevertheless, privatePrivate equity fundraising was lower again for the thirdfourth straight year due to a weak exit environment that has constrained liquidity, with fund flows down 30%23% in 20242025 as compared to 2024, which was itself down 30% from 2023. (Source: S&P Global) During 2024,2025, our net asset value decreased from $3.55 per share as of December 31, 2023 to $2.17 per share as of December 31, 2024.2024 to $1.19 per share as of December 31, 2025. As of December 31, 2024, 2025, our common stock was trading at a 62.9%18.5% discountpremium to our net asset value as compared to 59.2%a 49.3% discount as of December 31, 2023.2024.

Financing Activities. We used $45.0 million in cash from financing activities for 2024, principally in connection with repayments net of borrowings on margin. We did not declare any dividends in 2024.

Total income from portfolio securities was $1.4 million for 2025 and $1.3 million for 2024 and $0.3 for 2023.2024. Compensation expense decreasedincreased to $1.8 $2.1 million in 20242025 from $1.9$1.8 million in 2023.2024.

DuringNew 2022,and weFollow-On made a $0.15 million follow-on investment in Equus Energy, LLC.Investments

The following table includes summarizes new and follow-on investment activity during the year ended December 31, 20222025 (in thousands):

During 2022, 2025, we recorded ana increasedecrease of $2.5 $3.5 million in net unrealized appreciation, from an unrealized appreciation of $5.0 million at December 31, 2021 to a net unrealized appreciation of $7.5$8.9 million at December 31, 2022.2024 to a net unrealized appreciation of $5.4 million at December 31, 2025. Such change in unrealized appreciation resulted primarily from the increase in fair value of our holdings in CitroTech, Inc. of $5.4 million and the reversal of an unrealized loss of $4.1 million when we sold our interest in Equus Energy, offset by the decrease in the fair value of our holdings in EquusMorgan Energy,E&P, LLCInc. of $2.65$13.0 million, principally due to ana increaselower inforward theprice cost basiscurve offor this investment,oil, as well as increases in oil and gas prices, as well as increases in the short-elimination andof long-termcertain forwardreserves pricingdue to limited curves for these commodities during 2022.production.

Morgan E&P, LLC (“Morgan”) was organized by the Fund on April 3, 2023 as a Delaware limited liability company and a wholly-owned subsidiary of the Fund. In 2025, we reorganized Morgan as a Delaware corporation taxed according to the requirements of Subchapter C of the Internal Revenue Code. On May 22, 2023, Morgan completed the acquisition of 4,747.52 net acres, in the Bakken/Three Forks formation in the Williston Basin of North Dakota, and acquired approximately 1,100 additional acres on September 26, 2023. The acreage and associated mineral rights were acquired from Pro Energy I LLC (“Pro Energy”), a company whose principals have decades of oil and gas experience and who have themselves drilled over 1,800 horizontal wells in the Williston Basin over a 10-year period. In May 2023, we entered into an agreement with Morgan to provide it up to $10.0 million in senior debt financing, which amount was subsequently amended to $10.5 million, subject to a schedule of disbursements and draws that we determine. As of December 31, 2024, we advanced Morgan $10.5 million under this facility. During 20232025, the andforward 2024,price curve for oil decreased compared to 2024. In addition, Morgan substantiallyexperienced increasedsubstantial itschallenges with production and, reservesas anda completed the drillingconsequence of two new wells. However, due to mechanical issues, these two wellsfactors, certain reserves were classifiedeliminated for consideration as non producingbeing during the fourth quarter of 2024.noneconomic. As a result, the fair value of our debt and equity interest in Morgan wasdecreased from $23.5 million at December 31, 2024.2024 to $10.5 million at December 31, 2025.

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 JuneSeptember 30, 2026. Moreover, we cannot assure you that the terms of any such transformative transaction would be acceptable to us.

On June 13, 2016, our shareholders approved the adoption of our 2016 Equity Incentive Plan (“2016 Plan”). On March 19, 2026, our shareholders approved the adoption of our 2025 Equity Incentive Plan (“2025 Plan”, and together with the 2016 Plan, the “Incentive Plans”). The Incentive Plans are 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 Plans are 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 Plans permit 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 2016 Plan is 2,434,728 shares, and the maximum number of shares of common stock that are subject to awards granted under the 2025 Plan are 2,793,338 shares. The term of the 2016 Plan will expire on June 13, 2026 and the term of the 2025 Plan will expire on March 19, 2036. During 2017, we granted awards of restricted stock under the 2016 Plan to certain of our directors and executive officers in the aggregate amount of 844,500 shares. These awards were each subject to a vesting requirement over a 3-year period unless the recipient thereof was 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. These were fully vested as of September 30, 2020. During 2025, we awarded an additional 380,523 shares of restricted stock under the Incentive Plan to officers of the Fund and to consultants of Morgan. These awards were fully vested at the grant date. In July 2026, we granted awards under the 2025 Plan of an aggregate of 540,000 shares of restricted stock to two key personnel of Morgan. No other awards have yet been made under the 2025 Plan. 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. In the case of the most recent awards under the Incentive Plan which were fully-vested, we recognized share-based compensation expense on the date of grant, based on the number of restricted shares awarded and our closing trading price per share on such date.

Impact of Economic and Geopolitical Events on the Oil and Gas Sector. Oil prices experienced a slow and steady decline beginning in the first quarter of 2024 and continuing until the end of 2025. The conflict in Iran, which commenced in February,February 2026, hastemporarily resulted in dramatically dramatically increased spot prices, ending the first quarter of 2026 at $101.30 per barrel.barrel before declining sharply to $69.50 as of June 30, 2026. Conversely, since the beginning of 2024, natural gas prices steadily increased before declining in the first three quarters of 2025 and2025, recovering at the end of 2025, and thereafter decliningdeclining, more or less, throughout the first three monthshalf of 2026, ending the quarter ended June 30, 2026 at $2.88$3.28 per MMBTU. Prior to the onset of hostilities in the Middle East, relative oil and gas price stability had been a significant factor in increased consolidation activity in the Williston Basin region in North Dakota where Morgan E&P, Inc. holds its development rights.

The U.S. Economy. U.S. GDP increased at an annualized rate of 2.0%1.5% for the firstsecond quarter of 2026 as compared to an increase of 0.5%2.1% for the fourthfirst quarter of 2025,2026, below consensus estimates of 2.0%2.1% for the quarter. The principalslower driversgrowth ofin the increase over the fourthsecond quarter of 20252026 werewas theprincipally due effectto ofdecreases thein government shutdown duringspending theand fourth quarter, as well as increasesdeceleration in gross private domestic investment, government spending,investment and netexports, exports.partially offset by an increase in consumer spending. The Congressional Budget Office has projected full-year GDP growth of 2.2% for 2026, with a slowdown to 1.8% in 2027. (Sources: Federal Reserve Bank of Atlanta; Bureau of Economic Analysis; The Congressional Budget Office).

Employment and Housing. The U.S. addedlost an estimated 115,00023,000 jobs in AprilJuly 20262026, as compared to 178,000gains of 20,000 jobs added in MarchJune 2026 and 63,000 jobs in May 2026. Combined payroll growth for May and June 2026 was revised downward by 103,000 jobs from previously reported levels. The unemployment rate declined to 4.1% in AprilJuly 20262026, helda relativelythirteen-month steady at 4.3%, unchangedlow, from March4.2% 2026.in However,June 2026, although the decline was attributable principally to a further contraction of the labor force rather than to job creation. The labor force participation rate decreasedfell to 61.8%, 61.4%, the lowest level since OctoberFebruary 2021, and average hourly earnings increased 3.2% year over year, the slowest pace since May 2021. The Congressional Budget Office now projects the unemployment rate forto allreach 4.6% by the end of 2026 before declining gradually to decrease4.5% to 4.2%in before2027 increasing slightly toand 4.4% in both 2027 and 2028. Persistently high borrowing costs continue to suppress sales volumes of both new and existing homes.homes, with existing home sales declining 2.4% in June 2026 to a seasonally adjusted annual rate of 4.09 million units and sales of new single-family homes running 5.6% below June 2025 levels. Despite these headwinds, mid-levelthe homemedian pricesexisting-home haveprice continuedreached an all-time high of $440,600 in June 2026, an increase of 1.8% over the prior year and the thirty-sixth consecutive month of year-over-year price increases, although price appreciation now trails wage growth and for-sale inventory has improved to rise4.6 moderately,months outpacing inflation and driven by constrainedof supply. Conflicting economic signals—such as stablea unemploymentsoftening labor market amid inflation pressures and high energy prices—have kept mortgage rates elevated, with the 30-year fixed rate averaging 6.25% to 6.35% 6.49% in AprilJune 2026 and 6.69% as of August 6, 2026. Acquisition and refinancing activity is unlikely to rebound meaningfully until 2027 (Sources: Federal Reserve Bank of Chicago; Bureau of Labor Statistics; Congressional Budget Office; National Association of Realtors; Freddie Mac; U.S. Census Bureau).

During the threesix months ended MarchJune 31,30, 2026, our net asset value increasedwas fromunchanged at $1.19 per shareshare. to $1.50 per share, an increaseAs of 26.1%.June As of March 31,30, 2026, our common stock is trading at a 18.5%4.0% discount to our net asset value as compared to 18.5% premium to our net asset value as of December 31, 2025.

On February 7, 2025, the Fund issued a one-year senior convertible promissory note bearing interest at 10% per annum in exchange for $2.0 million (“Equus Note”) On February 7, 2026, the Equus Note matured and remains unpaid as of MarchJune 31, 2026 and remains unpaid as of March 31,30, 2026 and continuing until the the filing of this Quarterly Report on Form 10-Q. On July 29, 2026, the Fund received a Notice of Event of Default from the holder of the Equus Note.

Net investment loss was $0.9 million and $1.1$0.6 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively and $1.8 million and $1.7 million for the six month periods ended June 30, 2026 and 2025, respectively. The decreaseincreased loss in the second quarter of 2026 was primarily due to $0.2 million $0.3in compensation expense and $0.1 million in transactionprofessional costs related to the issuance of a convertible promissory note in described in Note 5, offset by an increase in interest expense of $0.1 million.fees.

Total investment income was comparable at $0.3 million for each of the three monthsmonth periods ended MarchJune 31,30, 2026 and 2025, respectively and $0.6 million for each of the six month periods ended June 30, 2026 and 2025, respectively.

Compensation expense was comparable$0.6 atmillion $0.6and $0.4 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively.respectively and $1.2 million and $1.0 million for the six months ended June 30, 2026 and 2025. The increase was due to officer bonuses due to dispositions.

Professional fees were comparable at $0.3$0.4 million and $0.2 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively and $0.7 million and $0.6 million for the six months ended June 30, 2026 and 2025, respectively.

Transaction costs, relating to the issuance of a convertible promissory note described in Note 5 of the financial statement footnotes above were $0 and $0.3 million for the three and six months ended MarchJune 31,30, 2026 and 2025, respectively.

Changes in Unrealized Appreciation/Depreciation of Portfolio Securities During the threesix months ended MarchJune 31,30, 2026, we recorded an increase of $5.0$2.5 million in fair value of our equity holding in Morgan E&P, Inc. Inc. (“Morgan”), largely as a result of thea substantial increase in oil prices during the quarter, as well as increases in the forward price for oil in future periods.

During the threesix months ended March 31,June 30, 2026, we recorded a decrease of $0.2$2.9 million in fair value of our equity holding in CitroTech. (“CITR”) due to the reversal of the unrealized appreciation of $0.5$1.3 million of the fair value of this investment due to the sale of shares, offsetalong with bya thedecrease increase in unrealized appreciation of $0.3$1.0 million due to the increasedecrease in the closing share price at MarchJune 31,30, 2026. The fair value of our warrant holding in CITR also decreased, resulting in an unrealized depreciation of $0.6 million at June 30, 2026.

During the the threesix months ended MarchJune 31,30, 2025, we recorded an increase of $1.0$0.7 million in fair value of our equity holding in Morgan largely due to significant increases in the short and long-term price of crude oil.

During the threesix months ended MarchJune 31,2025,30, 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 as a result of the sale of this investment.

On February 10, 2025, we purchased from CitroTech, Inc., a developer of fire suppression products (“CITR”), a 1-year senior convertible promissory note bearing interest at the rate of 10% per annum, in exchange for $1.5 million in cash (“CITR Note”). Contemporaneously with the purchase of the CITR Note, the Fund also received a common stock purchase warrant (“CITR Warrant”) to acquire an aggregate of 1,875,000 shares of CITR common stock at an exercise price of $0.50 per share. The shares of CITR are traded on the NYSE American Stock Exchange and, as ofJune March 31,30, 2025, the closing trading price of CITRICITR shares was $1.20.$1.95. Accordingly, during the three months months ended MarchJune 31,30, 2025, we recorded an increase of $3.0$2.8 million in the fair value of the CITRGEVI Note and $1.3a $2.0 million increase in the fair value of the CITR Warrant.

During the threesix months ended MarchJune 31,30, 2026, with respect to the warrants issued, we recognized depreciationappreciation of the warrant liability of $0.3$0.5 million.

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