UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 20192020

Or

For the transition period from to

Commission File Number 814-00098

EQUUS TOTAL RETURN, INC.

(Exact name of registrant as specified in its charter)

(713) 529-0900

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant isawell-known seasoned issuer, as definedinRule 405 of the Securities Act.

Yes☐No☒

Indicate by check mark if the registrant is not requiredtofile reports pursuanttoSection13or Section 15(d) of the Act.

Yes☐No☒

Indicate by check mark whether the registrant (1)hasfiled allreports required to be filed by Section 13 or15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90days.Yes☒No☐

Indicate by check mark if disclosure of delinquent filers pursuanttoItem 405 of Regulation S-Kisnot contained herein, and will not be contained, to the best ofregistrant’s knowledge, in the definitive proxy or information statement incorporated by reference in Part III ofthis 10-K.☐

Indicate by check mark whether the registrant isalarge accelerated filer, an accelerated filer,anon-accelerated filer, or a smallerreporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 oftheExchange Act.

Large accelerated filer☐Accelerated filer☐

Non-accelerated filer☒(Do not check if asmaller reporting company) Smaller reporting company☐

Indicate by check mark whether the registrant isashell company (as defined in Rule 12b-2 of the Act). Yes☐No☒

Approximate aggregate market value of common stock held by non-affiliates of the registrant: $11,793,432$7,402,624 computed on the basisof

$1.64 $1.17 per share, the closing price of the registrant’s common stock on the New York Stock Exchange on June 30, 2019.2020. For purposes of calculating this amount only, all directors and executive officers of the registrant have been treated as affiliates. There were 13,518,146 shares of the registrant’s common stock, $.001 par value, outstanding asofMarch 31, 202129,2020.. The net asset valueof ashare of the Registrant as of December 31, 20192020 was $3.40.$2.50.

Indicate by check mark whether the registrant has submitted electronically and postedonits corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).☐

Portions of the Proxy Statement (to be filed) for the 20202021 Annual Shareholder’s meeting are incorporated by reference in Parts IIandIII.

 TABLE OF CONTENTS

PARTI

Item 1.Business

Equus Total Return, Inc. (“we,” “us,” “our,” “Equus” the “Company” or the “Fund”),aDelaware corporation, was formed by Equus Investments II, L.P.(the“Partnership” (the “Partnership”)onAugust 16, 1991. On July 1, 1992, the Partnershipwasreorganized and all of the assets andliabilitiesofthe Partnership were transferred to the Fund in exchange for sharesofcommon stockofthe Fund. On August 11, 2006, our shareholders approved the change of the Fund’s investment strategy to atotal return investment objective. This strategy seeks toprovide the highest total return, consisting of capital appreciation and current income. In connection with this strategic investment change, the shareholders also approved the changeofname from Equus II IncorporatedtoEquus Total Return, Inc.

We attempt to maximize the return to stockholders in the form of current investment income and long-term capital gains by investing in the debt and equity securities of companies withatotal enterprise value between $5.0 million and $75.0 million, although we may engageintransactions with smallerorlarger investee companies from time to time. We seek to invest primarily in companies pursuing growth either through acquisition or organically, leveraged buyouts, management buyouts and recapitalizations of existing businesses or special situations. Our income-producing investments consist principally of debt securities, including bonds, subordinated debt, debt convertible into common or preferred stock, or debt combined with warrants and common and preferred stock. Debt and preferred equity financing may also be used to create long-term capital appreciation through the exercise andsale of warrants received in connection with a financing. We seek to achieve capital appreciation by making investmentsinequity and equity-oriented securities issued byprivately-owned companiesorsmaller public companies in transactions negotiated directly with such companies. Given market conditions over the past several years and the performance ofour portfolio, our management and board of directors believeitprudenttocontinuetoreview alternatives to refine and further clarify thecurrent strategies.

Equus isaclosed-end management investment company that has elected to be treatedas abusiness development company (“BDC”) under the Investment Company Actof1940 (“1940 Act”). In order toremaina BDC,wemustmeet certain specified requirements under the 1940 Act, including investingatleast 70% of our assets in eligible portfolio companies and limiting the amount ofleverage we incur. Equus is alsoaregulated investment company (“RIC”) under Subchapter M ofthe U.S. Internal Revenue Codeof 1986.As such,weare notrequiredtopay corporate-level income tax on the Fund’s investment income. So long as we remain aBDC, we intend tomaintain our RIC status, which requires thatwequalify annually asaRICbymeeting certain specified requirements. Foradiscussion of these requirements necessary to maintain our status as aBDC and as aRIC, please see “Business Development Company RequirementsRequirements”and “Regulated Investment Company Tax Status,” respectively.

Our principal office is located at 700 Louisiana St.,48^thFloor, Houston, Texas, 77002, and the telephone number is 1-888-323-4533.1-800-856-0901. Our corporate website is located atwww.equuscap.com. We make available free of chargeonour website our annual report on Form 10-K, quarterly reportsonForm 10-Q, current reportsonForm 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed or furnished to the Securities and Exchange Commission (“SEC”). Our shares are traded on The New York Stock Exchange (“NYSE”) under the ticker symbol “EQS”.

Significant Developments

Impact of the CoronavirusCOVID-19 Generally.The introduction in lateIn 2019, of SARS-CoV-2, also known as thea highly contagious pathogen thatwhich causes COVID-19, coronavirus disease, or simply, the “coronavirus”‘coronavirus’, arose in Wuhan Province, China. On January 21, 2020, the Centers for Disease Control reported the first known coronavirus infection in the U.S., and by February 29, 2020, the first U.S. death was reported. By March 11, 2020, the World Health Organization declared the coronavirus a worldwide pandemic, and the President of the United States declared a national emergency two days thereafter. By the second quarter of 2020, all U.S. States had imposed various restrictions on travel, movement, and public assembly, and substantial portions of the U.S. economy, including those in which certain of our portfolio companies operate, were materially and negatively affected as a result. Beginning in September 2020, a number of U.S. states began to relax certain restrictions on commercial and social activity, including permitting some primary, secondary, and university students to return to in-person classes.

Largely as a consequence of this type of increased social interaction, the U.S. experienced a resurgence in COVID-19 infections and concomitant deaths that continued through the end of 2020. In addition, in late 2020, new and more highly contagious strains of the virus appeared in the United Kingdom and South Africa, both of which were transmitted across the globe within a matter of weeks. The resurgence in infections and the introduction of these new strains resulted in the return of enhanced proscriptions on social gatherings, many of which have continued through the remainder of 2020 and into the first quarter of 2021. As of March 8, 2021, the number of U.S. deaths attributable to the coronavirus stood at over 530,000.

Beginning in late 2020, a number of global pharmaceutical companies introduced one and two-dose COVID-19 vaccines to the market. As of March 9, 2021, the U.S. Centers for Disease Control reported that 18.1% of all adults in the U.S. had received at least one of these vaccines. On March 11, 2021, the President of the United States announced that all adults in the U.S. would be eligible to receive one of the vaccines by May 1, 2021. With lowering infection and death rates, certain states have begun again to relax restrictions on social and commercial activity, most notably in Texas, where that state’s governor recently announced the full reopening of all businesses without requiring employees or patrons to wear a protective mask.

The highly contagious nature of the coronavirus has caused numerous private and public organizations to substantially alter the way in which they operate. Many such organizations have, to the extent possible, required employees to work remotely to reduce opportunities for contagion. We have also taken steps to minimize the exposure of our employees and service providers by requiring all such persons to work from a remote location. We utilize a cloud-based storage and retrieval system for our records and can communicate electronically or by telephone with third parties such as our financial institutions, legal and accounting advisors, and our portfolio companies. Our day-to-day operations and management has not, therefore, been materially affected by the coronavirus pandemic. However, government directives on social distancing and shelter-in-place mandates have rendered us unable to travel to attend board meetings, negotiations, and other functions which are endemic to the interpersonal nature of private equity investing. As a consequence, our ability to source new investment prospects, facilitate dispositions of existing portfolio holdings, or consummate a substantial transaction has been constrained by these limitations. Should these disruptions and restrictions on travel continue as a result of the coronavirus, we cannot, therefore, assure you that our operations as a BDC or our efforts to effect a transformative transaction involving Equus will not be materially adversely affected thereby.

Although our company and our portfolio companies are generally affected by macroeconomic factors such as an overall downturn in the U.S. economy and fluctuations in energy prices, we are presently unable to predict either the potential near-term or longer-term impact that the coronavirus may have on our financial and operating results due to numerous uncertainties regarding the duration and severity of the crisis. Moreover, we are unable to predict the effect that the economic dislocation caused by the coronavirus will have on our efforts to complete a transformative transaction as described below. The ultimate impact of the coronavirus pandemic is highly uncertain and subject to change, and our business, results of operations, and financial condition have been and will likely continue to be impacted by future developments concerning the pandemic and the resulting economic disruption.

Impact of Geopolitical Events and the Coronavirus on the Oil and Gas Sector. The substantial recent downturn in world markets has been prominent in the oil and gas sector, with crude prices falling to 18-year lows in mid-March 2020. The collapse in prices was the result of a price war between the Russian Federation and Saudi Arabia and a massive drop in forecasted demand as a consequence of the coronavirus. During 2020, as oil and gas prices slowly recovered, a number of smaller oil and gas firms that incurred leverage experienced severe economic challenges, including insolvency and bankruptcy. The recent recovery in oil and gas prices that continued through the end of 2020 and into the first quarter of 2021 has improved the outlook and prospects for remaining small oil and gas firms such as Equus Energy that hold development rights in low-cost production reservoirs such as those underlying the Permian Basin and the Eagle Ford Shale regions.

Authorization to Withdraw BDC Election. On January 20, 2021, 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, but no later than August 31, 2021. This authorization and others which preceded it are a consequence of our expressed intent to transform Equus into an operating company or a permanent capital vehicle. 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. Moreover, we cannot assure you that the terms of any such transformative transaction would be acceptable to us.

Increase in Authorized Shares. Also on January 20, 2021, holders of a majority of the outstanding common stock of the Fund approved the restatement of our Certificate of Incorporation to increase the number of our authorized shares of common stock from 50,000,000 to 100,000,000, and the number of our authorized shares of preferred stock from 5,000,000 to 10,000,000. The increase is intended to help facilitate the transformation of Equus into an operating company and provide sufficient authorized shares to evaluate larger business concerns as possible acquisition or merger candidates.

Authorization to Increase Leverage. On November 14, 2019, holders of a majority of the outstanding common stock of the Fund authorized our Board to decrease the Fund’s asset coverage ratio from 200% to 150%, the effect of which is to double the Fund’s borrowing capacity. The authorization stems from the Small Business Credit Availability Act which was signed into law in March 2018 and amends certain sections of the 1940 Act, such as maximum leverage requirements, applicable to BDCs.

Outlook. Our Board and management of the Fund (“Management”) continue to believe that current market conditions and recent portfolio performance dictate the need to pursue a more active role in the management of our remaining investments and to seek liquidity events at the appropriate time to protect and enhance shareholder value. These activities include continuous monitoring and intensive reviews of portfolio company performance and expectations, providing follow-on capital when necessary, and the exploration of liquidity events for certain portfolio companies to position the Fund to maximize investment returns and, to the extent we intend to remain a BDC, actively pursuing suitable new investments for the Fund.

Investment Objective

To the extent we remain a BDC and do not complete the transformation of Equus into an operating company as described above, our investment objective is to maximize the total return to our stockholders in the form of current investment income and long-term capital gains by investing in the debt and equity securities of small and middle market capitalization companies that are generally not publicly traded at the time of our investment. As a result of our endeavors in the energy sector, we may also seek to purchase or develop working interests, mineral interests, and revenue leasehold interests in oil and gas properties, although we remain open to exploring investment opportunities in a variety of other sectors. Should we continue to grow and develop Equus as a closed-end fund or permanent capital vehicle instead of an operating company, we intend to include investments in progressively larger enterprises.

Investment Strategy

Our investment strategy attempts to strike a balance between the potential for gain and the risk of loss. With respect to capital appreciation, Equus is a “growth-at-reasonable-price” investor that seeks to identify and acquire securities that meet our criteria for selling at reasonable prices. We give priority to cash producing investments wherein we invest principally in debt or preferred equity financing with the objective of generating regular interest and dividend income back to the Fund. Debt and preferred equity financing may also be used to create long-term capital appreciation through the exercise and sale of warrants received in connection with a financing. Given market conditions over the past several years and the performance of our portfolio, our Management and Board believe it prudent to continue to review alternatives to refine and further clarify the current strategies.

Investment Criteria

Consistent with our investment objective and strategy, our Management evaluates prospective investments based upon the criteria set forth below. We may modify some or all of these criteria from time to time.

Management Competency and Ownership. We seek to invest in companies with experienced management teams who have demonstrated a track record of successful performance. Further, we desire to invest in companies with significant management ownership. We believe that significant management ownership in small capitalization and middle market companies provides appropriate incentives and an alignment of interests for management to maximize shareholder value. In addition, we will seek to design compensation and incentive arrangements that align the interests of the portfolio company’s management with those of the Fund to enhance potential returns.

Substantial Target Market. We desire to focus on companies whose products or services have favorable growth potential and strong competitive positions in their respective markets. These positions may be as leadership positions within a given industry or market niche positions in which the product or service has a demonstrated competitive advantage. The market in which a potential portfolio company operates should either be sizeable or have significant growth potential.

History of Profitability and Favorable Growth Potential. We target companies that have demonstrated a history of profitability or a reasonable expectation of a return to profitability in the near future.

Ability to Provide Regular Cash Interest and Distributions. We look for companies with strong cash flow models sufficient to provide regular and consistent interest and/or preferred dividend payments.

Management Assistance and Substantial Equity. Given the requirements of a BDC under the 1940 Act, we seek to invest in companies that will permit substantial managerial assistance, including representation on the board of directors of the company or its equivalent. With regard to equity investments, we desire to obtain a substantial investment position in portfolio companies. This position may be as a minority shareholder with certain contractual rights and powers, or as a majority shareholder, and should otherwise allow us to have substantive input on the direction and strategies of the portfolio company.

Plausible Exit and Potential for Appreciation. Prior to investing in a portfolio company, we will seek to analyze potential exit strategies and pursue those investments with such strategies as may be achievable.

Investment Operations

Our investment operations consist principally of the following basic activities:

Investment Selection. Historically, many of our investment opportunities have come from Management, members of our Board, other private equity investors, direct approaches from prospective portfolio companies and referrals from investment banks, business brokers, commercial, regional and local banks, attorneys, accountants and other members of the financial community. Subject to the approval of our Board, we may compensate certain referrals with finder’s fees to the extent permissible under applicable law and consistent with industry practice.

Due Diligence. Once a potential investment is identified, we undertake a due diligence review using information provided by the prospective portfolio company and publicly available information. Management may also seek input from consultants, investment bankers and other knowledgeable sources. The due diligence review will typically include, but is not limited to:

Structuring Investments. We typically negotiate investments in private transactions directly with the owner or issuer of the securities acquired. Management structures the terms of a proposed investment, including the purchase price, the type of security to be purchased and our future involvement in the portfolio company’s business. We seek to structure the terms of the investment to provide for the capital needs of the portfolio company while maximizing our opportunities for current income and capital appreciation. In addition, we may invest with other co-investors including private equity firms, business development companies, small business investment companies, venture capital groups, institutional investors and individual investors.

Providing Management Assistance and Monitoring of Investments. Successful private equity investments typically require active monitoring of, and significant participation in, major business decisions of portfolio companies. In several cases, officers and directors of the Fund serve as members of the governing boards of portfolio companies. Such management assistance is required of a BDC under the 1940 Act. We seek to provide guidance and management assistance with respect to such matters as capital structure, acquisitions, budgets, profit goals, corporate strategy, portfolio management and potential sale of the company or other exit strategies. In connection with their service as directors of portfolio companies, officers and directors of the Fund may receive and retain directors’ fees or reimbursement for expenses incurred, and may participate in incentive stock option plans for non-employee directors, if any. When necessary and as requested by any portfolio company, Management, on behalf of the Fund, may also assign staff professionals with financial or management expertise to assist portfolio company management. 

Follow-On Investments

Following our initial investment, a portfolio company may request that we make follow-on investments by providing additional equity or loans needed to fully implement its business plans to develop a new line of business or to recover from unexpected business problems or other purposes. In addition, follow-on investments may be made to exercise warrants or other preferential rights granted to the Fund or otherwise to increase our position in a portfolio company. We may make follow-on investments in portfolio companies from cash on hand or borrow all or a portion of the funds required. If we are unable to make follow-on investments due to lack of available capital, the portfolio company in need of the investment may be negatively impacted, we may be required to subordinate our debt interest in the portfolio company to a new lender, and our equity interest in the portfolio company may be diluted if outside equity capital is required.

Disposition of Investments

The method and timing of the disposition of our investments in portfolio companies are critical to our ability to realize capital gains and minimize capital losses. We may dispose of our portfolio securities through a variety of transactions, including recapitalizations, refinancings, management buyouts, repayments from cash flow, acquisitions of portfolio companies by a third party and outright sales of the Fund’s securities in a portfolio company. In addition, under certain circumstances we may distribute our portfolio securities in-kind to our stockholders. In structuring our investments, we endeavor to reach an understanding with the management of the prospective portfolio company as to the appropriate method and timing of the disposition of the investment. In some cases, we seek registration rights for our portfolio securities at the time of investment which typically provide that the portfolio company will bear the cost of registration. To the extent not paid by the portfolio company, the Fund typically bears the costs of disposing of our portfolio investments.

Current Portfolio Companies

For a description of our current portfolio company investments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Portfolio Securities.”

Valuation

On a quarterly basis, Management values our portfolio investments. These valuations are subject to the approval and adoption of the Board. Valuations of our portfolio securities at “fair value” are performed in accordance with accounting principles generally accepted in the United States (“GAAP”).

The fair value of investments for which no market exists (which includes most of our investments) is determined through procedures established in good faith by the Board. As a general principle, the current “fair value” of an investment is the amount the Fund might reasonably expect to receive upon its sale in an orderly manner. There are a range of values that are reasonable for such investments at any particular time.

We base our adjustments to fair value upon such factors as the portfolio company’s earnings, cash flow and net worth, the market prices for similar securities of comparable companies, an assessment of the company’s current and future financial prospects and various other factors and assumptions. In the case of unsuccessful or substantially declining operations,

we may base a portfolio company’s fair value upon the company’s estimated liquidation value. Fair valuations are inherently subjective, and our estimate of fair value may differ materially from amounts actually received upon the disposition of our portfolio securities. Also, any failure by a portfolio company to achieve its business plan or obtain and maintain its financing arrangements could result in increased volatility and result in a significant and rapid change in its value.

Our general intent is to hold our loans to maturity when appraising our privately held debt investments. As such, we believe that the fair value will not exceed the cost of the investment; however, we may perform a yield analysis to determine if a debt security has been impaired.

Our Management may engage independent, third-party valuation firms to conduct independent appraisals and review Management’s preliminary valuations of each privately-held investment in order to make their own independent assessment. Any third- party valuation data would be considered as one of many factors in a fair value determination. Management would then present its fair value recommendations to the Audit Committee of the Board of Directors for review. Following review and any adjustments required thereby, the Audit Committee would, in turn, recommend the fair values for all of the Fund’s portfolio investments to the Board of Directors for final approval.

To the extent that market quotations are readily available for our investments and such investments are freely transferable, we value them at the closing market price on the date of valuation. For securities which are of the same class as a class of public securities but are restricted from free trading (such as Rule 144 stock), we establish our valuation by discounting the closing market price to reflect the estimated impact of illiquidity caused by such restrictions. We generally hold investments in debt securities to maturity. Accordingly, we determine the fair value of debt securities on the basis of the terms of the debt securities and the financial condition of the issuer. We value certificates of deposit at their face value, plus interest accrued to the date of valuation.

Our Board reviews the valuation policies on a quarterly basis to determine their appropriateness and reserves the right to hire and, from time to time, utilizes independent valuation firms to review Management’s valuation methodology or to conduct an independent valuation.

On a daily basis, we adjust net asset value for changes in the value of publicly held securities, if any, and for material changes in the value of investments in securities issued by private companies. We report these amounts to Lipper Analytical Services, Inc. Our weekly and daily net asset values appear in various publications, including Barron’s and The Wall Street Journal.

Competition

We compete with a large number of public and private equity and mezzanine funds and other financing sources, including traditional financial services companies such as finance companies and commercial banks. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Our competitors may have a lower cost of funds and many have access to funding sources that are not available to us. In addition, certain of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships and build their market shares. In addition, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC.

We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. In addition, because of this competition, we may not be able to take advantage of attractive investment opportunities and may not be able to identify and make investments that satisfy our investment objectives or meet our investment goals.

Properties

Our principal executive offices are located at 700 Louisiana St., 48^th Floor, Houston, Texas 77002. Should we remain a BDC and not transform into an operating company or a permanent capital vehicle, we believe that our office facilities are suitable and adequate for our operations as currently conducted and contemplated.

Business Development Company Requirements

Qualifying Assets. As a BDC, we may not acquire any asset other than qualifying assets, as defined by the 1940 Act, unless, at the time the acquisition is made, the value of our qualifying assets represent at least 70% of the value of our total assets. The principal categories of qualifying assets relevant to our business are the following:

To include certain securities above as qualifying assets for the purpose of the 70% test, a BDC must make available to the issuer of those securities significant managerial assistance, such as providing significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We offer to provide significant managerial assistance to each of our portfolio companies.

We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of the holders of the majority of our outstanding voting securities, as defined in the 1940 Act. On January 20, 2021, we received this authorization from our shareholders to withdraw our BDC election prior to August 31, 2021. This authorization and others which preceded it were provided as a consequence of our plan to effect a transformation of Equus by: (i) acquiring or merging with an operating company based in the energy, natural resources, technology, or financial services sectors, and (ii) terminating the Fund’s election to be classified as a BDC under the 1940 Act. Notwithstanding the present authorization to withdraw our BDC election, we will require a separate affirmative vote of the holders of a majority of our outstanding voting securities to consummate a transformation of Equus and change the nature of our business (see “Significant Developments−Authorization to Withdraw BDC Election” above).

Temporary Investments. Pending investment in portfolio companies, we invest our available funds in interest-bearing bank accounts, money market mutual funds, U.S. Treasury securities and/or certificates of deposit with maturities of less than one year (collectively, “Temporary Investments”). Temporary Investments may also include commercial paper (rated or unrated) and other short-term securities. Temporary Investments constituting cash, cash items, securities issued or guaranteed by the U.S. Treasury or U.S. Government agencies and high quality debt securities (commercial paper rated in the two highest rating categories by Moody’s Investor Services, Inc. or Standard & Poor’s Corporation, or if not rated, issued by a company having an outstanding debt issue so rated, with maturities of less than one year at the time of investment) will qualify for determining whether we have 70% of our total assets invested in qualifying assets or in qualified Temporary Investments for purposes of the BDC provisions of the 1940 Act.

Leverage. We are permitted by the 1940 Act, under specified conditions, to issue multiple classes of senior debt and a single class of preferred stock senior to the common stock if our asset coverage, as defined in the 1940 Act, is at least 150% after the issuance of the debt or the senior stockholders’ interests. In addition, provisions must be made to prohibit any distribution to common stockholders or the repurchase of any shares unless the asset coverage ratio is at least 150% at the time of the distribution or repurchase.

Fund Share Sales Below Net Asset Value. To the extent we remain a BDC, we generally may sell our common stock at a price that is below the prevailing net asset value per share only upon the approval of the policy by stockholders holding a majority of our issued shares, including a majority of shares held by nonaffiliated stockholders. We may, in accordance with certain conditions established by the SEC, sell shares below net asset value in connection with the distribution of rights to all of our stockholders. We may also issue shares at less than net asset value in payment of dividends to existing stockholders.

No Redemption Rights. Since we are a closed-end BDC, our stockholders have no right to present their shares to the Fund for redemption. Recognizing the possibility that our shares might trade at a discount, our Board has determined that it would be in the best interest of our stockholders for the Fund to be authorized to attempt to reduce or eliminate a market value discount from net asset value. Accordingly, from time to time we may, but are not required to, repurchase our shares (including by means of tender offers) to attempt to reduce or eliminate any discount or to increase the net asset value of our shares.

Affiliated Transactions. Many of the transactions involving the Fund and its affiliates (as well as affiliates of such affiliates) require the prior approval of a majority of the independent directors and a majority of the independent directors having no financial interest in the transactions. However, certain transactions involving closely affiliated persons of the Fund require the prior approval of the SEC.

Regulated Investment Company Tax Status

As a BDC, we operate to qualify as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If we qualify as a RIC and annually distribute to our stockholders in a timely manner at least 90% of our investment company taxable income, we will not be subject to federal income tax on the portion of our taxable income and capital gains we distribute to our stockholders. Taxable income generally differs from net income as defined by accounting principles generally accepted in the United States due to temporary and permanent timing differences in the recognition of income and expenses, returns of capital and net unrealized appreciation or depreciation.

Generally, in order to maintain our status as a RIC, we must (i) continue to qualify as a BDC; (ii) distribute to our stockholders in a timely manner at least 90% of our investment company taxable income, as defined by the Code; (iii) derive in each taxable year at least 90% of our gross investment company income from dividends, interest, payments with respect to securities loans, gains from the sale of stock or other securities or other income derived with respect to our business of investing in such stock or securities as defined by the Code; and (iv) meet investment diversification requirements. The diversification requirements generally require us, at the end of each quarter of the taxable year, to have (a) at least 50% of the value of our assets consist of cash, cash items, government securities, securities of other RICs and other securities if such other securities of any one issuer do not represent more than 5% of our assets and 10% of the outstanding voting securities of the issuer and (b) no more than 25% of the value of our assets invested in the securities of one issuer (other than U.S. government securities and securities of other RICs), or of two or more issuers that are controlled by us and are engaged in the same or similar or related trades or businesses.

In addition, with respect to each calendar year, if we distribute or have treated as having distributed (including amounts retained but designated as deemed distributed) in a timely manner 98% of our net capital gain income for each one-year period ending on October 31, and distribute 98.2% of our investment company net ordinary income for such calendar year (as well as any ordinary income not distributed in prior years), we will not be subject to the 4% nondeductible Federal excise tax imposed with respect to certain undistributed income of RICs.

If we fail to satisfy the 90% distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we will be subject to tax in such year on all of our taxable income, regardless of whether we make any distribution to our stockholders. In addition, in that case, all of our distributions to our stockholders will be characterized as ordinary income (to the extent of our current and accumulated earnings and profits). We have distributed and currently intend to distribute sufficient dividends to eliminate our investment company taxable income; however, none have been necessary in recent years.

Custodian

We act as the custodian of our securities to the extent permitted under the 1940 Act and are subject to the restrictions imposed on self- custodians by the 1940 Act and the rules and regulations thereunder. We have also entered into an agreement with Amegy Bank with respect to the safekeeping of our securities. The principal business office of Amegy Bank is 1717 West Loop South, Houston, Texas 77027.

Transfer and Disbursing Agent

We employ American Stock Transfer & Trust Company as our transfer agent to record transfers of our shares, maintain proxy records and to process distributions. The principal business office of our transfer agent is 6201 15th Avenue, 2nd Floor, Brooklyn, NY 11219.

Certifications

In May 2020, pursuant to Section 303A.12(a) of the NYSE Listed Company Manual, we submitted to the NYSE an unqualified certification of our Chief Executive Officer. In addition, certifications by our Chief Executive Officer and Chief Financial Officer have been filed as exhibits to this annual report on Form 10-K as required by the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002.

Forward-Looking Statements

All statements contained herein that are not historical facts including, but not limited to, statements regarding anticipated activity are “forward-looking statements” within the meaning of the federal securities laws, involve a number of risks and uncertainties, and are based on the beliefs and assumptions of Management, based on information currently available to Management. Actual results may differ materially. In some cases, readers can identify forward-looking statements by words such as “may,” “will,” “should,” “expect,” “objective,” “plan,” “intend,” “anticipate,” “believe,” “Management believes,” “estimate,” “predict,” “project,” “potential,” “forecast,” “continue,” “strategy,” or “position” or the negative of such terms or other variations of them or by comparable terminology. In particular, statements, express or implied, concerning future actions, conditions, or events, future operating results, or the ability to generate sales, income, or cash flow are forward-looking statements.

Among the factors that could cause actual results to differ materially are the following: (i) changes in the economic conditions in which we operate, including changes related to the evolving impact of the coronavirus, which might negatively impacting our financial resources; (ii) the substantially greater resources of certain of our competitors than the Fund, potentially reducing the number of suitable investment opportunities offered or reducing the yield necessary to consummate the investment; (iii) the uncertainty regarding the value of our privately held securities that require a good faith estimate of fair value for which a change in estimate could affect the Fund’s net asset value; (iv) the illiquidity of our investments in securities of privately held companies which could affect our ability to realize a gain; (v) the default of one or more of our portfolio companies on their loans or the failure of such companies to provide any returns on our investments which could affect the Fund’s operating results; (vi) our dependence on external financing to grow our business; (vii) our ability to retain key management personnel; (viii) an economic downturn or recession that could impair our portfolio companies and therefore harm our operating results; (iv) our borrowing arrangements, which could impose certain restrictions; (x) changes in interest rates that may affect our cost of capital and net operating income; (xi) our inability to incur additional indebtedness unless the Fund maintains an asset coverage of at least 150%, which may affect returns to our stockholders; (xii) the possible failure of the Fund to continue to qualify for our pass-through treatment as a RIC which could have an effect on stockholder returns; (xiii) the volatility of the price of our common stock; (xiv) general business and economic conditions and other risk factors described in its reports filed from time to time with the SEC; and (xv) risks related to our plan to transform Equus into an operating company or a permanent capital vehicle. We caution readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

Item 1A. Risk Factors

An investment in our securities involves certain risks relating to our structure and investment objectives. The risks and uncertainties described below are not the only ones facing Equus. You should carefully consider these risks, together with all of the other information included in our annual report on Form 10-K, including our financial statements and the related notes thereto.

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

If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, the trading price of our common stock could decline and you may lose all or part of your investment.

Risks Related to COVID-19

The coronavirus could have an adverse impact on our operations.

The introduction of the coronavirus in late 2019 has had a substantial detrimental impact on markets and economic forecasts for governments and businesses worldwide, and could have a materially adverse impact upon our operations and that of our present and prospective portfolio companies, although the extent of the impact cannot be determined at the present time. The World Health Organization has declared the coronavirus a pandemic, underscoring the global nature of the spreadcompanies. In addition, in late 2020, new and more highly contagious strains of the virus appeared in the United Kingdom and asSouth Africa, both of which were transmitted across the globe within a matter of weeks. The resurgence in infections in the fourth quarter of 2020 and the introduction of these new strains resulted in the return of enhanced proscriptions on social gatherings in certain areas of the dateworld, many of filingwhich have continued through the remainder of this Annual Report on Form 10-K,2020 and into the Presidentfirst quarter of 2021. As of March 8, 2021, the number of U.S. deaths attributable to the coronavirus stood at over 530,000. Notwithstanding the large-scale introduction of vaccines into the market, if new and less inoculatable strains of the United States has declared a national emergency to enable federal and state governments to access federal emergency funds and resources. National, state, and local governments across the United States have already implemented significant travel, movement, and assembly restrictions, as well as restrictions on the movement of goods, all of which are expected to have a material adverse impact upon consumer and business demand. If the coronavirus continuescontinue to spread, or if the economic disruption caused thus far by the coronavirus continues, our operations and financial condition, including our access to liquidity, could be materially adversely affected.

Impact of the CoronavirusThe coronavirus could have an adverse impact on Our Operationsour ability to conduct business.

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The highly contagious nature of the coronavirus has caused numerous private and public organizations to substantially alter the way in which they operate. Many such organizations have, to the extent possible, required employees to work remotely to reduce opportunities for contagion. We have also taken steps to minimize the exposure of our employees and service providers by requiring all such persons to work from a remote location. We utilize a cloud-based storage and retrieval system for our records and can communicate electronically or by telephone with third parties such as our financial institutions, legal and accounting advisors, and our portfolio companies. However, government directives on social distancing and shelter-in-place mandates have rendered us unable to travel to attend board meetings, negotiations, and other functions which are endemic to the interpersonal nature of private equity investing. Should these disruptions and restrictions on travel continue as a result of the coronavirus, we cannot, therefore, assure you that our operations as a BDC or our efforts to effect a transformative transaction involving Equus will not be materially adversely affected thereby.

Impact of Geopolitical Events and the Coronavirus on the Oil and Gas Sector.The substantial recent downturn in world markets has been prominent in the oil and gas sector, with crude prices falling to 18-year lows in mid-March 2020. The collapse in prices was the result of a price war between the Russian Federation and Saudi Arabia and a massive drop in forecasted demand as a consequence of the coronavirus. Should prices not recover to sustainable levels, a number of smaller oil and gas firms that have incurred leverage could experience severe economic challenges, including insolvency and bankruptcy. Other firms, such as Equus Energy, could see future capital expenditures to generate additional reserves from existing mineral interests postponed indefinitely, which could have a material adverse effect upon the operations and financial condition of Equus Energy.

PlanofReorganization and Share Exchange with MVC Capital.OnMay 14, 2014, we announced thatthe Fund intendedtoeffect areorganization pursuanttoSection 2(a)(33) of the 1940 Act (hereinafter, the “Plan of Reorganization”). Asafirst step to consummating the Plan ofReorganization,wesold to MVC Capital, Inc. (“MVC”) 2,112,000 newly-issued sharesofthe Fund’s common stockinexchange for 395,839 shares of MVC (such transaction ishereinafter referred to as the “Share Exchange”). MVC isabusiness developmentcompanytraded on the NYSE that provides long-term debt and equity investment capital to fund growth, acquisitions and recapitalizationsofcompanies inavariety ofindustries. The Share Exchange was calculated based on the Fund’s and MVC’s respective net asset value pershare. Atthe time of the Share Exchange, the numberofMVC shares received by Equus represented approximately 1.73% of MVC’s total outstanding shares of common stock.

Pursuant to the termsof aShare Exchange Agreement, dated May 12, 2014, entered into by Equus and MVC which memorialized the Share Exchange, we intend to finalize the Plan ofReorganization by pursuingamerger orconsolidation (“Consolidation”) with an operating company focused on the energy, naturalresources,technology, or financial services sector and terminating the Fund’s election tobe classified as aBDC under the 1940 Act. Our management iscurrently evaluating these alternatives, including the possibility of transforming Equus into a permanent capital vehicle, and expects to commence and/or consummateaConsolidation or other transformative transaction during 2020.

Agreement to Acquire Portfolio Company of MVC—On April 24, 2017, we entered intoaStock Purchase Agreement and Plan of Merger (“Merger Agreement”) with ETR Merger Sub, Inc., anewly-formed wholly-owned subsidiary of Equus,certainshareholders of USG&E, and MVC asaselling shareholder of U.S. Gas&Electric, Inc. (“USG&E”) and as representativeofthe selling USG&E shareholders. On May 30, 2017, USG&E and MVC notified us that they had acceptedaproposal from Crius Energy Trust, that was considered by the respective boards of directorsofUSG&E and MVC to constitutea“Superior Proposal” (as such term is defined in the Merger Agreement) to the terms and conditions of the Merger Agreement, and, accordingly, provided us withanotice of termination pursuant to the Merger Agreement. Further, pursuant to the Merger Agreement, USG&E paid us atermination fee of $2.5 million (see Note 4 –Related Party Transactions and Agreements below).

Intention to ContinuetoPursue Consolidation. Notwithstanding the termination of the MergerAgreement with USG&E described above, we intend to pursueaConsolidation and the completion of our Plan of Reorganization with another operating company or the transformation of Equus into a permanent capital vehicle and withdraw our BDC election as authorized byour stockholders. While wearepresently evaluating various opportunities that could enableus toaccomplishaConsolidation, we cannot assure you that we will be able to do so within any particular time period or at all. Moreover, we cannot assure you that the terms of any such transaction that would embodyaConsolidation would be acceptable to us.

Authorization to Withdraw BDC Election. On November 14, 2019, holdersof amajority of the outstanding common stock of the Fund approved our cessation asaBDC under the 1940 Act and authorized our Board tocause the Fund’s withdrawal of its election to be classified asaBDC, effective asof adate designatedbythe Board and ourChief Executive Officer, but nolater than March 31, 2020, although we expect that our stockholders will grant an extension or another such authorization in the future. This authorization and others which preceded it that have since expired were given asaconsequenceofthe Plan of Reorganization described above. Notwithstanding any such authorization to withdraw our BDC election, we will not submit any such withdrawal unless and until Equus has entered into adefinitive agreement to effect aConsolidation. Further, even if we areagain authorized towithdraw our election asaBDC, we will requireasubsequent affirmative vote from holders ofamajority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our business.

Authorization to Increase Leverage. Also onNovember 14,2019, holdersof amajority of the outstanding common stock of the Fund authorized our Board to decrease the Fund’s asset coverage ratio from 200% to 150%, the effect of which is to double the Fund’s borrowing capacity. The authorization stems from the Small Business Credit Availability Act which was signed into law in March 2018 and amends certain sections of the 1940 Act, such as maximum leverage requirements, applicable to BDCs.

Outlook. Our Board and management of theFund (“Management”) continue to believe that current market conditions and recent portfolio performance dictate the need to pursueamore active role in the management of our remaining investments and toseekliquidity events at the appropriate time to protect and enhance shareholder value. These activities include continuous monitoring and intensive reviews ofportfolio company performance and expectations, providing follow-on capital when necessary, and the exploration of liquidity events for certain portfolio companies to position the Fund to maximize investment returns and, to the extent we intend to remainaBDC, activelypursuing suitablenewinvestments for the Fund.

Investment Objective

To the extent we remainaBDC anddonot complete the Consolidation as described above, our investment objective is to maximize the total return to our stockholdersinthe form of current investment income and long-term capital gains by investing in the debt and equity securities of small and middle market capitalization companies that are generally not publicly traded at the time of our investment. Asaresult ofour endeavors in the energy sector,wealsoseekto purchase ordevelop working interests, mineral interests,andrevenue leasehold interestsin oil and gasproperties, althoughweremain opentoexploring investment opportunitiesin avariety of other sectors. Should we continue to grow and develop Equus asaclosed-end fund or permanent capital vehicle instead of an operating company, we intend to include investmentsinprogressively larger enterprises.

Investment Strategy

Our investment strategy attempts to strikeabalance between the potential for gain and the risk of loss. With respect tocapital appreciation, Equus isa“growth-at-reasonable-price” investor that seeks to identify and acquire securities that meet our criteria for selling at reasonable prices. We give priority tocashproducing investments wherein we invest principally indebt orpreferred equity financing with the objective of generating regular interest and dividend income back tothe Fund. Debt and preferred equity financing may alsobeused to create long-term capital appreciation through the exercise and sale of warrants received in connection with a financing. Given market conditions over the past several years and the performance of our portfolio, our Management and Board believe it prudent to continue to review alternatives to refine and further clarify the current strategies.

Investment Criteria

Consistent with our investment objective and strategy, our Management evaluates prospective investments based upon the criteria set forth below. We may modify some or all of these criteria from timetotime.

Management Competency and Ownership.We seek to invest incompanies with experienced management teams who have

demonstratedatrack record of successful performance. Further,wedesire to invest in companies with significant management ownership. We believe that significant management ownership insmall capitalization and middle market companies provides appropriate incentives and an alignment of interests for management to maximize shareholder value. In addition, we will seek to design compensation and incentive arrangements that align the interests of the portfolio company’s management with those of the Fund to enhance potential returns.

Substantial Target Market. We desire to focus on companies whose products or services have favorable growth potential and strong competitive positionsintheir respective markets. These positions may be as leadership positions withinagiven industry or market niche positions in which the productorservice hasademonstrated competitive advantage. The market in whichapotential portfolio company operates should either be sizeable or have significant growthpotential.

History ofProfitability and Favorable Growth Potential. We target companies that have demonstratedahistory of profitability or areasonable expectation ofareturntoprofitability inthe near future.

Ability to Provide Regular Cash Interest and Distributions. We look for companies with strong cash flow models sufficient toprovide regular and consistent interest and/or preferred dividend payments.

Management Assistance and Substantial Equity. Given the requirements ofaBDC under the 1940 Act, we seektoinvest incompanies that will permit substantial managerial assistance including representation on the board of directorsofthe company or its equivalent. With regard to equity investments, we desiretoobtainasubstantial investment position in portfolio companies. This position may be asaminority shareholder with certain contractual rights andpowers,or as amajority shareholder, and should otherwise allow us to have substantive input onthe direction and strategiesofthe portfolio company.

Plausible Exit and Potential for Appreciation. Prior to investing in aportfolio company,wewill seek to analyze potential exit strategies and pursue those investments with such strategiesasmaybeachievable.

InvestmentOperations

Our investment operations consist principally of the following basicactivities:

Investment Selection.Historically, many of our investment opportunities have comefromManagement, members of our Board, other private equity investors, direct approaches from prospective portfolio companies and referrals from investment banks, business brokers, commercial, regional and local banks, attorneys, accountants and other members of the financial community. Subject to the approval of our Board, we may compensate certain referrals with finder’s fees to the extent permissible under applicable law and consistent with industry practice.

Due Diligence. Onceapotential investment is identified, we undertakeadue diligence review using information provided by the prospective portfolio company and publicly available information. Management may also seek input from consultants, investmentbankers andother knowledgeable sources. The due diligence review will typically include, but isnot limited to:

Structuring Investments.We typically negotiate investments in private transactions directly with the ownerorissuer of the securities acquired. Management structures the terms ofaproposed investment, including the purchase price, the type of security tobe purchased and our future involvement in the portfolio company’s business. We seek to structure the terms of the investment toprovide for thecapital needs ofthe portfolio company while maximizing our opportunities for current income and capital appreciation. In addition, we may invest with other co-investors including private equity firms, business development companies, small business investment companies, venture capital groups, institutional investors and individual investors.

Providing Management Assistance and Monitoring of Investments. Successful private equity investments typically require active monitoring of, and significant participation in, major business decisionsofportfolio companies. In several cases, officers and directors of the Fund serve as membersofthe governing boards of portfolio companies. Such management assistanceisrequired of aBDC under the 1940 Act.We seekto provide guidance and management assistance with respect to such matters as capital structure, acquisitions, budgets, profit goals, corporate strategy, portfolio management and potential sale of the company or other exit strategies. In connection with their service as directorsofportfolio companies, officers and directorsofthe Fund may receive and retain directors’ fees or reimbursement for expenses incurred, and may participate in incentive stock option plansfornon-employee directors, if any. When necessary and as requested by any portfolio company, Management, on behalf of the Fund, may also assign staff professionals with financial or management expertise to assist portfolio company management.

Follow-On Investments

Following our initial investment,aportfolio company may request that we make follow-on investments by providing additional equity orloans needed to fully implement its business planstodevelopanew lineofbusinessorto recover from unexpected business problems orother purposes.Inaddition, follow-on investments may be made to exercise warrants or other preferential rights granted tothe Fund or otherwise to increase our position inaportfolio company. We may make follow-on investments in portfolio companies from cash on hand or borrow all oraportion of the funds required. Ifweare unable tomake follow-on investments due to lack of available capital, the portfolio company in need of the investment may be negatively impacted,wemay be required to subordinate our debt interest in the portfolio company to a newlender, and our equity interestinthe portfolio company may be diluted if outside equity capitalisrequired.

Disposition of Investments

The method and timingofthe dispositionofour investments in portfolio companies are critical to our ability to realize capital gains and minimize capital losses. We may dispose of our portfolio securities throughavariety of transactions, including recapitalizations, refinancings, management buy-outs, repayments from cash flow, acquisitionsofportfolio companiesby athird party and outright salesofthe Fund’s securities inaportfolio company. In addition, under certain circumstances we may distribute our portfolio securities in-kind toour stockholders.Instructuring our investments, we endeavor toreach an understanding with the management of the prospective portfolio company as to the appropriate method and timing of the disposition of the investment.Insome cases, we seek registration rights forourportfolio securities at the time ofinvestment which typically provide that the portfolio company will bear the cost of registration. To the extent not paid by the portfolio company, the Fund typically bears the costs of disposing of our portfolio investments.

Current Portfolio Companies

Foradescription of our current portfolio company investments, see “Management’s Discussion and Analysis of Financial Condition and ResultsofOperations–Portfolio Securities.”

Valuation

Onaquarterly basis, Management values our portfolio investments. These valuations are subject to the approval and adoptionofthe Board. Valuations of our portfolio securities at “fair value” are performed in accordance with accounting principles generally accepted in the United States (“GAAP”).

The fair value of investments for which no market exists (which includes most of our investments) is determined through procedures established in good faith by the Board. Asageneral principle, the current “fair value” of an investment is the amount the Fund might reasonably expect to receive upon its sale in an orderly manner. There arearange of values that are reasonable for such investments at any particular time.

We base our adjustments to fair value upon such factors as the portfolio company’s earnings, cash flow and net worth, the market prices for similar securities of comparable companies, an assessmentofthe company’s current and future financial prospectsandvarious other factors and assumptions.Inthe case of unsuccessful or substantially declining operations, we may baseaportfolio company’s fair value upon the company’s estimated liquidation value. Fair valuations are inherently subjective, and our estimateoffair value may differ materially from amounts actually received upon the disposition of its portfolio securities. Also, any failure byaportfolio company to achieve its business plan or obtain and maintain its financing arrangements could result in increased volatility and result in asignificant and rapid change in its value.

Our general intent istohold our loans to maturity when appraising our privately held debt investments. As such, we believe that the fair value will not exceed the cost of the investment; however, we may performayield analysis to determineif a debtsecurity has been impaired.

Our Management may engage independent, third-party valuation firms to conduct independent appraisals and review Management’s preliminary valuations of each privately-held investment inorder to make theirownindependent assessment. Any third- party valuation data would be considered as one of many factors inafair value determination. Management would then present itsfair value recommendations to the Audit Committee of the Board ofDirectors for review. Following review and any adjustments required thereby, the Audit Committee would,inturn, recommend the fair values for all of the Fund’s portfolio investmentstothe Board of Directors for final approval.

To the extent that market quotations are readily available for our investments and such investments are freely transferable, we value them at the closing market price on the date of valuation. For securities which are of the same class as aclass of public securities but are restricted from freetrading(such as Rule 144 stock), we establish our valuation by discounting the closing market price to reflect the estimated impact of illiquidity caused by such restrictions. We generally hold investments in debt securitiestomaturity. Accordingly,wedetermine the fair value of debt securitiesonthe basis of the terms of the debt securitiesandthe financial condition of the issuer. We value certificates of deposit at their face value, plus interest accrued to the dateofvaluation.

Our Board reviews the valuation policieson aquarterly basis to determine their appropriateness and reserves the right tohire and, from time to time, utilizes independent valuation firmstoreview Management’s valuation methodology or to conduct an independent valuation.

Onadaily basis, we adjust net asset value for changes in the valueofpublicly held securities, if any, and for material changes in the value of investmentsinsecurities issued by private companies. We report these amounts to Lipper Analytical Services, Inc. Our weekly and daily net asset values appear invarious publications, includingBarron’s andThe Wall Street Journal.

Competition

We compete withalarge number of public and private equity and mezzanine funds and otherfinancingsources, including traditional financial services companies such as finance companies and commercial banks. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Our competitors may havealower cost of funds and many have access to funding sources that are not available to us. In addition, certain ofour competitors may have higher risk tolerancesordifferent risk assessments, which could allow them to considerawider variety of investments and establish more relationships and build their market shares.Inaddition, manyofour competitors are not subject to the regulatory restrictions that the 1940 Act imposesonus as aBDC.

We cannot assure you that the competitive pressures we face will not haveamaterial adverse effect onour business, financial condition and results of operations. In addition, because of this competition,wemay not be able to take advantage of attractive investment opportunities and may not be abletoidentify and make investments that satisfy our investment objectives or meet our investment goals.

Properties

Our principal executive offices are located at 700 Louisiana St., 48th Floor, Houston, Texas 77002. Should Equus remain a BDC and not transform into an operating company or a permanent capital vehicle, we believe that our office facilities are suitable and adequate for our operations as currently conducted and contemplated.

Business Development Company Requirements

Qualifying Assets. As aBDC, we may notacquire any asset other than qualifying assets, as defined by the 1940 Act,unless, at thetime the acquisition is made, the value of our qualifying assets represent at least 70% of the value of our totalassets. The principal categories of qualifying assets relevant toourbusiness are the following:

We may not change the nature of our business soasto cease to be, or withdraw our election as,aBDC unless authorized by vote of the holders of the majority of our outstanding voting securities,asdefined in the 1940 Act. On November 19, 2019, we received this authorization from our shareholders to withdraw our BDC election prior to March 31, 2020. This authorization and others which preceded it were provided asaconsequence of our Plan of Reorganization announced on May 14, 2014, wherein we stated thatwe intended to: (i) consummate aConsolidation, (ii) terminate the Fund’s election to be classified as aBDC under the 1940 Act, and (iii)berestructured as apublicly-traded operating company focused on the energy, naturalresources,technology, or financial services sector. Notwithstanding the present authorizationtowithdraw our BDC election,we will requireaseparate affirmative voteofthe holdersof amajority of our outstanding voting

securitiestoconsummateaConsolidation and change the nature of our business (see “Significant Developments−PlanofReorganization”and “−Authorization to Withdraw BDC Election” above).

To include certain securities above as qualifying assets for the purpose of the 70% test,aBDC must make available to the issuer of those securities significant managerial assistance, such as providing significant guidance and counsel concerning the management, operations, orbusiness objectives and policies ofaportfolio company. We offer to provide significant managerial assistance to each of our portfolio companies.

Temporary Investments. Pending investment in portfolio companies,weinvest our available fundsininterest-bearing bank accounts, money market mutual funds, U.S. Treasury securities and/or certificates of deposit with maturities of less than one year (collectively, “Temporary Investments”). Temporary Investments may also include commercial paper (rated or unrated) and other short-term securities. Temporary Investments constituting cash, cash items, securities issued or guaranteed bythe U.S. Treasury orU.S. Government agencies and high quality debt securities (commercial paper rated in the two highest rating categories by Moody’s Investor Services, Inc.orStandard & Poor’s Corporation, or if not rated, issued byacompany having an outstanding debt issue so rated, with maturities of less than one year at the timeofinvestment) will qualify for determining whether we have 70% of our total assets invested in qualifying assetsorin qualified Temporary Investments for purposes of the BDC provisions of the 1940 Act.

Leverage. We are permitted by the 1940 Act, under specified conditions,toissue multiple classes of senior debt andasingle class of preferred stock senior tothe common stock if our asset coverage, as defined in the 1940 Act, is at least 150% after the issuance of the debt or the senior stockholders’ interests. In addition, provisions must be made to prohibit any distribution to common stockholdersorthe repurchase of any shares unless the asset coverage ratio is at least 150% at thetime of thedistribution or repurchase.

Fund Share Sales Below Net Asset Value. To the extent we remainaBDC, we generally may sell our common stock ataprice that is below the prevailing net asset value per share only upon the approval of the policy by stockholders holdingamajority ofour issued shares, includingamajority of shares held by nonaffiliated stockholders. We may, in accordance with certain conditions establishedbythe SEC, sell shares below net asset value in connection with the distribution of rightstoall of our stockholders. We may also issue shares at less than net asset value in paymentofdividends to existing stockholders.

No Redemption Rights.Since we areaclosed-end BDC, our stockholders havenoright to present their shares to the Fund for redemption. Recognizing the possibility that our shares might trade atadiscount, our Board has determined that it wouldbe inthe best interest of our stockholders for the Fund tobeauthorized toattempt to reduceoreliminateamarket value discount from net asset value. Accordingly, from timetotime we may, but are not required to, repurchase our shares (including by means oftender offers) to attempt to reduceoreliminate any discount orto increase the net asset value of our shares.

Affiliated Transactions. Many of the transactions involving the Fund and its affiliates (as well as affiliates of such affiliates) require the prior approval ofamajority of the independent directors andamajority of the independent directors having no financial interest in thetransactions.However, certain transactions involving closely affiliated persons of the Fund require the prior approval of the SEC.

Regulated Investment Company Tax Status

AsaBDC, we operatetoqualify as aRIC under Subchapter M ofthe Internal Revenue Codeof1986, as amended (the "Code"). If we qualify asaRIC and annually distribute to our stockholders in atimely manner at least 90% of ourinvestment company taxable income, we will not be subject to federal income tax on the portion of our taxable income and capital gains we distribute to our stockholders. Taxable income generally differs from net income as definedbyaccounting principles generally accepted in the United States due to temporary and permanent timing differences in the recognition of income and expenses, returnsofcapital and net unrealized appreciation or depreciation.

Generally, in order to maintain ourstatus as aRIC,we must(i) continue to qualify asaBDC; (ii) distribute to our stockholders in atimely manner at least 90% of our investment company taxable income, as defined by the Code; (iii) derive in each taxable year at least 90% ofour gross investment company income from dividends, interest, payments with respect tosecurities loans, gainsfromthesale of stock or other securities or other income derived with respect to our business of investinginsuch stockorsecurities as defined bytheCode; and (iv) meet investment diversification requirements. The diversification requirements generally require us at the end of each quarterofthe taxable yearto have (a) at least 50%ofthe value of our assets consist of cash, cash items, government securities, securities of other RICs and other securities if such other securities of any one issuer do not represent more than 5% of our assets and 10%ofthe outstanding voting securities of the issuer and (b) no more than 25% of the valueofour assets invested in the securities of one issuer (other than U.S. government securities and securities of other RICs), or oftwo or more issuers thatarecontrolled by us and are engaged in the same or similar or related trades or businesses.

In addition, with respect to each calendar year, if we distribute or have treated as having distributed (including amounts retained but designated as deemed distributed)in atimely manner 98%ofour net capital gain income for each one-year period ending on October 31, and distribute 98.2% of our investment company net ordinary income for such calendar year (as well as any ordinary income not distributed in prior years), we will not be subject to the4%nondeductible Federal excise tax imposed with respect to certain undistributed income of RICs.

If wefail to satisfy the 90% distribution requirement or otherwise fail to qualify asaRICinany taxable year, we will be subject to tax insuch year onall of our taxable income, regardless of whetherwemake any distribution to our stockholders. In addition, in that case, all of our distributionstoour stockholders will be characterized as ordinary income (to the extentofour current and accumulated earnings and profits).Wehave distributedandcurrently intend to distribute sufficient dividendstoeliminate our investment company taxable income; however, none have been necessary in recent years.

Custodian

We act as the custodian of our securities to the extent permitted under the 1940 Act and are subject to the restrictions imposed onself-custodians by the 1940 Act andtherules and regulations thereunder. We have also entered into an agreement with Amegy Bankwith respect tothe safekeeping of our securities. The principal business officeofAmegy Bank is 1717 West Loop South, Houston, Texas 77027.

Transfer and Disbursing Agent

We employ American Stock Transfer&Trust Company as our transfer agent to record transfers of our shares, maintain proxy records and to process distributions. The principal business office of our transfer agent is 6201 15th Avenue, 2nd Floor, Brooklyn,NY11219.

Certifications

In June 2019, pursuant to Section 303A.12(a)ofthe NYSE Listed Company Manual, we submitted to the NYSE an unqualified certification of our Chief Executive Officer. In addition, certifications by our Chief Executive Officer and Chief Financial Officer have been filed as exhibitstothis annual report on Form 10-K as required by the Securities Exchange Actof1934, as amended, and the Sarbanes-Oxley Act of 2002.

Forward-Looking Statements

All statements contained herein that are not historical facts including, but not limited to, statements regarding anticipated activity are “forward-looking statements” within the meaningofthe federal securities laws, involve anumber of risks and uncertainties, and are based on the beliefs and assumptions of Management, basedoninformation currently available to Management. Actual results may differ materially. In some cases, readers can identify forward-looking statements by words such as “may,” “will,”“should,”“expect,” “objective,” “plan,” “intend,” “anticipate,” “believe,” “Management believes,” “estimate,” “predict,” “project,” “potential,” “forecast,” “continue,” “strategy,” or “position” or the negative ofsuch terms or other variationsofthemor bycomparable terminology. In particular, statements, express or implied, concerning future actions, conditions, or events, future operating results, or the ability to generate sales, income,or cash flow are forward-looking statements.

Among the factors that could cause actual results to differ materially are the following: (i) changes in the economic conditions in which weoperate, which might negatively impacting our financial resources; (ii) the substantially greater resources of certain of our competitors

than the Fund, potentially reducing the number of suitable investment opportunities offeredorreducing the yield necessary to consummate the investment; (iii) the uncertainty regarding the valueofour privately held securities that requireagood faith estimate of fair value for whichachange in estimate could affect the Fund’s net asset value; (iv) the illiquidity of our investments in securitiesofprivately held companies which could affect our ability to realizeagain; (v) the default of one or more of our portfolio companiesontheir loansorthe failure of such companies to provide any returns on our investments which could affect the Fund’s operating results; (vi) our dependenceonexternal financing to grow our business; (vii) our ability to retain key management personnel; (viii) an economic downturn or recession that could impair our portfolio companies and therefore harm our operating results; (iv) our borrowing arrangements, which could impose certain restrictions; (x) changesininterest rates that may affect our cost of capital and net operating income; (xi) our inability toincur additional indebtedness unless the Fund maintains an asset coverage of at least 150%, which may affect returns to our stockholders; (xii) the possible failure of the Fund to continue to qualify for our pass-through treatment asaRIC which could have an effect on stockholder returns; (xiii) the volatility of the priceofour common stock; (xiv) general business and economic conditions and other risk factors describedinits reports filed from time to time with the SEC; and (xv) risks related to our Plan of Reorganization. We caution readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

Item 1A.Risk Factors

An investment in our securities involves certain risks relating to our structure and investment objectives. The risks and uncertainties described below are not the only ones facing Equus. You should carefully consider these risks, together with all ofthe other information included in the annual reportonForm 10-K, including our financial statements and the related notes thereto.

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

If any of the following risks actually occur, our business, financial condition or results of operations could bematerially adversely affected.Ifthat happens, the trading price of our common stock could decline and you may lose all or part of your investment.

Risks Related to the Coronavirus

The coronavirus could have an adverse impact on our operations.

The introduction in late 2019 of SARS-CoV-2, also known as the pathogen that causes COVID-19, coronavirus disease, or simply, the “coronavirus”, has had a substantial detrimental impact on markets and economic forecasts for governments and businesses worldwide, and could have a materially adverse impact upon our operations and that of our portfolio companies, although the extent of the impact cannot be determined at the present time. The World Health Organization has declared the coronavirus a pandemic, underscoring the global nature of the spread of the virus and, as of the date of filing of this Annual Report on Form 10-K, the President of the United States has declared a national emergency to enable federal and state governments to access federal emergency funds and resources. National, state, and local governments across the United States have already implemented significant travel, movement, and assembly restrictions, as well as restrictions on the movement of goods, all of which are expected to have a material adverse impact upon consumer and business demand. If the coronavirus continues to spread, or if the economic disruption caused thus far by the coronavirus continues, our operations and financial condition, including our access to liquidity, could be materially adversely affected.

The coronavirus could have an adverse impact on our ability to conduct business.

The highly contagious nature of the coronavirus has caused numerous private and public organizations to substantially alter the way in which they operate. Many such organizations have, to the extent possible, required employees to work remotely to reduce opportunities for contagion. We have also taken steps to minimize the exposure of our employees and service providers by requiring all such persons to work from a remote location. We utilize a cloud-based storage and retrieval system for our records and can communicate electronically or by telephone with third parties such as our financial institutions, legal and accounting advisors, and our portfolio companies. However, government directives on social distancing and shelter-in-place mandates have rendered us unable to travel to attend board meetings, negotiations, and other functions which are endemic to the interpersonal nature of private equity investing. Should these disruptions and restrictions on travel continue as a result of the coronavirus, we cannot, therefore, assure you that our operations as a BDC or our efforts to effect a transformative transaction involving Equus will not be materially adversely affected thereby.

The coronavirus could have an adverse impact on our oil and gas holdings.

The substantial recent downturn in world markets has been prominent in the oil and gas sector, with crude prices falling to 18-year lows in mid-March 2020. The collapse in prices was the result of a price war between the Russian Federation and Saudi Arabia and a massive drop in forecasted demand as a consequence of the coronavirus. Should prices not recover to sustainable levels, a number of smaller oil and gas firms that have incurred leverage could experience severe economic challenges, including insolvency and bankruptcy. Other firms, such as Equus Energy, could see future capital expenditures to generate additional reserves from existing mineral interests postponed indefinitely, which could have a material adverse effect upon the operations and financial condition of Equus Energy

The coronavirus could adversely affect our portfolio companies.

Our portfolio companies may be affected by various force majeure events (e.g., without limitation, acts of God, fire, flood, earthquakes, outbreaks of infectious disease, pandemic or any other serious public health concern, war, trade war, cyber security breaches, terrorism and labor strikes), including the recent global outbreak of the coronavirus. These events may have a material adverse impact on our portfolio companies’ supply chains, limit access to key commodities or technologies, otherwise impact their customers, manufacturers or suppliers or otherwise cause material disruptions to their industry or the industries they serve. In the case of the coronavirus, such a force majeure event could have a broader negative impact on the world economy and international business activity generally. A substantial negative impact to one or more of our portfolio companies as a result of the coronavirus could have a material adverse effects on our business, financial condition and results of operations.

Future disruptions or instability in capital markets could negatively impact the valuation of our investments and our ability to raise capital.

From time to time, the global capital markets may experience periods of disruption and instability, which could be prolonged and which could materially and adversely impact the broader financial and credit markets, have a negative impact on the valuations of our investments and reduce the availability to us of debt and equity capital. The recent global outbreak of the coronavirus has disrupted economic markets and the prolonged economic impact is uncertain. Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide economic downturn. Many manufacturers of goods in China and other countries in Asia have seen a downturn in production due to the suspension of business and temporary closure of factories in an attempt to curb the spread of the illness. As the impact of the coronavirus spreads to other parts of the world, similar impacts may occur with respect to affected countries. There can be no assurance that market conditions will not worsen in the future.

Risks Related to Our Investments

Investments insmall capitalization companies present certain risks that may not existtothe same degree as investments in larger, more established companies and will cause such investments to be volatile and speculative.

We have invested and may continue to invest, in private, small and/or new companies that may be in their early stages of development.

Investmentsinthese typesofcompanies involveanumberofsignificant risks, including the following:

There is uncertainty regarding the value of our privately held securities.

Our net asset value is based on the valueweassign to our portfolio investments. For investments that are not listedon asecurities exchange or quotation medium, we determine the value of our investments in securities for which market quotations are not available as of the end of each calendar quarter, unless there isasignificant event requiringachange in valuation in the interim. Because of the inherent uncertainty of the valuation of portfolio securities that do not have readily ascertainable market values, our fair value determination may differ materiallyfrom thevaluethat would have been used hadaready market existed for the securities. We determine the fair value of investments for whichnomarket quotations are available based uponamethodology that we believe reachesareasonable estimation of fair value.

However, we do not necessarily apply multiple valuation metrics in reaching this determination and, in some cases, we do not obtainanythird party third-party valuations before reaching this determination. Our determinations of the fair value ofourinvestments haveamaterial impact on ournetearnings through the recording of unrealized appreciation or depreciation of investments as well as our assessment of interest income recognition. Our net asset value could be affected materially if our determinationsofthe fair value of our investments differ significantly from values based onaready market for these securities.

We depend upon Management for our future investment success.

We depend upon the diligence and skill of our Management to select, structure, close and monitor our investments. Management is responsible for identifying, structuring, evaluating, monitoring, and disposing of our investments, and the services they collectively provide significantly impact our results of operations. Our future success will depend to asignificant extent on the continued service and coordination of Management. Our success will depend on our ability toretain our existing Management and to recruit additional other highly qualified individuals.If weare unabletointegrate new investment and management personnel, we may be unable to achieve our desired investment results.

Management may notbeable to implement our investment objective successfully.

Our Board is takingamore opportunistic approach toour portfolio investment strategy, shifting our investment emphasis from manufacturing and services to other sectors, such as energy. In order to implement our investment strategy, Management must analyze, conduct due diligence, invest in, monitor and sell investment interests in industries in which manyofthem have not previously been involved. Also, we expect that our investment strategy will continuetorequire Management to investigate and monitor investments that are much more broadly dispersed geographically.Inaddition, Management is required to provide valuations for investments inabroader range ofsecurities, including debt securities, which may require expertise beyond that previously required.Wecannot assure investors that the overall riskof

their investment in the Fund will be reduced asaresult of our investment strategy. If we cannot achieve our investment objective successfully, the valueofyour investment in our common stock could decline substantially.

We may not realize gains from our equity investments.

We frequently invest in the equity securities ofourportfolio companies. Also, when we makealoan, we sometimes receive warrants to acquire stock issued bythe borrower. Ultimately, our goal is to sell these equity interests and realize gains. These equity interests may not appreciate and, in fact, may depreciate in value. Some of ourportfolio companies have experienced net losses in recent years or have negative net worth as of their most recent available balance sheet date. At December 31, 2019, several of2020, Equus Energy, LLC (“Equus Energy”) our sole remaining portfolio investmentscompany, had an estimated fair values,value that was, based upon our valuation methodologies, significantly below the initial cost of such investments. At December 31, 2019, the cost basis ofour portfolio investments was $15.3 million and our estimated fair value was $42.1 million, although our equity investments ininvestment. For Equus Energy LLC and MVC Capital, Inc. had an aggregate fair value of $14.7 million versusacost basisof $14.0million. Also,other investments we may make in the future, the market value of our equity investments may fall below our estimate of the fair value of such investments before we sell them. Given these factors, there isarisk that we will not realize gains upon the sale of those or other equityinvestment interests that we hold.

Our holdings in Equus Energy are subject to commodity price declines endemictooil and gas companies.

The oil and gas business is fundamentallyacommodity-based enterprise. This means that the operations and earnings of Equus Energy LLC (“Equus Energy”) 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 eventsorconditions that affect supply and demand for the relevant commodity. In addition, the pricingofthese commodities areis highly dependent upon technological improvements in energy production and development, energy efficiency, and seasonal weather patterns. Moreover, asaworldwide commodity, the priceofoil and natural gas is also influenced by global demand, changes in currency exchange rates, interest rates, and inflation. Equus Energy does not employ any hedging strategies in respect of its oil and gas holdings andistherefore subject to price fluctuations resulting from these and other factors. The operational results and financial condition of Equus Energy, as well as the economic attractivenessoffuture capital expenditures for new drilling and recompletions, may be materially adversely affected asaresult of lower oil and gas prices (seeRisks Related to the Coronavirus above describing the effect of the coronavirus, as well as other geopolitical events, on oil and gas prices).prices.

We may not beable to make additional investments inour portfolio companies from time to time, which may dilute our interests in such companies.

After our initial investment in aportfolio company, we maybecalled upon from timetotime to provide additional funds to such company, or may have the opportunity to increase our investment in that company through the exercise ofawarrant to purchase common stock or through follow-on investmentsinthe debt or equity of that company. We cannot assure you that we will make,orhave sufficientfunds tomake, any such follow-on investments. Any decision by usnot to makeafollow-on investment orany inability onour part to make such an investment may haveanegative impact onaportfolio companyinneed of investment and may resultin amissed opportunity forus toincrease our participation inasuccessful operation.Adecision not to make afollow-on investment mayalso require us to subordinate our

debt interestto anew lender or dilute our equity interest in, or reduce the expected yield on, our investment.

We have invested in alimited number ofportfolio companies.

The Fund is classifiedas a“non-diversified” “non-diversified” investment company under the 1940 Act, which meanswe arenot limited in the proportion of ourassetsthatmaybeinvested in the securities ofasingle issuer. Asamatter of policy, wegenerally have not initially invested more than 25% of the value of our net assets in asingle portfolio company. In view of the net asset value of the Fund as of December 31, 2019,2020 and the fact that our sole portfolio investment consists of our equity holding in Equus Energy, however, we would expect that any new investments may exceed this percentage for the immediate future. Moreover, follow-on investments, disproportionate increases or decreases in the fair value of certain portfolio companies or sales of investmentsmayresult in more than 25% of our net assets being invested in asingle portfolio company at aparticular time.

Aconsequence of alimited number of investments is that changes in business or industry trendsorin the financial condition, results ofoperationsorthe market’s assessment of any single portfolio company will affect our net asset value and the market price of our common stock to agreater extent than would bethecase if we werea“diversified” “diversified” company holding agreater number of investments.

The lackofliquidity ofour privately held securities may adversely affect our business.

Our portfolio investments consist principally of securities that are subject to restrictions on sale because they are not listed orpublicly traded securities. If any ofthese securities weretobecome publicly traded, our ability to sell them may still berestricted because we acquired them from the issuer in “private placement” transactions orbecausewe may be deemed to be an affiliate of the issuer. We will not beable to sell these securities publicly without the expense and time requiredtoregister the securities under the Securities Act and applicable state securities laws, unless an exemption from such registration requirements is available. In addition, contractual or practical limitations may restrict our ability to liquidate our securities in portfolio companies because those securities are privately held and we may ownarelatively large percentage of the issuer’s outstanding securities. Sales also may be limited by market conditions, which may be unfavorable for sales of securities of particular issuersorgenerally. The illiquidityofour investments may preclude or delay any dispositionofsuch securities, which may make it difficult for ustoobtain cash equaltothe value at which we record ourinvestments if the need arises.

In situations where we hold junior priority liens, our ability to control decisions with respecttoour portfolio companies maybelimitedbylenders holding superior liens. In adefault scenario, the value of collateral may be insufficienttorepay us after the senior priority lenders are paid in full.

We may make certain loans to portfolio companies that are secured byajunior priority security interest in the same collateral pledgedtosecure debt owed to lenders with liens senior to ours. Often, the senior lender has procured covenants from the portfolio company prohibiting the incurrence of additional secured debt without the senior lender's consent.As acondition of permitting the portfolio companytoincur junior secured indebtedness, the senior lender will require that we, as junior lender, enter into an intercreditor agreement that, among other things, will establish the senior lender's right to control the disposition of any collateral in the event ofaninsolvency proceeding or other default situation. In addition, intercreditor agreements generally will expressly subordinate junior lienstosenior liens as well as the repayment ofjunior debt tosenior debt.

Because of the control we may cede to senior lenders under intercreditor agreements, we may be unabletocontrol the manner ortiming ofcollateral disposition. In addition, the valueofcollateral securing our debt investment will ultimately depend on market and economic conditions at the time of disposal, the availability ofbuyers and other factors. Therefore, we cannot assure you that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by our liens. There is alsoarisk that such collateral securing our investments will be difficult tosell inatimely manner or to appraise. If the proceeds of the collateral are insufficient to repay our loans, then we will have an unsecured claimtothe extent of the deficiency against any ofthe company's remaining assets, which claim will likely beshared with many other unsecured creditors.

As adebt or minority equity investor in aportfolio company, wemay 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.

We may make both debt and minority equity investments. Shouldaportfolio company make business decisions with which we disagree, orof the stockholders and management ofthat company take risks or otherwise act in ways that do not serve our interests, the value of our portfolio holdings could decrease and have an adverse effect on our financial position and resultsofoperations.

We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all orpart of our investment in these companies.

We may structure the debt investments in our portfolio companies to include business and financial covenants placing affirmative and negative obligations on the operation of the company’s business and its financial condition. However, from time to time we may elect to waive breaches of these covenants, including our right to payment, or waive or defer enforcement of remedies, such as accelerationofobligations or foreclosure on collateral, depending upon the financial condition and prospects of the particular portfolio company. These actions may reduce the likelihood of our receiving the full amount of future payments of interest or principal and be accompanied by a

deterioration in the value of the underlying collateral as many of these companies may have limited financial resources, may beunable to meet future obligations and may gobankrupt. This could negatively impact our ability topaydividends, could adversely affect our results of operation and financial condition and cause the lossofall or part ofyour investment.

We expect to have limited public information regarding the companies in which we may invest.

Except for our holdings in MVC Capital, Inc., ourOur portfolio consists entirely of securities issued by privately-held companies. There is generally littleorno publicly available information about such companies, and wemust rely on the diligence of Management toobtain the information necessary for our decision toinvest in them and in order to monitor themeffectively.We cannot assure you that such diligence efforts will uncoverallmaterial information about such privately held businesses necessary tomake fully informed investment decisions.

Our prospective portfolio companies may be highly leveraged.

Investments in leveraged buyouts andinhighly leveraged companies involveahigh degree of business and financial risk and can result in substantial losses.Aleveraged company’s income and net assets will tend to increase or decrease atagreater rate than if borrowed money werenot used.The useofleverage by portfolio companies also magnifies the increase or decrease in the valueofour investment as compared to the overall change in the enterprise value of aportfolio company.

Some of our portfolio companies have incurred substantial debt inrelationto theirequity capital. Such indebtedness generally hasaterm that will require that the balance of the loan be refinanced when it matures.If aportfolio company cannot generate adequate cash flow tomeet the principal and interest paymentsonits debtoris not successful in refinancing the debt upon its maturity, our investment could be reduced or eliminated through foreclosure on the portfolio company’s assets orbythe portfolio company’s reorganizationorbankruptcy.

Asubstantial portionofthe debt incurred by portfolio companies may bear interest at rates that fluctuate in accordance with astated interest rate index or the prime lending rate. The cash flow of aportfolio company may not be sufficient to meet increases in interest payments onits debt. Accordingly, the profitability of our portfolio companies, as well as the value of our investments in such companies, will depend significantly upon prevailing interestrates.In recent months, the level of An increase in prevailing interest rates has increased, which willmay have an adverse effect on the ability of our portfolio companies to service their floating rate debt andontheir profits.

Leverage may impair the ability of our portfolio companiestofinance their future operations and capital needs. Asaresult, the ability ofour portfolio companies to respond tochanging business and economic conditions and to business opportunities may be limited.

Our business depends on external financing.

Our business requiresasubstantial amount ofcash to operate. We may borrow fundstopay contingencies or expenses ortomake investments, to maintain our pass-through tax status asaRIC under Subchapter M ofthe Code. We are permitted under the 1940 Acttoborrow if, immediately after the borrowing, we have an asset coverage ratio of at least 150%. That is, we may borrow an amount equal to double the fair valueofour total net assets (including investments made with borrowed funds). The amount and nature of anysuch borrowings depend uponanumber of factors over whichwehave no control, including general economic conditions, conditionsinthe financial markets and the impact ofthe financing on the tax treatment of our stockholders. The use of leverage, even on ashort-term basis, could have the effect of magnifying increases or decreases in our net asset value.

While the “spread” between the current yields on our investments and the cost of any loan would augment the return toour stockholders, if the spread narrows (because of an increase in the cost of debt or insufficient incomeonour investments), ournetinvestment income, and consequently our ability to provide distributionstoour stockholders, could be adversely affected. This may also render us unable to meet our obligations to our lenders, which might then require usto liquidatesome or all of ourinvestments. We cannot assure you that we would realize full value for our investments or recoup all ofourcapital if we needed toliquidate our portfolio investments.

Many financial institutions are unwilling to lend againstaportfolio ofilliquid, private securities. The make-up ofour portfolio has made itmore difficult forus toborrow at the level and on the terms that we desire. Our borrowings have historically consisted of arevolving line of credit which has since expired, andamargin account used quarterly to enable us to achieve adequate diversification to maintain our pass- through tax status asaRIC. Although we believe the Fund’s liquidity is sufficient for our operating expenses for the next twelve months,wecouldbewrong. Ifweare wrong, we would havetoobtain capital from other sources to pay Fund expenses, which could involve selling one ormore of our portfolio holdings at an inopportune time and ataprice that may be less than would be received if such holding were sold inamore competitive and orderly manner.

The costs of borrowing money may exceed the income from the portfolio securities we purchase with the borrowed money.Wewill sufferadecline in net asset value if the investment performance of the additional securities purchased with borrowed money failstocover their cost to the Fund (including any interest paid on the money borrowed).Adecline in net asset value could affect our ability to make distributionsonour common stock. Our failuretodistributeasufficient portion of our net investment income and net realized capital gains could result inaloss of pass-through tax status or subjectustoa4% excise tax. If the asset coverage for debt securities issued by the Fund declines to less than 150% 150% (asaresult of market fluctuations orotherwise),wemay be required to sellaportionofour investments when it is disadvantageous to doso.SeeManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations.

We have had net investment losses in the past five years.

We have hadnetinvestment losses in the past five years, with anet investment loss of $3.4$4.9 million for the year ended December 31, 2019.2020. We cannot assure you that wewill be able to increase our net assets or generate net investmentincome. If we failtoincreasethe Fund’s net assets or generate net investment income, such failure will likely haveamaterial adverse effect upon the Fund, our results of operation, and our financial condition. You could lose all or asubstantial amount of your investment inthe Fund asaresult.

We do not currently intend torecommence our managed distribution policy and you might not receive dividends on your shares.

On March 24, 2009, we announced asuspension of our managed distribution policy and paymentofquarterly dividends for an indefinite period. As originally implemented, the policy provided for quarterly dividends at an annualized rate equal to 10% of the Fund’s market value per share as at the end of the preceding calendar year. We subsequently undertook certain changes in our Board and Management. These changes have been pursued, in part, with the objective of increasing the numberofattractive investment opportunities to usand revising our investment strategytoinclude more recurrent cash income producing investments, all of which could ultimately resultin

the resumption ofour managed distribution policy at some time in the future. The implementationofthese revisionstoour investment strategy and the recurrent generationofcash income from our investments, however, cannot be guaranteed and will not occur if we complete the Consolidation.transformation of Equus into an operating company. If we were unable to resumeourmanaged distribution policy and were further unable to profitably sell orotherwise dispose of our portfolio company investments, you might not receive dividends on your shares.

We operatein ahighly competitive market for investment opportunities.

We compete withalarge number of private equity funds and mezzanine funds, investment banks and other equity and non-equity basednon-equity-based investment funds, investment entities, foreign investors and individuals and other sources of financing, including traditional financial services companies such as commercial banks. In recent years, the number ofinvestment vehicles seeking small capitalization investments has increased dramatically. Many of our competitors are substantially larger and have considerably greater financial resources than we do, andsome may be subject to different and frequently less stringent regulation. As our portfolio size increases, we expect that some of our investments will be larger. We believe that we will face increased competition to participateinthese larger transactions. These competitors may havealower costoffunds and many have access to funding sources that are not availabletous.Inaddition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to considerawider variety of investments and establish

more relationships and build their market shares. Asaresultofthis competition, we may not be abletotake advantage of attractive investment opportunities from timetotime. We cannot assure you that thecompetitive pressures we face will not haveamaterial adverse effect on our business, financial conditionandresults of operations.

An economic downturn could affect our operating results.

An economic downturn may haveaparticularly adverse effect upon small and medium-sized companies, whichareour primarymarketfor investments. During periodsofvolatile economic conditions, these companies often experience decreased revenues, financial losses, difficulty in obtaining access to financing and increased funding costs. During such periods, these companies also may have difficulty expanding their businesses and operations and may be unable to meet their debt service obligations or other expenses as they become due.

Any of the foregoing developments could cause the value of our investments in these companies to decline. In addition, during periods of adverse economic conditions, we may have difficulty accessing financial markets, which could make it more difficult or impossible for us to obtain funding for additional investments. Any of these events could haveamaterial adverse effect on our business, financial condition and resultsofoperations.

We may experience fluctuations in our quarterly results.

We may experience fluctuations in our quarterly operating results due toanumber of factors, including variations in, and the timing of, the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets, the ability tofind and close suitable investments and general economic conditions. The volatility of our results is exacerbated by our relatively small numberofinvestments. Asaresult ofthese factors, you should not rely on our results for any period as being indicativeofperformance in future periods.

The 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.

Before making our investments, we conduct due diligence that we deem reasonable and appropriate based on the facts and

circumstances applicable to each investment. The objective ofthedue diligence process is to identify attractive investment opportunities based onthe facts and circumstances surrounding an investment and to prepare aframework that maybeused from the date of an acquisition to

drive operational achievement and value creation. When conducting due diligence,weevaluateanumber of important business, financial, tax, accounting, environmental and legal issuesindetermining whether or not to proceed with an investment. Our due diligence review with respect toapotential portfolio company typically includes,butis not limited to, areview of historical and prospective financial information including audits and budgets, on-site visits and interviews with management, employees, customers and vendors,areview of business plans and an analysisofthe consistency ofoperations with those plans, and other research relatingtothe company, management, industry, markets, products and services, and competitors. Outside consultants, legal advisers, accountants and investment banks are expected to be involved in the due diligence process in varying degrees depending on thetype of investment. Nevertheless, when conducting due diligence and making an assessment regarding an investment, we are required to rely on resources availabletous, including information provided bythe portfolio company and, in some circumstances, third party investigations. The due diligence process may at times be subjective, including with respect tonewly organized companies for which only limited information is available. Accordingly,wecannot assure you that the due diligence investigation that we will carry out with respect to any investment opportunity will revealorhighlight all relevant factsthatmay be necessary orhelpful in evaluating such investment opportunity.Wealso cannot assure you that such an investigation will resultinan investment beingsuccessful.

Risks Related to Our Potential Use of Leverage

The use of leverage may adversely affect our performance.

We may utilize leverage for the Fund or its subsidiaries by borrowing or issuing preferred stock or short-term debt securities. Borrowings and other capital generated from leverage will result in lenders and other creditors with fixed dollar claims on our assets that are superior to the claims of our common shareholders. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Leverage is generally considered a speculative investment technique.

The use of leverage may cause us to sell our portfolio interests prematurely.

If we remain a BDC and borrow monies for our additional portfolio investments, we may secure loans or otherwise borrow funds from conventional banks, other lending institutions, or private parties, which parties may include the sellers of the investment interests being acquired. In the event Equus defaults under any of these borrowing arrangements, our business could be adversely affected as we may be forced to sell a portion of our investments quickly and prematurely at what may be disadvantageous prices to us in order to meet our outstanding payment obligations, the result of which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

The use of leverage will increase our exposure to changes in market rates of interest.

To date, we have not incurred leverage to acquire portfolio investments. If we begin to take on leverage to make portfolio investments, we will be subject to risks associated with the current interest rate environment and changes in interest rates will affect our cost of capital and net investment income. The use of leverage will also affect our net investment income, which will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we cannot assure you that a significant change in market interest rates would not have a material adverse effect on our net investment income.

Risks Related to Our Business andStructure

Our ability to invest in private companies may be limited in certain circumstances.

Pursuant to our Plan of Reorganization,As noted elsewhere herein, we have been authorized by our stockholders to withdraw our election to be classified asaBDC prior to March August 31, 2020.2021. Our management iscurrently evaluating potential transactions that would result in the transformation of Equus into an operating company instead of aConsolidation BDC andthe withdrawalofour BDC election within this time frame, but we may nevertheless not consummate any such Consolidationtransformation and remainaBDC. Ifwemaintain our status asaBDC and do not complete the Consolidationtransformation to become an operating company or a permanent capital vehicle,wemust not acquire any assets other than “qualifying assets” unless, at the timeofand after giving effect to such acquisition, at least 70% of our total assets are qualifying assets.Aprincipal category of qualifying assets relevant to our business is securities purchased in transactions not involving any public offering from issuers that qualify as eligible portfolio companies under the 1940 Act. Investments in companies organized outside of the United States or havingaprincipal place of business outside of the United States are also not considered eligible portfolio companies.

Any failure on our parttomaintain the Fund’s status as aBDC could reduce our operating flexibility.

Ifwe donot maintain the Fund’s status asaBDC andwe donot complete the Consolidation,transformation of Equus into an operating company, we might be regulated asaclosed-end investment company under the 1940 Act, which would subject ustosubstantially more regulatory restrictions under the 1940 Act. This could impose tighter limitations on Equus interms ofthe use of leverage and transactions with affiliated entities. Such developments could correspondingly decrease our operating flexibility.

We may not continue to qualify as aRIC under the Code.

To remain entitledtothe tax benefits accorded to RICs under the Code while we maintain our status as aBDC, we must meet certain income source, asset diversification and annual distribution requirements. To qualify asaRIC, we must derive each taxable year at least 90% of our gross incomefrom dividends, interest, payments with respect to certain securities loans, gains from the saleofstock orother securities or foreign currencies, or other income derived with respect to our business of investing in such stock or securities or currencies and net income from interestsincertain “qualified” publicly traded partnerships. The annual distribution requirement foraRIC is satisfiedifwe distribute at least 90% of our ordinary net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any,toour stockholders on an annual basis.

As discussed above in“Our business depends on external financing,”we historically have borrowed funds necessary to make qualifying investments to satisfy the SubchapterMdiversification requirements.If wefail to satisfy

such diversification requirements and cease to qualify for conduit tax treatment, we will be subject to income tax on our income and gains and will not be permittedtodeduct distributions paidtostockholders. 

In addition, our distributions will betaxable as dividendstothe extent paid from earnings and profits. We may also cease to qualify asaRIC, or be subject to income tax and/ora4% excise tax, if we fail to distributeasufficient portion of our net investment income and net realized capital gains. The loss of our RIC qualification would haveamaterial adverse effect onthe total return,ifany, obtainable from an investment inour common stock.

Because we intend to distribute substantially all of our income andnetrealized capital gains to our stockholders,ifwe continue tooperateas aBDC andas aRIC, we willneedadditional capitaltofinance our growth.

Pursuant to our Plan of Reorganization, weWe have been authorized by our stockholders to withdraw our election to be classified asaBDC onor prior to March August 31, 2020,2021, which also means that, in such case, we will not operate asaRIC. Our management iscurrently evaluating potential transactions that would result in aConsolidation the transformation of Equus into an operating company and the withdrawal of our BDC election andRICstatus within this time frame,butwemaynevertheless not consummate any such Consolidationtransformative transaction and remainaBDC and continuetoseek to qualify as aRIC. In order to qualifyas aRIC, to avoid paymentofexcise taxes andtominimize or avoid payment of income taxes, for so long as we maintain our status asaBDC, we intend to distribute to our stockholders substantially all ofournet ordinary income and realized net capital gains except for certain net long- term capital gains (which we may retain, pay applicable income taxes with respect thereto, and elect to treat as deemed distributionstoour stockholders). As aBDC, we are generally required to meetacoverage ratio oftotal assets to total senior securities, which includes allofour borrowings and any preferred stock we may issueinthe future, ofat least 200%150%. This requirement limits the amount that we may borrow.

Because we will continue to need capital to grow our investment portfolio, this limitation may prevent us from incurring debtandrequireusto issue additional equity atatime when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available to us on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings.Inaddition, as aBDC, we are generally not permitted toissue equity securities priced below net asset value without stockholder approval. If additional funds are not available to us,wecouldbeforced to curtail or cease new lending and investment activities, andournet asset value could decline.

Our Board of Directors may change our investment objective, operating policies and strategies without prior notice orstockholder approval.

Our Board of Directors has the authority tomodify or waive certain of our operating policies and strategies without prior notice (except as required by the 1940 Act) and without stockholder approval. However, absent stockholder approval, we may not change the natureofour business so as to cease to be, or withdraw our election as,aBDC. As described above under “Significant Developments –Authorization to Withdraw BDC Election”, our shareholders have recently provided this authorizationand may doso again inthe future, although we will not withdraw our election asaBDC unless and until we have entered intoadefinitive agreement to effectaConsolidation. the transformation of Equus into an operating company. We cannot predict the effect any changestoour current operating policies and strategies would haveonour business, operating results and value of our stock.

Nevertheless, any such effects may adversely affect our business and impact our ability to make distributions.

Risks Related to Our Operationas aBDC

Our ability to enter into transactions with our affiliates is restricted.

Pursuant to our Plan of Reorganization, weWe have been authorized by our stockholders to withdraw our election to be classified asaBDC prior to March August 31, 2020.2021. Our management iscurrently evaluating potential transactions that would result inaConsolidation the transformation of Equus into an operating company andthe withdrawalofour BDC election within this time frame, but we may nevertheless not consummate any such Consolidationtransformative transaction and remainaBDC. Ifwemaintain our status asaBDC and do not complete the Consolidation to becomea transformation into an operating company or a permanent capital vehicle,wewill continue tobesubject to the 1940 Act. As an investment company, we are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of our independent directors and, in some cases, the SEC. Any person that owns, directly orindirectly, 5%ormore of our outstanding voting securities is our affiliate for purposesofthe 1940 Act,andwe generally are prohibited from buying or selling any security from or tosuch affiliate, absent the prior approvalofour independent directors. The 1940 Act also prohibits certain “joint” transactions with certainofour affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approvalofour independent directors and, in some cases, the SEC. Ifaperson acquires more than 25% of our voting securities, we are prohibited from buying or selling any security from ortosuch person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officersordirectors or their affiliates.

Regulations governing our operation as aBDC affect our ability to, and the way inwhich we, raise additional capital.

Our business requiresasubstantial amount ofadditional capital. We may acquire additional capital from the issuance of senior securitiesorother indebtedness, the issuance of additional shares of our common stock or from securitization transactions. However, we may not be abletoraise additional capital in the futureonfavorable termsorat all. We may issue debt securities or preferred securities, which we refer to collectively as “senior securities,” and wemay borrow money from banks or other financial institutions, up to the maximum amount permitted by the 1940 Act. The 1940 Act permitsusto issue senior securities or incur indebtedness only inamounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such issuance or incurrence.Ourability to pay dividends or issue additional

senior securities would be restrictedifour asset coverage ratio were not at least 150%. If the value of our assets declines, we maybeunable to satisfy this test. If that happens, we may be required to liquidateaportion of our investments and repayaportion of our indebtedness atatime when such sales maybedisadvantageous.

Senior Securities. Asaresultofissuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.Ifwe issue preferred securities, they would rank “senior” to common stockinour capital structure. Preferred stockholders would have separate voting rights and may have rights, preferences or privileges more favorable than that ofour common stockholders. Furthermore, the issuance of preferred securities could have the effect of delaying, deferring or preventingatransaction or achange of control that might involveapremium price for our common stockholders or otherwisebein your best interest.

Additional Common Stock.Our Board of Directors may decidetoissue common stock to finance our operations rather than issuing debt or other senior securities. AsaBDC, we are generally not able to issue our common stockat aprice below net asset value without first obtaining required approvals from our stockholders and our independent directors. In any such case, the price at which oursecurities are to beissued and sold may not be less than aprice, that in the determination of our Board of Directors, closely approximates the market value of such securities (less any commission ordiscount).Wemay also make rights offeringstoour stockholders at prices per share less than the net asset value per share, subject to the 1940 Act. If we raise additional funds by issuing more common stock or senior securities convertible into, orexchangeable for, our common stock, the percentage ownership of our stockholders at that time would decrease, and you may experience dilution.

Changes inthe laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws orregulations, could negatively affect the profitability ofour operations.

To the extent we remainaBDC, changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders, could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosurestoportfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in whichwecurrently conduct business, we may have to incur significant expenses in order to comply or we might have to restrict our operations.Inaddition, ifwe do not comply with applicable laws,

regulations and decisions, we may lose licenses needed for the conduct of our business and be subject to civil fines and criminal penalties, any of which could haveamaterial adverse effect upon our business, results of operations orfinancial condition.

Risks Related to Our Announced Plan of Reorganizationto Transform Equus Into an Operating Company

PursuanttoIn our Planefforts to pursue the transformation of Reorganization,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 astrategic alternative, that such strategic alternative will yield additional value for our stockholders or that the process will not have an adverse impact on our business.

On May 14, 2014,

In prior years, we announced that we had adoptedaPlanour plan to effect the restructuring of Reorganization within the meaningofSection 2(a)(33) ofthe 1940 Act. The PlanofReorganization contemplates the possible merger of the Fund with and into another BDC, or the restructuringofthe Fund as an operating companynolonger subject to the 1940 Act, which is referred to intransaction could take the Planform of Reorganization asa“Consolidation”. AConsolidation could constitute, among other things, sale of Equus, asaleofEquus, restructuring, arestructuring,arecapitalization, merger, or other business combination. Our Board have also authorizedcombination, or the transformationconversion of Equus into a permanent capital vehicle.Wecannot provide any assurance that the exploration of strategic alternatives will result in the identification or consummation of aConsolidation or the transformation transformative transaction of Equus into aan operating company or permanent capital vehicle. Similarly, any strategic decision will involve risks and uncertainties, and we cannot provide any assurance that any strategic alternative, if identified, evaluated and consummated, will provide the anticipatedbenefitsor otherwise enhance stockholder value. The process is ongoing and, although we believe we will consummate aConsolidation or other transformative transaction that would result in the transformation of Equus into an operating company during 2020,2021, we maybewrong. Our BoardofDirectors has not setatimetable for completion of the evaluation ofapotential Consolidation.transaction.

We expect toincur substantial costs associated with identifying and evaluating potential strategic alternatives incident toaConsolidation. transformative transaction. Any potential transaction would be dependent uponanumber of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business, stockholder approval and the availability of financing to potential buyers or toEquus on reasonable terms. The process of exploring strategic alternatives may be time consuming and disruptive to our business operations. We are also subject to other risks in connection with the uncertainty created by the strategic review process, including stock price volatility and the ability to retain qualified employees. We do not currently intend to disclose further developments with respect tothis process, unless and until our Board of Directors approvesaspecific transaction or otherwise concludes the review of strategic alternatives.

If we are unable to effectively manage the strategic review process, our business, financial condition, liquidity and results of operations could be adversely affected (seeSignificant Developments—Plan of Reorganization above).affected.

Ifwe reorganize asanoperating company, we will likely not continue to qualify as aRIC under the Code.

Pursuant to our Plan of Reorganization, if

If we were to reorganize as an operating company, we maywould lose our status asaRIC. If we fail to qualify asaRIC,wewill besubject to corporate income tax, which would substantially reduce the amount of incomewemight otherwise distribute to our shareholders (seeSignificant Developments—Plan of Reorganization above).shareholders.

If we reorganize as anoperating company or a permanent capital vehicle, we will not continue to operate as aBDC.

We have elected to be classified asaBDC under the 1940 Act. In connection with our announcement on May 14, 2014 to effect aPlan of Reorganization,However, if we effectareorganization of the Fund into an operating company or a permanent capital vehicle, we will seek to terminate our BDC classification. On November 19, 2019,January 20, 2021, holders ofamajority of the outstanding common stock of the Fund approved our cessation asaBDC under the 1940 Act and authorized our Board to cause the Fund’s withdrawal ofits election to beclassifiedasaBDC, effective as ofadate designated by the Board and our Chief Executive Officer, but no later than March August 31, 2020, although2021. Nevertheless, if we expect that our shareholders will grant future such authorizations.Nevertheless, if wewere to terminate our election to beclassifiedas aBDC and were still determined by the SECtoconstitute an “investment company,” we would be subject to significantly greater regulatory requirements and constraints than under those whichwepresently operate, the result of which could haveamaterial adverse effect on our results and financial condition.

Ifwe reorganize asanoperating company or a permanent capital vehicle, we may notbeable to utilize our capital losses.

As of December 31, 2019,noted above, we have incurred cumulative capital lossesof $18.5million, which canbecarried over indefinitely. Pursuant tothe Plan of Reorganization announced on May 14, 2014,wemay reorganize Equus as an operating company and our Board has subsequently approved the transformation of Equus intoor a permanent capital vehicle. If we reorganize as an operating company or a permanent capital vehicle, we may loseourability to offset future income against our cumulative capital losses, including capital losses that would otherwise continue past 2019.losses. If we reorganized as an operating company or a permanent capital vehicle and were unable to offset future income against thesecapitallosses,theresult could haveamaterial adverse effect on our future operating results and our financial condition.

If we reorganize as anoperating company or a permanent capital vehicle, our stockholders will no longer have certain protections under the 1940 Act.

If we withdraw the Fund’s election to be treated asaBDC, Equus will nolonger besubject to regulation under the 1940 Act, which is designed to protect the interests of investors in investment companies. Specifically, our stockholders would no longer have the following protections of the 1940 Act:

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

We do not own any real estateorother physical properties. Our principal executive offices are located at 700 Louisiana St. 48^thFloor, Houston, Texas 77002. Should we remain a BDC and not consummate a Consolidation, wethe transformation of Equus into an operating company, we believe that these leased office facilities are suitable and adequate for our business asitiscontemplated to be conducted.

Item 3.Legal Proceedings

Shareholder Complaint—OnNovember 16, 2016, Samuel Zalmanoff filed alawsuit against the Fund and membersofthe BoardofDirectors in the Court of Chancery in the StateofDelaware. The lawsuit was filedinconnection with the Fund’s 2016 Equity Incentive Plan (“Incentive Plan”) which was adoptedbythe Board of Directors on April 15, 2016, approved bytheEquus shareholders on June 13, 2016, and approved, with certain standard exceptions, by the Securities and Exchange Commission onJanuary 10, 2017. Mr. Zalmanoff’s complaint, which purported to be on behalf ofall non-affiliate Equus shareholders entitledtovote for the Incentive Plan, allegedabreach by the BoardofDirectors of its fiduciary dutiesofdisclosureinconnection with the Incentive Plan, and sought an order from the court: (i) enjoining implementation of the Incentive Plan, (ii) requiring the Fundtorevise its disclosures relating to the Incentive Plan, and (iii) for an award of costs, attorneys’ fees, and expenses. We believe that this lawsuit, and the allegations included therein, was without merit. Accordingly, on September 22, 2017, we filedamotion for summary judgment regarding this action whichwasgranted by the Chancery Court on November 13, 2018. Mr. Zalmanoff appealed the Chancery Court ruling to the Delaware Supreme Court and, on May 16, 2019, the Delaware Supreme Court affirmed the Chancery Court decision and terminated the proceedings.

From time to time, the Fund is alsoaparty to certain proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of theseany potential legal proceedings cannot at this time be predicted with certainty, we do not expect that theseany such proceedings will haveamaterial effect upon the Fund’s financial condition or resultsofoperations.

Item 4.Mine Safety Disclosures

Not applicable.

PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities

Our common stock is listed on the NYSE under the symbol “EQS”. We had approximately 2,3001,300 stockholders as of December 31, 2019, 6712020, 665 of whom were registered holders. Registered holders do not include those stockholders whose stockhas beenissued in street name. As of December 31, 2019,2020, our net asset value per share was $3.40.$2.50.

The following table reflects the high and low closing sales prices per share of our common stock onthe NYSE, and net asset value (“NAV”) per share for each of the three years ended December 31, 2019,2020, by quarter: