Issuance of Equus Securities |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Equus Securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Equus Securities | (5) Issuance of Equus Securities
Convertible Senior Note
On February 7, 2025, the Fund issued a one-year senior convertible promissory note bearing interest at the rate of 10.0% per annum in exchange for $2.0 million in cash (“Equus Note”). The Equus Note is convertible into shares of the Fund’s common stock at a conversion price of $1.50 per share. Pursuant to the terms of the Equus Note, the holder has the right, at its option, at any time to convert the Equus Note into a number of fully-paid and nonassessable shares of Equus common stock determined by dividing (i) the sum of the outstanding principal balance and accrued but unpaid interest of the Equus Note being converted by (ii) the conversion price.
The Fund has the right, at any time and from time to time, to prepay the Equus Note in whole or in part without premium or penalty. All interest payments may be made in cash and/or in shares of Equus common stock at the sole option of the Fund. All payments due under the Equus Note are senior to all other indebtedness of the Fund and its subsidiaries.
The Fund accounts for the Equus Note under ASC 470-20, “Debt—Debt with Conversion and other Options” (“ASC 470”). The Equus Note is assessed under ASC 815 for any conversion features which may require bifurcation.
The Fund is not required to account for the debt instrument at fair value, and did not elect to measure debt at fair value in accordance with ASC 815, Derivatives and Hedging, and ASC 825, Financial Instruments.
We evaluated the conversion feature of the Equus Note offering for an embedded derivative in accordance with ASC 815, Derivatives and Hedging, and the substantial premium model in accordance with ASC 470, Debt. Based on our assessment, separate accounting for the conversion feature of the Equus Note is not required.
The Fund has $1,642,500 and $0 in convertible notes payable as of June 30, 2025, and December 31, 2024, respectively.
The balances as of June 30, 2025 were as follows:
(a) Including accrued interest of $80,000 as of June 30, 2025.
(b) Collateral for the Equus Note consists of the Fund’s holdings in General Enterprise Ventures, Inc. as shown in the Schedule of Investments.
The net carrying amount of the liability and equity components of the Note was as follows:
Interest expense recognized related to the convertible note for the six months ended June 30, 2025 and 2024 was $80,000 and $0, respectively.
Stock Purchase Warrants
Contemporaneously with the issuance of the Equus Note, the Fund also issued two common stock purchase warrants (collectively, the “Warrants”) to acquire an aggregate of 1,999,999 shares of the Fund’s common stock at an exercise price of $1.50 per share.
The Fund accounts for warrants issued to purchase shares of its common stock as equity in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity.
We account for warrants as equity instruments because they are not mandatorily redeemable by the Fund. The warrants are initially recognized in equity at fair value on the date of issuance using a Black-Scholes option pricing model. The assumptions used to measure fair value under this model include the following:
As of June 30, 2025, the Fund had 1,999,999 warrants outstanding with an exercise price of $1.50 per share and expiration date of February 3, 2030. These warrants relate to the Equus Note dated February 7, 2025. |
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