UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



| | ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30,
2020



or



| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934
| | - | -----------------------------------------------------------------------------------------

For the transition period to

Commission File Number 814-00098

EQUUS TOTAL RETURN, INC.

(Exact name of registrant as specified in
its charter)



|Delaware                                                               | 76-0345915                                  
|---------------------------------------------------------------------- | --------------------------------------------
|(State or other jurisdiction of
        incorporation or organization) | (I.R.S. Employer
        Identification No.)
|                                                                       |                                             
|700 Louisiana St., 48th Floor
        Houston, Texas                   | 77002                                       
|(Address of principal executive offices)                               | (Zip Code)                                  



(Former Name, Former Address and Former
Fiscal Year, if Changed Since Last Report)



Registrant’s telephone number, including
area code: (713) 529-0900



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



|Title of each class | Name of each exchange
        on which registered
|------------------- | -------------------------------------------------
|Common Stock        | New York Stock Exchange                          



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 to such filing requirements for the past 90 days. Yes☒
No☐



Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes☐
No☐



Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.



|Large accelerated filer☐ | Accelerated filer☐ | Non-accelerated filer☒ | Smaller Reporting Company☐ | Emerging Growth Company☐
|------------------------ | ------------------ | ---------------------- | -------------------------- | ------------------------






Table of Contents




If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐



Indicate
by check mark whether the registrant is a shell company. Yes☐
No☒



There were 13,518,146
shares of the registrant’s common stock, $.001 par value, outstanding, as of November 16, 2020.







































2


Table of Contents




EQUUS TOTAL RETURN, INC.

(A Delaware Corporation)

INDEX



|                                                                                              | Page
|--------------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL INFORMATION                                                                 |     
|Item 1. Unaudited Condensed Financial Statements                                              | 4   
|Condensed Balance Sheets                                                                      | 4   
|Condensed Statements of Operations                                                            | 5   
|Condensed Statements of Changes in Net Assets                                                 | 6   
|Condensed Statements of Cash Flows                                                            | 7   
|Supplemental Information—Selected Per Share Data and Ratios                                   | 8   
|Schedules of Investments                                                                      | 9   
|Notes to Condensed Financial Statements                                                       | 13  
|Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33  
|Item 3. Quantitative and Qualitative Disclosure about Market Risk                             | 40  
|Item 4. Controls and Procedures                                                               | 41  
|PART II. OTHER INFORMATION                                                                    |     
|Item 1. Legal Proceedings                                                                     | 41  
|Item 1A. Risk Factors                                                                         | 41  
|Item 6. Exhibits                                                                              | 42  
|SIGNATURE                                                                                     | 43  
|                                                                                              |     



























3


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EQUUS TOTAL RETURN, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

Part I. Financial Information

Item 1. Unaudited Condensed Financial Statements







|                                                                                           |  | September 30,
    2020 |         | December 31,
    2019
|------------------------------------------------------------------------------------------ |  | ---------------------- | ------- | ---------------------
|                                                                                           |  |                        |         |                      
|(in thousands, except per share amounts)                                                   |  |                        |         |                      
|Assets                                                                                     |  |                        |         |                      
|Investments in portfolio securities at fair value:                                         |  |                        |         |                      
|Control investments (cost at $7,611 and $7,050 respectively)                               |  | $                      | 5,500   |                      
|Affiliate investments (cost at $350)                                                       |  |                        | 24,000  |                      
|Non-affiliate investments - related party (cost at $0 and $6,912,      respectively)       |  |                        | —       |                      
|Non-affiliate investments (cost at $8,045 and $977, respectively)                          |  |                        | 5,531   |                      
|Total investments in portfolio securities at fair value                                    |  |                        | 35,031  |                      
|Temporary cash investments                                                                 |  |                        | 27,000  |                      
|Cash and cash equivalents                                                                  |  |                        | 1,632   |                      
|Restricted cash                                                                            |  |                        | 270     |                      
|Accounts receivable from affiliates                                                        |  |                        | —       |                      
|Accrued interest                                                                           |  |                        | 489     |                      
|Other assets                                                                               |  |                        | 262     |                      
|Total assets                                                                               |  |                        | 64,684  |                      
|Liabilities and net assets                                                                 |  |                        |         |                      
|Accounts payable                                                                           |  |                        | 217     |                      
|Accounts payable to related parties                                                        |  |                        | 36      |                      
|Borrowing under margin account                                                             |  |                        | 27,000  |                      
|Total liabilities                                                                          |  |                        | 27,253  |                      
|                                                                                           |  |                        |         |                      
|Commitments and contingencies (see Note 2)                                                 |  |                        |         |                      
|                                                                                           |  |                        |         |                      
|Net assets                                                                                 |  | $                      | 37,431  |                      
|                                                                                           |  |                        |         |                      
|Net assets consist of:                                                                     |  |                        |         |                      
|Common stock, par value                                                                    |  | $                      | 13      |                      
|Capital in excess of par value                                                             |  |                        | 56,142  |                      
|Accumulated earnings deficit                                                               |  |                        | (18,724 | )                    
|Total net assets                                                                           |  | $                      | 37,431  |                      
|Shares of common stock issued and outstanding, $.001 par value, 50,000 shares authorized   |  |                        | 13,518  |                      
|Shares of preferred stock issued and outstanding, $.001 par value, 5,000 shares authorized |  |                        | —       |                      
|Net asset value per share                                                                  |  | $                      | 2.77    |                      







The accompanying notes are an integral
part of these financial statements.



4


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EQUUS TOTAL RETURN, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)







|                                                                                  |  | Three Months Ended
                                                                                September 30, |         | Nine Months Ended
                                                                                September 30,
|--------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------------------------------------------
|(in thousands, except per share amounts)                                          |  | 2020                                                                                                             |         | 2019                                                                                                           
|Investment income:                                                                |  |                                                                                                                  |         |                                                                                                                
|Interest and dividend income:                                                     |  |                                                                                                                  |         |                                                                                                                
|Non-affiliate investments - related party                                         |  | $                                                                                                                | —       |                                                                                                                
|Non-affiliate investments                                                         |  |                                                                                                                  | 98      |                                                                                                                
|Total interest and dividend income                                                |  |                                                                                                                  | 98      |                                                                                                                
|Interest from temporary cash investments                                          |  |                                                                                                                  | —       |                                                                                                                
|Other income                                                                      |  |                                                                                                                  | 6       |                                                                                                                
|Total investment income                                                           |  |                                                                                                                  | 104     |                                                                                                                
|                                                                                  |  |                                                                                                                  |         |                                                                                                                
|Expenses:                                                                         |  |                                                                                                                  |         |                                                                                                                
|Compensation expense                                                              |  |                                                                                                                  | 418     |                                                                                                                
|Professional fees                                                                 |  |                                                                                                                  | 195     |                                                                                                                
|Director fees and expenses                                                        |  |                                                                                                                  | 84      |                                                                                                                
|General and administrative expenses                                               |  |                                                                                                                  | 113     |                                                                                                                
|Mailing, printing and other expenses                                              |  |                                                                                                                  | 8       |                                                                                                                
|Taxes                                                                             |  |                                                                                                                  | 6       |                                                                                                                
|Interest expense                                                                  |  |                                                                                                                  | 3       |                                                                                                                
|Total expenses                                                                    |  |                                                                                                                  | 827     |                                                                                                                
|                                                                                  |  |                                                                                                                  |         |                                                                                                                
|Net investment loss                                                               |  |                                                                                                                  | (723    | )                                                                                                              
|                                                                                  |  |                                                                                                                  |         |                                                                                                                
|Net realized (loss) gain:                                                         |  |                                                                                                                  |         |                                                                                                                
|Affiliate investments                                                             |  |                                                                                                                  | —       |                                                                                                                
|Temporary cash investments                                                        |  |                                                                                                                  | —       |                                                                                                                
|Net realized (loss) gain                                                          |  |                                                                                                                  | —       |                                                                                                                
|                                                                                  |  |                                                                                                                  |         |                                                                                                                
|Net unrealized appreciation of portfolio securities:                              |  |                                                                                                                  |         |                                                                                                                
|End of period                                                                     |  |                                                                                                                  | 19,025  |                                                                                                                
|Beginning of period                                                               |  |                                                                                                                  | 25,600  |                                                                                                                
|Net change in net unrealized appreciation of portfolio securities                 |  |                                                                                                                  | (6,575  | )                                                                                                              
|                                                                                  |  |                                                                                                                  |         |                                                                                                                
|Net unrealized depreciation of portfolio securities - related party               |  |                                                                                                                  |         |                                                                                                                
|End of period                                                                     |  |                                                                                                                  | —       |                                                                                                                
|Beginning of period                                                               |  |                                                                                                                  | (3,260) |                                                                                                                
|Net change in net unrealized depreciation of portfolio securities - related party |  |                                                                                                                  | 3,260   |                                                                                                                
|                                                                                  |  |                                                                                                                  |         |                                                                                                                
|Net (decrease) increase in net assets resulting from operations                   |  | $                                                                                                                | (4,038  | )                                                                                                              
|                                                                                  |  |                                                                                                                  |         |                                                                                                                
|Net (decrease) increase in net assets resulting from operations per share:        |  |                                                                                                                  |         |                                                                                                                
|Basic and diluted                                                                 |  | $                                                                                                                | (0.30   | )                                                                                                              
|Weighted average shares outstanding:                                              |  |                                                                                                                  |         |                                                                                                                
|Basic and diluted                                                                 |  |                                                                                                                  | 13,518  |                                                                                                                









The
accompanying notes are an integral part of these financial statements.

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EQUUS TOTAL RETURN, INC.

CONDENSED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)









|                                                                                      |  | Common Stock     |        |           |  |                               
|------------------------------------------------------------------------------------- |  | ---------------- | ------ | --------- |  | ------------------------------
|(in thousands)                                                                        |  | Number of Shares |        | Par Value |  | Capital in Excess of Par Value
|Balances at January 1, 2020                                                           |  |                  | 13,518 |           |  | $                             
|                                                                                      |  |                  |        |           |  |                               
|Share-based incentive compensation                                                    |  |                  | —      |           |  |                               
|                                                                                      |  |                  |        |           |  |                               
|Net (decrease) increase in net assets resulting from operations                       |  |                  |        |           |  |                               
|Net investment loss                                                                   |  |                  | —      |           |  |                               
|Net realized gain                                                                     |  |                  | —      |           |  |                               
|Unrealized appreciation of portfolio
                                 securities, net |  |                  | —      |           |  |                               
|Unrealized depreciation of portfolio       securities-related party                   |  |                  | —      |           |  |                               
|                                                                                      |  |                  |        |           |  |                               
|Balances at March 31, 2020                                                            |  |                  | 13,518 |           |  | $                             
|                                                                                      |  |                  |        |           |  |                               
|Net (decrease) increase in net assets resulting from operations                       |  |                  |        |           |  |                               
|Net investment loss                                                                   |  |                  | —      |           |  |                               
|Net realized loss                                                                     |  |                  | —      |           |  |                               
|Unrealized appreciation of portfolio
                                 securities, net |  |                  | —      |           |  |                               
|Unrealized depreciation of portfolio       securities-related party                   |  |                  | —      |           |  |                               
|                                                                                      |  |                  |        |           |  |                               
|Balances at June 30, 2020                                                             |  |                  | 13,518 |           |  | $                             
|                                                                                      |  |                  |        |           |  |                               
|Net (decrease) increase in net assets resulting from operations                       |  |                  |        |           |  |                               
|Net investment loss                                                                   |  |                  | —      |           |  |                               
|Unrealized appreciation of portfolio
                                 securities, net |  |                  | —      |           |  |                               
|Unrealized depreciation of portfolio       securities-related party                   |  |                  | —      |           |  |                               
|                                                                                      |  |                  |        |           |  |                               
|Balances at September 30, 2020                                                        |  |                  | 13,518 |           |  | $                             













The accompanying notes are an integral part
of these financial statements.



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EQUUS TOTAL RETURN, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)





|                                                                                                                                   |  | Nine Months Ended September 30,
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------
|(in thousands)                                                                                                                     |  | 2020                           
|Reconciliation of net (decrease) increase in net assets resulting from
                    operations to net cash                  |  |                                
|used in operating activities:                                                                                                      |  |                                
|Net (decrease) increase in net assets resulting from operations                                                                    |  | $                              
|Adjustments to reconcile net (decrease) increase in net assets resulting from operations to net cash used in operating activities: |  |                                
|Net realized (gain) loss                                                                                                           |  |                                
|Net realized gain - related party                                                                                                  |  |                                
|Net change in unrealized appreciation of portfolio securities                                                                      |  |                                
|Net change in unrealized depreciation of portfolio - related party                                                                 |  |                                
|Share-based incentive compensation                                                                                                 |  |                                
|Purchase of portfolio securities                                                                                                   |  |                                
|Dissolution of portfolio securities                                                                                                |  |                                
|Dividends exchanged for portfolio securities                                                                                       |  |                                
|Changes in operating assets and liabilities:                                                                                       |  |                                
|Purchases of temporary cash investments, net                                                                                       |  |                                
|Accrued interest and dividend receivables                                                                                          |  |                                
|Other assets                                                                                                                       |  |                                
|Accounts payable and accrued liabilities                                                                                           |  |                                
|Accounts payable to related parties                                                                                                |  |                                
|Net cash used in operating activities                                                                                              |  |                                
|Cash flows from financing activities:                                                                                              |  |                                
|Borrowings under margin account                                                                                                    |  |                                
|Repayments under margin account                                                                                                    |  |                                
|Net cash (used in) provided by financing activities                                                                                |  |                                
|Net decrease in cash and cash equivalents                                                                                          |  |                                
|Cash and cash equivalents and restricted cash at beginning of period                                                               |  |                                
|                                                                                                                                   |  |                                
|Cash and cash equivalents and restricted cash at end of period                                                                     |  | $                              
|Non-cash operating and financing activities:                                                                                       |  |                                
|Accrued interest or dividends exchanged for portfolio securities                                                                   |  | $                              
|                                                                                                                                   |  |                                
|Supplemental disclosure of cash flow information:                                                                                  |  |                                
|Interest paid                                                                                                                      |  | $                              
|Income taxes paid                                                                                                                  |  | $                              









The accompanying notes are an integral part
of these financial statements.



7


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EQUUS TOTAL RETURN, INC.

SUPPLEMENTAL INFORMATION—SELECTED PER
SHARE DATA AND RATIOS

(Unaudited)





|                                                                                               |  | Nine Months Ended September 30,
|---------------------------------------------------------------------------------------------- |  | -------------------------------
|                                                                                               |  | 2020                           
|                                                                                               |  |                                
|Investment income                                                                              |  | $                              
|Expenses                                                                                       |  |                                
|                                                                                               |  |                                
|Net investment loss                                                                            |  |                                
|                                                                                               |  |                                
|Net realized loss                                                                              |  |                                
|Net change in unrealized appreciation                                                          |  |                                
|Net change in unrealized depreciation - related party                                          |  |                                
|Net (decrease) increase in net assets resulting from operations                                |  |                                
|Capital transactions:                                                                          |  |                                
|Share-based incentive compensation                                                             |  |                                
|Dilutive effect of shares issued                                                               |  |                                
|Increase in net assets resulting from capital transactions                                     |  |                                
|Net (decrease) increase in net assets                                                          |  |                                
|Net assets at beginning of period                                                              |  |                                
|Net assets at end of period, basic and diluted                                                 |  | $                              
|Weighted average number of shares outstanding during period,                                   |  |                                
|in thousands                                                                                   |  |                                
|Market price per share:                                                                        |  |                                
|Beginning of period                                                                            |  | $                              
|End of period                                                                                  |  | $                              
|Selected information and ratios:                                                               |  |                                
|Ratio of expenses to average net assets                                                        |  |                                
|Ratio of net investment loss to average net assets                                             |  |                                
|Ratio of net (decrease) increase in net assets resulting from operations to average net assets |  |                                
|Total return on market price (1)                                                               |  |                                











| | (1) | Total return = [(ending market price per share - beginning price per share) / beginning market price per share].
| | --- | ----------------------------------------------------------------------------------------------------------------



The accompanying notes are an integral
part of these financial statements.



8


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EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2020

(Unaudited)

(in thousands, except share data)











|Name and location of                                                                                  |                                | Date of Initial |                                        |        |           |        | Cost of    |   | Fair    
|----------------------------------------------------------------------------------------------------- | ------------------------------ | --------------- | -------------------------------------- | ------ | --------- | ------ | ---------- | - | --------
|Portfolio Company                                                                                     | Industry                       | Investment      | Investment                             |        | Principal |        | Investment |   | Value(1)
|Control Investments:  Majority-owned (3):                                                             |                                |                 |                                        |        |           |        |            |   |         
|Equus Energy, LLC
                                 Houston, TX                                        | Energy                         | December 2011   | Member interest (100%)                 |        |           | $      | 7,611      | $ | 5,500   
|Total Control Investments: Majority-owned (represents 8.9% of total investments at fair value)        |                                |                 | $                                      | 7,611  | $         | 5,500 
|Affiliate Investments (4):                                                                            |                                |                 |                                        |        |           |        |            |   |         
|PalletOne, Inc.
                                                                 Bartow, FL           | Shipping products and services | October 2001    | 350,000 shares of common stock (17.1%) |        |           | $      | 350        | $ | 24,000  
|Total Affiliate Investments (represents 38.7% of total investments at fair value)                     |                                |                 | $                                      | 350    | $         | 24,000
|Non-Affiliate Investments    (less than 5% owned):                                                    |                                |                 |                                        |        |           |       
|5TH Element Tracking, LLC
                                                                 Boston, MA | Business products and services | January 2015    | 14% promissory note due 5/18 (2)       | $      | 977       | $      | 977        | $ | 977     
|MVC Capital, Inc.
                                    Purchase, NY                                    | Financial services             | May 2014        | 583,058 shares of common stock (1.7%)  |        |           | $      | 7,068      | $ | 4,554   
|Total Non-Affiliate Investments    (represents 8.9% of total investments at fair value)               |                                |                 | $                                      | 8,045  | $         | 5,531 
|Total Investment in Portfolio Securities                                                              |                                |                 |                                        |        |           | $      | 16,006     | $ | 35,031  
|Temporary Cash Investments                                                                            |                                |                 |                                        |        |           |        |            |   |         
|U.S. Treasury Bill                                                                                    | Government                     | September 2020  | UST 0% 10/20                           |        | 27,000    | $      | 27,000     | $ | 27,000  
|Total Temporary Cash Investments (represents 43.5% of total investments at fair value)                |                                |                 | $                                      | 27,000 | $         | 27,000
|Total Investments                                                                                     |                                |                 |                                        |        |           | $      | 43,006     | $ | 62,031  







(1)See
Note 3 to the financial statements, Valuation of Investments.

(2)Non-income-producing.

(3)Majority
owned investments are generally defined under the 1940 Act as companies in which we own more than 50% of the voting securities
of the company.

(4)Affiliate
investments are generally defined under the 1940 Act as companies in which we own at least 5% but not more than 25% voting securities
of the company.



The accompanying notes are an integral part
of these financial statements.



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EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS – (Continued)

SEPTEMBER 30, 2020

(Unaudited)







Except for our
holding of shares of MVC Capital, Inc. (“MVC”), all of our portfolio securities are restricted from public sale without
prior registration under the Securities Act of 1933 (hereafter, the “Securities Act”) or other relevant regulatory
authority. We negotiate certain aspects of the method and timing of the disposition of our investment in each portfolio company,
including registration rights and related costs.



As a business
development company (“BDC”) regulated pursuant to the Investment Company Act of 1940 (“1940 Act”), we may
invest up to 30% of our assets in non-qualifying portfolio investments, as permitted by the 1940 Act. Specifically, we may invest
up to 30% of our assets in entities that are not considered “eligible portfolio companies” (as defined in the 1940
Act), including companies located outside of the United States, entities that are operating pursuant to certain exceptions under
the 1940 Act, and publicly-traded entities with a market capitalization exceeding $250 million. As of September 30, 2020, we held
87.0% of our assets at fair value in securities of portfolio companies that constituted qualifying investments under the 1940 Act.
As of September 30, 2020, except for our shares of MVC, all of our investments are in enterprises that are considered eligible
portfolio companies under the 1940 Act. We provide significant managerial assistance to portfolio companies that comprise 84.2%
of the total fairvalue of the investments in portfolio securities as of September
30, 2020.



We are classified
as a “non-diversified” investment company under the 1940 Act, which means we are not limited in the proportion of our
assets that may be invested in the securities of a single issuer. The value of one segment called “Shipping products and
services” includes one portfolio company and was 64.1% of our net asset value, 37.1% of our total assets and 68.5%
of our investments in portfolio company securities (at fair value) as of September 30, 2020. The value of one segment called “Energy”
includes one portfolio company and was 14.7% of our net asset value, 8.5% of our total assets and 15.7% of our investments in portfolio
company securities (at fair value) as of September 30, 2020. Changes in business or industry trends or in the financial condition,
results of operations, or the market’s assessment of any single portfolio company will affect the net asset value and the
market price of our common stock to a greater extent than would be the case if we were a “diversified” company holding
numerous investments.



Our
investments in portfolio securities consist of the following types of securities as of September 30, 2020 (in thousands):





|Type of Securities                    |  | Cost |        | Fair Value |  | Fair Value as Percentage of Net Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | --------------------------------------
|                                      |  |      |        |            |  |                                       
|Common stock                          |  | $    | 7,418  |            |  | $                                     
|Limited liability company investments |  |      | 7,611  |            |  |                                       
|Secured and subordinated debt         |  |      | 977    |            |  |                                       
|Total                                 |  | $    | 16,006 |            |  | $                                     







The following is a summary by industry of the Fund’s
investments in portfolio securities as of September 30, 2020 (in thousands):



|Industry                       |  | Fair Value |        | Fair Value as Percentage of Net Assets
|------------------------------ |  | ---------- | ------ | --------------------------------------
|Shipping products and services |  |            | 24,000 |                                       
|Energy                         |  |            | 5,500  |                                       
|Financial services             |  |            | 4,554  |                                       
|Business products and services |  |            | 977    |                                       
|Total                          |  | $          | 35,031 |                                       



The accompanying notes are an integral part
of these financial statements.



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EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2019

(Unaudited)

(in thousands, except share data)



|Name and location of                                                                                 |                                    | Date
    of Initial |                                            |        |           |        | Cost
    of |   | Fair    
|---------------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------- | ------------------------------------------ | ------ | --------- | ------ | ----------- | - | --------
|Portfolio Company                                                                                    | Industry                           | Investment          | Investment                                 |        | Principal |        | Investment  |   | Value(1)
|Control
    Investments:  Majority-owned (3):                                                        |                                    |                     |                                            |        |           |        |             |   |         
|Equus Energy, LLC
        Houston, TX                                                                | Energy                             | December 2011       | Member interest (100%)                     |        |           | $      | 7,050       | $ | 8,000   
|Total
    Control Investments: Majority-owned (represents 11.5% of total investments at fair value)  |                                    |                     | $                                          | 7,050  | $         | 8,000 
|Affiliate Investments
    (4):                                                                       |                                    |                     |                                            |        |           |        |             |   |         
|PalletOne, Inc.
        Bartow, FL                                                                   | Shipping products
    and services | October 2001        | 350,000 shares of common
    stock (18.7%) |        |           | $      | 350         | $ | 26,500  
|Total
    Affiliate Investments (represents 38.1% of total investments at fair value)                |                                    |                     | $                                          | 350    | $         | 26,500
|Non-Affiliate
    Investments - Related Party (less than 5% owned):                                  |                                    |                     |                                            |        |           |       
|MVC Capital, Inc.
        Purchase, NY                                                               | Financial services                 | May 2014            | 563,894 shares of common stock (1.7%)      |        |           | $      | 6,912       | $ | 5,171   
|Total
    Affiliate Investments - Related Party (represents 7.4% of total investments at fair value) |                                    |                     | $                                          | 6,912  | $         | 5,171 
|Non-Affiliate
    Investments (less than 5% owned):                                                  |                                    |                     |                                            |        |           |       
|5TH Element Tracking,
        LLC
        Boston, MA                                                 | Business products
    and services | January 2015        | 14% promissory note due 5/18 (2)           | $      | 977       | $      | 977         | $ | 977     
|Total
    Non-Affiliate Investments (represents 1.4% of total investments at fair value)             |                                    |                     | $                                          | 977    | $         | 977   
|Total
    Investment in Portfolio Securities                                                         |                                    |                     |                                            |        |           | $      | 15,289      | $ | 40,648  
|Temporary Cash
    Investments                                                                       |                                    |                     |                                            |        |           |        |             |   |         
|U.S. Treasury
    Bills                                                                              | Government                         | December
    2018   | UST 0% 1/20                                | $      | 28,991    | $      | 28,991      | $ | 28,991  
|Total
    Temporary Cash Investments (represents 41.6% of total investments at fair value)           |                                    |                     | $                                          | 28,991 | $         | 28,991
|Total
    Investments                                                                                |                                    |                     |                                            |        |           | $      | 44,280      | $ | 69,639  





(1)See
Note 3 to the financial statements, Valuation of Investments.

(2)Non-income
producing.

(3)Majority
owned investments are generally defined under the 1940 Act as companies in which we own more than 50% of the voting securities
of the company.

(4)Affiliate
investments are generally defined under the 1940 Act as companies in which we own at least 5% but not more than 25% voting securities
of the company.



The accompanying notes are an integral part
of these financial statements.

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EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS – (Continued)

DECEMBER 31, 2019

(Unaudited)

(in thousands, except share data)



Except
for our holding of shares of MVC, substantially all of our portfolio securities are restricted from public sale without prior registration
under the Securities Act or other relevant regulatory authority. We negotiate certain aspectsof the
method and timing of the disposition of our investment in each portfolio company, including registration rights and relatedcosts.



As
a BDC, we may invest up to 30%of our
assets in non-qualifying portfolio investments, as permitted by the 1940 Act. Specifically, we may
invest up to 30% of our assetsin entities that are not considered “eligible
portfolio companies” (as defined in the 1940 Act), including companies located outside of the United States, entities that
are operating pursuant to certain exceptions under the 1940 Act, and publicly- traded entities witha market
capitalization exceeding $250 million. As of December 31, 2019, we had invested 87.3% of our assetsin securitiesof portfolio companies that constituted qualifying investments under the 1940 Act.
As of December 31, 2019, except for our shares of MVC,all of our investments
are in enterprises that are considered eligible portfolio companies under the 1940
Act. We provide significant managerial assistanceto portfolio companies that comprise
84.9% of the total fair value of the investmentsin portfolio securities as of December
31, 2019.



We
are classified asa “non-diversified” investment company under
the 1940 Act, which means we are not limited
in the proportion of our assets that may be invested in the securities ofa single
user. The value of one segment called “Shipping products and services” includes one portfolio company and was 57.6%
of our net asset value, 35.3% of our total assets and 65.2% of our investments in portfolio company securities (at fair value)
as of December 31, 2019. The value of one segment called “Energy” includes one portfolio company and was 17.4% of our
netasset value, 10.7% of our total assets and 19.7%of our
investments in portfolio company securities (at fair value) as of December 31, 2019. Changes in business or industry trends or
in the financial condition, results of operations, or the market’s assessmentof any
single portfolio company will affect the net asset value and the market priceof our
common stockto a greater extent than would be the case if we werea “diversified”
company holding numerous investments.



Our investmentsin portfolio securities consistof the
following types of securities as of December 31, 2019(in thousands):

|Type of Securities                    |  | Cost |        | Fair Value |  | Fair Value as Percentage of
        Net Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | ----------------------------------------------
|Common stock                          |  | $    | 7,262  |            |  | $                                             
|Limited liability company investments |  |      | 7,050  |            |  |                                               
|Secured and subordinated debt         |  |      | 977    |            |  |                                               
|Total                                 |  | $    | 15,289 |            |  | $                                             





The
followingis a summary by industry of the Fund’s investments in portfolio securities
as of December 31, 2019 (in thousands):

|Industry                       |  | Fair Value |        | Fair Value as
        Percentage of
        Net Assets
|------------------------------ |  | ---------- | ------ | ------------------------------------------------------
|Shipping products and services |  | $          | 26,500 |                                                       
|Energy                         |  |            | 8,000  |                                                       
|Financial services             |  |            | 5,171  |                                                       
|Business products and services |  |            | 977    |                                                       
|Total                          |  | $          | 40,648 |                                                       



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EQUUS TOTAL RETURN, INC.

NOTES TO CONDENSED FINANCIAL
STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)



| | (1) | Description of Business and Basis of Presentation
| | --- | -------------------------------------------------



Description
of Business—Equus Total Return, Inc. (“we,” “us,” “our,” “Equus” and
the “Fund”), a Delaware corporation, was formed by Equus Investments II, L.P. (the “Partnership”) on August
16, 1991. On July 1, 1992, the Partnership was reorganized and all of the assets and liabilities of the Partnership were transferred
to the Fund in exchange for shares of common stock of the Fund. Our shares trade on the New York Stock Exchange under the symbol
‘EQS’. On August 11, 2006, our shareholders approved the change of the Fund’s investment strategy to a total
return investment objective. This strategy seeks to provide the highest total return, consisting of capital appreciation and current
income. In connection with this strategic investment change, the shareholders also approved the change of name from Equus II Incorporated
to Equus Total Return, Inc.



So long as we
remain an investment company and not an operating company as contemplated in our Plan of Reorganization described in Note 6 below,
we will attempt to maximize the 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 companies with a total enterprise value of between $5.0 million and $75.0 million,
although we may engage in transactions with smaller or larger 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 may include debt securities including subordinate
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 and sale of warrants
received in connection with the financing. We seek to achieve capital appreciation by making investments in equity and equity-oriented
securities issued by privately-owned companies (or smaller public companies) in transactions negotiated directly with such companies.
Given market conditions over the past several years and the performance of our portfolio, our Management and Board of Directors
believe it prudent to continue to review alternatives to refine and further clarify the current strategies.



We elected to
be treated as a BDC under the 1940 Act. We currently qualify as a regulated investment company (“RIC”) for federal
income tax purposes and, therefore, are not required to pay corporate income taxes on any income or gains that we distribute to
our stockholders. We have a wholly-owned taxable subsidiary (“Taxable Subsidiary”) which holds one of our portfolio
investments listed on our Schedules of Investments. The purpose of this Taxable Subsidiary is to permit us to hold certain income-producing
investments or portfolio companies organized as limited liability companies, or LLCs, (or other forms of pass-through entities)
and still satisfy the RIC tax requirement that at least 90% of our gross revenue for income tax purposes must consist of investment
income. Absent the Taxable Subsidiary, a portion of the gross income of these income-producing investments or of any LLC (or other
pass-through entity) portfolio investment, as the case may be, would flow through directly to us for the 90% test. To the extent
that such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and, therefore, cause
us to incur significant federal income taxes. The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiary
is taxed to the Taxable Subsidiary and does not flow through to us, thereby helping us preserve our RIC status and resultant tax
advantages. We do not consolidate the Taxable Subsidiary for income tax purposes and the Taxable
Subsidiary maygenerate income tax expense because of the Taxable Subsidiary’s ownership of a
portfolio company. We reflect any such income tax expense on our Statements of Operations.



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The Impact
of COVID-19—In 2019, SARS-CoV-2, a highly contagious pathogen which causes COVID-19, coronavirus disease, or simply,
the ‘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
the third quarter of 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. has thus experienced a resurgence in COVID-19 infections and concomitant deaths
that has continued through to the fourth quarter of 2020.  This, in turn, has resulted in the return of enhanced proscriptions
on social gatherings, many of which are expected to remain in place until the end of 2020 and possibly beyond.



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 of our existing portfolio investments have 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, or the financial and operating results of our portfolio companies
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 pursuant
to our Plan of Reorganization 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.







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Basis of
Presentation—In accordance with Article 6 of Regulation S-X under the Securities Act and the Securities Exchange Act
of 1934, as amended (“Exchange Act”), we do not consolidate portfolio company investments, including those in which
we have a controlling interest. Our interim unaudited financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”), for interim financial information and in accordance with
the requirements of reporting on Form 10-Q and Article 10 of Regulation S-X, under the Exchange Act. Accordingly, they are unaudited
and exclude some disclosures required for annual financial statements. We believe that we have made all adjustments, consisting
solely of normal recurring accruals, necessary for the fair presentation of these interim financial statements.



The results
of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of results that ultimately
may be achieved for the remainder of the year. The interim unaudited financial statements and notes thereto should be read in conjunction
with the financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2019, as filed with the SEC.



(2)       Liquidity
and Financing Arrangements



Liquidity—There
are several factors that may materially affect our liquidity during the reasonably foreseeable future. We are evaluating the impact
of current market conditions on our portfolio company valuations and their ability to provide current income. Further, we are
also contemplating the sale of all or a portion of one or more of our portfolio investments before the end of 2020. We have followed
valuation techniques in a consistent manner; however, we are cognizant of current market conditions that might affect future valuations
of portfolio securities. In view of the foregoing, we believe that our operating cash flow and cash on hand will be sufficient
to meet operating requirements from the date of this filing through the next twelve months. See also Note 9 - Subsequent Events.





Cash and Cash Equivalents—As
of September 30, 2020, we had cash and cash equivalents of $1.9 million. We had $35.0 million of our net assets of $37.4 million
invested in portfolio securities.





As of December 31, 2019, we had cash
and cash equivalents of $4.0 million. We had $40.6 million of our net assets of $46.0 million invested in portfolio securities.



We exclude “Restricted
Cash and Temporary Cash Investments” used for purposes of complying with RIC requirements from cash equivalents.



Restricted
Cash and Temporary Cash Investments—Asof September 30, 2020, we had $27.3
million of restricted cash and temporary cash investments, including primarily the proceeds of a quarter-end margin loan that we
incurred to maintain the diversification requirements applicable to a RIC to maintain our pass-through tax treatment. Of this amount,
$27.0 million was invested in U.S. Treasury bills and $0.3 million represented a required 1% brokerage margin deposit. These securities
were held by a securities brokerage firm and pledged along with other assets to secure repayment of the margin loan. The U.S. Treasury
bills matured on October 8, 2020 and we subsequently repaid this margin loan, plus interest.



As of December
31, 2019, we had $29.3 million of restricted cash and of temporary cash investments, including primarily the proceeds of a quarter-end
margin loan that we incurred to maintain the diversification requirements applicable to a RIC. Of this amount, $29.0 million was
invested in U.S. Treasury bills and $0.3 million represented a required 1% brokerage margin deposit. These securities were held
by a securities brokerage firm and pledged along with other assets to secure repayment of the margin loan. The U.S. Treasury bills
were sold on January 7, 2020 and we subsequently repaid this margin loan, plus interest.





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Dividends—So
long as we remain a BDC, we will pay out net investment income and/or realized net capital gains, if any, on an annual basis as
required under the 1940 Act.



Investment
Commitments—Under certain circumstances, we may be called on to make follow-on investments in certain portfolio companies.
If we do not have sufficient funds to make follow-on investments, the portfolio company in need of the investment may be negatively
impacted. Also, our equity interest in the estimated fair value of the portfolio company could be reduced.



As of September 30, 2020, we had no outstanding
commitments to our portfolio company investments.



RIC Borrowings,
Restricted Cash and Temporary Cash Investments—We may periodically borrow sufficient funds to maintain the Fund’s
RIC status by utilizing a margin account with a securities brokerage firm. We cannot assure you that any such arrangement will
be available in the future. If we are unable to borrow funds to make qualifying investments, we may no longer qualify as a RIC.
We would then be subject to corporate income tax on the Fund’s net investment income and realized capital gains, and distributions
to stockholders would be subject to income tax as ordinary dividends. If we remain a BDC and do not become an operating company
as described in Note 6 – Plan of Reorganization below, our failure to continue to qualify as a RIC could be materially
adverse to us and our stockholders.



As of September
30, 2020, we borrowed $27.0 million to maintain our RIC status by utilizing a margin account with a securities brokerage firm.
We collateralized such borrowings with restricted cash and temporary cash investments in U.S. Treasury bills of $27.3 million.



As of December
31, 2019, we borrowed $29.0 million to maintain our RIC status by utilizing a margin account with a securities brokerage firm.
We collateralized such borrowings with restricted cash and temporary cash investments in U.S. Treasury bills of $29.3 million.



Asset Coverage
Ratio—Under the 1940 Act, BDCs are required to have an asset coverage ratio of 200%, meaning that the maximum debt that
may be incurred by a BDC is the BDC’s net asset value. Pursuant to amendments made to the 1940 Act in March 2018, BDCs may
now, with stockholder or board of directors approval, reduce this ratio to 150%, meaning that the maximum debt that may be incurred
by a BDC is two times the BDC’s net asset value. In November 2019, we obtained approval of our shareholders to reduce our
asset coverage ratio to 150%. This authorization will permit Equus to borrow up to twice the value of the Fund’s net assets.
Other than the margin loan obtained by the Fund to acquire U.S. Treasury bills to maintain our RIC status as described above, we
have not yet undertaken any other additional borrowings.



Certain
Risks and Uncertainties—Market and economic volatility which has become endemic in the past few years, together with
the economic dislocation caused by the onset of the coronavirus, has constrained the availability of debt financing for small and
medium-sized companies such as Equus and its portfolio companies. Such debt financing generally has shorter maturities, higher
interest rates and fees, and more restrictive terms than debt facilities available in the past. In addition, during these years
and continuing into 2020, the price of our common stock remained well below our net asset value, thereby making it undesirable
to issue additional shares of our common stock below net asset value.



Because of these challenges, our near-term strategies shifted from
originating debt and equity investments to preserving liquidity necessary to meet our operational needs. Key initiatives that we
have previously undertaken to provide necessary liquidity include monetizations, the suspension of dividends and the internalization
of management. We are also evaluating potential opportunities that could enable us to effect a change to our business and become
an operating company as described in Note 6 – Plan of Reorganization. We believe we have sufficient liquidity to meet
our operating requirements for 12 months from the date of this filing.

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| | (3) | Significant Accounting Policies
| | --- | -------------------------------



The following is a summary of significant accounting
policies followed by the Fund in the preparation of our financial statements:



Use of Estimates—The
preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Although we believe the estimates and assumptions used in preparing these
financial statements and related notes are reasonable in light of known facts and circumstances, actual results could differ from
those estimates.



Valuation
of Investments—For most of our investments, market quotations are not available. With respect to investments for which
market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board has
approved a multi-step valuation process each quarter, as described below:



| | 1. | Each portfolio company or investment is reviewed by our investment professionals;
| | -- | ---------------------------------------------------------------------------------



| | 2. | With respect to investments with a fair value exceeding $2.5 million that have been held for more than one year, we engage independent valuation firms to assist our investment professionals. These independent valuation firms conduct independent valuations and make their own independent assessments;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Our Management produces a report that summarizes each of our portfolio investments and recommends a fair value of each such investment as of the date of the report;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | The Audit Committee of our Board reviews and discusses the preliminary valuation of our portfolio investments as recommended by Management in their report and any reports or recommendations of the independent valuation firms, and then approves and recommends the fair values of our investments so determined to our Board for final approval; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | The Board discusses valuations and determines the fair value of each portfolio investment in good faith based on the input of our Management, the respective independent valuation firm, as applicable, and the Audit Committee.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the
first twelve months after an investment is made, we rely on the original investment amount to determine the fair value unless significant
developments have occurred during this twelve-month period which would indicate a material effect on the portfolio company (such
as results of operations or changes in general market conditions).

Investments
are valued utilizing a yield analysis, enterprise value (“EV”) analysis, net asset value analysis, liquidation analysis,
discounted cash flow analysis, or a combination of methods, as appropriate. The yield analysis uses loan spreads and other relevant
information implied by market data involving identical or comparable assets or liabilities. Under the EV analysis, the EV of a
portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference
relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market multiples approach
that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent M&A
transactions and/or a discounted cash flow analysis. The net asset value analysis is used to derive a value of an underlying investment
(such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose,
we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions.
The liquidation analysis is intended to approximate the net recovery value of an investment based on, among other things, assumptions
regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow
analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate
may be derived utilizing an appropriate discount rate. The measurement is based on the net present value indicated by current market
expectations about those future amounts.

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In applying
these methodologies, additional factors that we consider in fair value pricing our investments may include, as we deem relevant:
security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the
portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly
available financial ratios of peer companies; the principal market; and enterprise values, among other factors. 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, in addition to the previously described analysis involving allocation
of value to the debt instrument, we perform a yield analysis assuming a hypothetical current sale of the security to determine
if a debt security has been impaired. The yield analysis considers changes in interest rates and changes in leverage levels of
the portfolio company as compared to the market interest rates and leverage levels. Assuming the credit quality of the portfolio
company remains stable, the Fund will use the value determined by the yield analysis as the fair value for that security if less
than the cost of the investment.



We record unrealized
depreciation on investments when we determine that the fair value of a security is less than its cost basis, and will record unrealized
appreciation when we determine that the fair value is greater than its cost basis.



Fair Value
Measurement—Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date and sets out a fair value hierarchy. The fair value hierarchy gives
the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability.
The three levels of the fair value hierarchy are described below:



Level 1—Unadjusted
quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the
measurement date.



Level 2—Inputs
other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly; and fair
value is determined through the use of models or other valuation methodologies.



Level 3—Inputs
are unobservable for the asset or liability and include situations where there is little, if any, market activity for the asset
or liability. The inputs into the determination of fair value are based upon the best information under the circumstances and may
require significant management judgment or estimation.



In certain cases,
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s
level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers
factors specific to the investment.



Investments
for which prices are not observable are generally private investments in the debt and equity securities of operating companies.
A primary valuation method used to estimate the fair value of these Level 3 investments is the discounted cash flow method (although
a liquidation analysis, option theoretical, or other methodology may be used when more appropriate). The discounted cash flow approach
to determine fair value (or a range of fair values) involves applying an appropriate discount rate(s) to the estimated future cash
flows using various relevant factors depending on investment type, including comparing the latest arm’s length or market
transactions involving the subject security to the selected benchmark credit spread, assumed growth rate (in cash flows), and capitalization
rates/multiples (for determining terminal values of underlying portfolio companies). The valuation based on the inputs determined
to be the most reasonable and probable is used as the fair value of the investment. In the case of our investment in Equus Energy,
we also examine acreage values in comparable transactions and assess the impact upon the working interests held by Equus Energy.
The determination of fair value using these methodologies may take into consideration a range of factors including, but not limited
to, the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public
exchanges for comparable securities, current and projected operating performance, financing transactions subsequent to the acquisition
of the investment and anticipated financing transactions after the valuation date.



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To assess the
reasonableness of the discounted cash flow approach, the fair value of equity securities, including warrants, in portfolio companies
may also consider the market approach—that is, through analyzing and applying to the underlying portfolio companies, market
valuation multiples of publicly-traded firms engaged in businesses similar to those of the portfolio companies. The market approach
to determining the fair value of a portfolio company’s equity security (or securities) will typically involve: (1) applying
to the portfolio company’s trailing twelve months (or current year projected) EBITDA a low to high range of enterprise value
to EBITDA multiples that are derived from an analysis of publicly-traded comparable companies, in order to arrive at a range of
enterprise values for the portfolio company; (2) subtracting from the range of calculated enterprise values the outstanding balances
of any debt or equity securities that would be senior in right of payment to the equity securities we hold; and (3) multiplying
the range of equity values derived therefrom by our ownership share of such equity tranche in order to arrive at a range of fair
values for our equity security (or securities). Application of these valuation methodologies involves a significant degree of judgment
by Management.



Due to the inherent
uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value
of the investments may differ significantly from the values that would have been used had a ready market existed for such investments
and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject
to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If we were required to liquidate
a portfolio investment in a forced or liquidation sale, we might realize significantly less than the value at which such investment
had previously been recorded. With respect to Level 3 investments, where sufficient market quotations are not readily available
or for which no or an insufficient number of indicative prices from pricing services or brokers or dealers have been received,
we undertake, on a quarterly basis, our valuation process as described above.



We assess the
levels of the investments at each measurement date, and transfers between levels are recognized on the subsequent measurement date
closest in time to the actual date of the event or change in circumstances that caused the transfer. There were no transfers among
Level 1, 2 and 3 for the three months ended September 30, 2020 and the year ended December 31, 2019.



As of September
30, 2020, investments measured at fair value on a recurring basis are categorized in the tables below based on the lowest level
of significant input to the valuations:











|                                                 |  |       |        | Fair Value Measurements as of September 30, 2020                                                                                              
|------------------------------------------------ |  | ----- | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------
|(in thousands)                                   |  | Total |        | Quoted Prices in Active Markets for Identical Assets
                                                                                (Level 1)
|Assets                                           |  |       |        |                                                                                                                                               
|Investments:                                     |  |       |        |                                                                                                                                               
|Control investments                              |  | $     | 5,500  |                                                                                                                                               
|Affiliate investments                            |  |       | 24,000 |                                                                                                                                               
|Non-affiliate investments                        |  |       | 5,531  |                                                                                                                                               
|Total investments                                |  |       | 35,031 |                                                                                                                                               
|Temporary cash investments                       |  |       | 27,000 |                                                                                                                                               
|Total investments and temporary cash investments |  | $     | 62,031 |                                                                                                                                               









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As of December 31, 2019, investments measured
at fair value on a recurring basis are categorized in the tables below based on the lowest level of significant input to the valuations:







|                                                 |  |       |        | Fair Value Measurements as of December 31, 2019                                                                                               
|------------------------------------------------ |  | ----- | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------
|(in thousands)                                   |  | Total |        | Quoted Prices in Active Markets for Identical Assets
                                                                                (Level 1)
|Assets                                           |  |       |        |                                                                                                                                               
|Investments:                                     |  |       |        |                                                                                                                                               
|Control investments                              |  | $     | 8,000  |                                                                                                                                               
|Affiliate investments                            |  |       | 26,500 |                                                                                                                                               
|Non-affiliate investments - related party        |  |       | 5,171  |                                                                                                                                               
|Non-affiliate investments                        |  |       | 977    |                                                                                                                                               
|Total investments                                |  |       | 40,648 |                                                                                                                                               
|Temporary cash investments                       |  |       | 28,991 |                                                                                                                                               
|Total investments and temporary cash investments |  | $     | 69,639 |                                                                                                                                               







The following table provides a reconciliation
of fair value changes during the nine months ended September 30, 2020 for all investments for which we determine fair value using
unobservable (Level 3) factors:





|                                    |  |                     |  | Fair value measurements using significant unobservable inputs (Level 3)
|----------------------------------- |  | ------------------- |  | -----------------------------------------------------------------------
|(in thousands)                      |  | Control Investments |  | Affiliate Investments                                                  
|Fair value as of January 1, 2020    |  |                     |  |                                                                        
|Change in unrealized appreciation   |  |                     |  |                                                                        
|Purchases of portfolio securities   |  |                     |  |                                                                        
|Fair value as of September 30, 2020 |  |                     |  |                                                                        





The following table provides a reconciliation
of fair value changes during the nine months ended September 30, 2019 for all investments for which we determine fair value using
unobservable (Level 3) factors:









|                                    |  |                     |  | Fair value measurements using significant unobservable inputs (Level 3)
|----------------------------------- |  | ------------------- |  | -----------------------------------------------------------------------
|(in thousands)                      |  | Control Investments |  | Affiliate Investments                                                  
|Fair value as of January 1, 2019    |  |                     |  |                                                                        
|Realized losses                     |  |                     |  |                                                                        
|Change in unrealized appreciation   |  |                     |  |                                                                        
|Proceeds from sales/dispositions    |  |                     |  |                                                                        
|Fair value as of September 30, 2019 |  |                     |  |                                                                        







Our investment
portfolio is not composed of homogeneous debt and equity securities that can be valued with a small number of inputs. Instead,
the majority of our investment portfolio is composed of complex debt and equity securities with distinct contract terms and conditions.
As such, our valuation of each investment in our portfolio is unique and complex, often factoring in numerous different inputs,
including historical and forecasted financial and operational performance of the portfolio company, project cash flows, market
multiples comparable market transactions, the priority of our securities compared with those of other investors, credit risk,
interest rates, independent valuations and reviews and other inputs.



20


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The following table summarizes the
significant non-observable inputs in the fair value measurements of our Level 3 investments by category of investment and valuation
technique as of September 30, 2020:











|                                      |       |            |                                    |                                                                  |     |                                    |     | Range  
|------------------------------------- | ----- | ---------- | ---------------------------------- | ---------------------------------------------------------------- | --- | ---------------------------------- | --- | -------
|(in thousands)                        |       | Fair Value |                                    | Valuation Techniques                                             |     | Unobservable Inputs                |     | Minimum
|Secured and subordinated debt         | $     | 977        |                                    | Yield analysis                                                   |     | Discount for lack of marketability |     | 0%     
|                                      |       |            |                                    |                                                                  |     |                                    |     |        
|Common stock                          |       | 24,000     |                                    | Income/Market approach                                           |     | EBITDA Multiple                    |     | 6.6x   
|                                      |       |            | Discount for Lack of Marketability |                                                                  | 15% |                                    | 15%
|                                      |       |            | Discount for Lack of Control       |                                                                  | 10% |                                    | 10%
|Limited liability company investments |       |            |                                    | Asset
    approach Guideline transaction method; Market approach |     | Acreage Value                      |     | 900    
|                                      | 5,500 |            |                                    | Recovery Rate; Reserve Adjustment Factors                        |     | 75%                                |     | 100%   
|                                      | $     | 30,477     |                                    |                                                                  |     |                                    |     |        























Because of the
inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values, amounting
to $30.5 million and $35.5 million as of September 30, 2020 and December 31, 2019, respectively, our fair value determinations
may materially differ from the values that would have been used had a ready market existed for these securities. As of September
30, 2020 and December 31, 2019, one of our portfolio investments, consisting of 583,058 and 563,894 common shares of MVC, respectively,
was publicly listed on the NYSE.



We adjust our
net asset value for the changes in the value of our publicly held securities, if applicable, and material changes in the value
of private securities, generally determined on a quarterly basis or as announced in a press release, and report those amounts to
Lipper Analytical Services, Inc. Our net asset value appears in various publications, including Barron’s and The
Wall Street Journal.



Investment
Transactions—Investment transactions are recorded on the accrual method. Realized gains and losses on investments sold
are computed on a specific identification basis.



We classify
our investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are
defined as investments in companies in which the Fund owns more than 25% of the voting securities or maintains greater than 50%
of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as those non-control investments
in companies in which we own between 5% and 25% of the voting securities. Under the 1940 Act, “Non-affiliate Investments”
are defined as investments that are neither Control Investments nor Affiliate Investments. See also Note 4 for discussion of related
party investment transactions.



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Interest
and Dividend Income Recognition—We record interest income, adjusted for amortization of premium and accretion of discount,
on an accrual basis to the extent that we expect to collect such amounts. We accrete or amortize discounts and premiums on securities
purchased over the life of the respective security using the effective yield method. The amortized cost of investments represents
the original cost adjusted for the accretion of discount and/or amortization of premium on debt securities. We stop accruing interest
on investments when we determine that interest is no longer collectible. We may also impair the accrued interest when we determine
that all or a portion of the current accrual is uncollectible. If we receive any cash after determining that interest is no longer
collectible, we treat such cash as payment on the principal balance until the entire principal balance has been repaid, before
we recognize any additional interest income. We will write off uncollectible interest upon the occurrence of a definitive event
such as a sale, bankruptcy, or reorganization of the relevant portfolio interest. Dividend
income is recorded as dividends are declared by the portfolio company or at the point
an obligation exists for the portfolio company to make a distribution.



Net Realized
Gains or Losses and Net Change in Unrealized Appreciation or Depreciation—Realized gains or losses are measured by the
difference between the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of
the investment or financial instrument, without regard to unrealized appreciation or depreciation previously recognized, and includes
investments written-off during the period net of recoveries and realized gains or losses from in-kind redemptions. Net change in
unrealized appreciation or depreciation reflects the net change in the fair value of the portfolio company investments and financial
instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial
instruments to realized gains or losses.



Payment in
Kind Interest (PIK)—We have loans in our portfolio that may pay PIK interest. We add PIK interest, if any, computed at
the contractual rate specified in each loan agreement, to the principal balance of the loan and recorded as interest income. To
maintain our status as a RIC, we must pay out to stockholders this non-cash source of income in the form of dividends even if we
have not yet collected any cash in respect of such investments. To the extent we remain BDC and a RIC, we will continue to pay
out net investment income and/or realized capital gains, if any, on an annual basis as required under the 1940 Act.



Earnings
Per Share—Basic and diluted per share calculations are computed utilizing the weighted-average number of shares of common
stock outstanding for the period. In accordance with ASC 260, Earnings Per Share, the unvested shares of restricted stock awarded
pursuant to our equity compensation plans are participating securities and, therefore, are included in the basic earnings per share
calculation. As a result, for all periods presented, there is no difference between diluted earnings per share and basic earnings
per share amounts.



Distributable Earnings—The
components that make up distributable earnings (accumulated undistributed deficit) on the Condensed Balance Sheet as of September
30, 2020 andDecember 31, 2019 are as follows:





|​                                                    |  | As of
                                                                                September 30, 2020 |         | As of
                                                                                December 31, 2019
|---------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- | ------- | -------------------------------------------------------------------------------------------------------
|Accumulated undistributed net investment losses      |  | $                                                                                                        | (37,757 | )                                                                                                      
|Unrealized appreciation of portfolio securities, net |  |                                                                                                          | 19,025  |                                                                                                        
|Accumulated undistributed net capital gains          |  |                                                                                                          | 8       |                                                                                                        
|Accumulated undistributed deficit                    |  | $                                                                                                        | (18,724 | )                                                                                                      







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Taxes—So
long as we remain a BDC, we intend to comply with the requirements of the Internal Revenue Code necessary to qualify as a RIC and,
as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is
distributed to stockholders. Therefore, no provision for federal income taxes is recorded in the financial statements. We borrow
money from time to time to maintain our tax status under the Internal Revenue Code as a RIC. See Note 1 for discussion of Taxable
Subsidiaries and see Note 2 for further discussion of the Fund’s RIC borrowings.



All corporations
organized in the State of Delaware are required to file an Annual Report and to pay a franchise tax. As a result, we paid Delaware
Franchise tax in the amount of $0.03 million for the year ended December 31, 2019.



Texas margin
tax applies to legal entities conducting business in Texas. The margin tax is based on our Texas sourced taxable margin. The tax
is calculated by applying a tax rate to a base that considers both revenue and expenses and therefore has the characteristics of
an income tax. As a result, we have no provision for margin tax expense for the three months ended September 30, 2020, respectively,
and we expect no in state income tax for the year ended December 31, 2019.



Although on
March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),
which contains provisions intended to mitigate the adverse economic effects of the COVID-19 pandemic, it is uncertain whether,
or how much, our portfolio companies will be able to benefit from the CARES Act or any other subsequent legislation intended to
provide financial relief or assistance.



Cash Flows—For
purposes of the Statements of Cash Flows, we consider all highly liquid temporary cash investments purchased with an original maturity
of three months or less to be cash equivalents. We include our investing activities within cash flows from operations.



Accounting Standards
Recently Adopted—In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies,
including BDCs, to disclose the financial statements of certain of their portfolio companies or acquired funds (the “Final
Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of
Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate
financial statements or summary financial information, respectively, in such investment company’s periodic reports for any
portfolio company that meets the definition of “significant subsidiary.” The Final Rules amend the definition of “significant
subsidiary” in a manner that is intended to more accurately capture those portfolio companies that are more likely to materially
impact the financial condition of an investment company. The Final Rules will be effective on January 1, 2021, but voluntary compliance
is permitted in advance of the effective date.  We have elected to comply with the Final Rules effective for the annual reporting
period December 31, 2020. We are evaluating the impact on the requirement to provide separate audited financial statements and
summarized financial information for its controlled portfolio companies going forward.



In March 2019, the Securities
Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10618, Fast Act Modernization and Simplification
of Regulation S-K, amending certain disclosure requirements. The amendments are intended to simplify certain disclosure requirements
and to provide for a consistent set of rules to govern incorporating information by reference and hyperlinking, improve readability
and navigability of disclosure documents, and discourage repetition and disclosure of immaterial information. We adopted the final
rule under SEC Release No. 33-10618 as of December 31, 2019. We have evaluated the impact of the amendments and determined the
effect of the adoption of the simplification rules on financial statements will be limited to the modification and removal of certain
disclosures.



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Accounting Standards
Not Yet Adopted—In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The
new standard is effective for the Company beginning on January 1, 2021. We are evaluating the effect ASU 2019-12 but do not anticipate
that it will have an impact on our consolidated financial statements.



| | (4) | Related Party Transactions and Agreements
| | --- | -----------------------------------------

Except
as noted below, as compensation for services to the Fund, each Independent Director receives an annual fee of $40,000 paid quarterly
in arrears, a fee of $2,000 for each meeting of the Board of Directors or committee thereof attended in person, a fee of $1,000
for participation in each telephonic meeting of the Board or committee thereof, and reimbursement of all out-of-pocket expenses
relating to attendance at such meetings. The chair of each of our standing committees (audit, compensation, and nominating and
governance) also receives an annual fee of $50,000, payable quarterly in arrears. We may also pay other one-time or recurring fees
to members of our Board of Directors in special circumstances. None of our interested directors receive annual fees for their service
on the Board of Directors. None of our interested directors receive annual fees for their service on the Board of Directors.



We may also
pay other one-time or recurring fees to members of our Board of Directors in special circumstances. In respect of services provided
to the Fund by members of the Board not in connection with their roles and duties as directors, the Fund pays a rate of $300 per
hour for services. Wepaid Kenneth I. Denos, P.C., a professional corporation owned
by Kenneth I. Denos, a director of the Fund, $0.3 million during each of the nine-month
periods ended September 30, 2020 and 2019, respectively.



On July 16, 2020, MVC Capital, Inc. (“MVC”) a holder
of 3,228,024 shares of our common stock, sold these shares, in a private transaction to John A. Hardy, our Chief Executive Officer. 
The transaction was disclosed by Mr. Hardy pursuant to the requirements of Rule 13-d and Section 16 of the Securities Exchange
Act of 1934.  As of the date of the purchase and sale transaction, as neither MVC nor any affiliate thereof was an officer,
director or shareholder of Equus, MVC ceased to be considered a related party of Equus.



(5)       Portfolio
Securities

During the nine months ended September
30, 2020, in connection with our shareholding in MVC, we received dividends in the form of additional MVC shares valued at $0.2
million, together with $134,585 in cash.

During the nine months ended September
30, 2020, we converted into equity $0.6 million in advances we made to Equus Energy, LLC, our wholly-owned subsidiary.

During the
nine months ended September 30, 2020, we recorded a net change in unrealized appreciation of $6.3 million, to a net unrealized
appreciation of $19.0 million. Such change in unrealized appreciation resulted primarily from the following changes:

| | (i) | Decrease in the fair value of our shareholding in MVC of $0.8 million due to a decrease in the share price of MVC which was partially offset bythe receipt of dividend payments in the form of additional shares of MVC during the period;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Decrease in the fair value of our holdings in Equus Energy, LLC of $3.0 million, principally due to decreases in mineral acreage prices and a substantial decrease in the short- and long-term prices for crude oil, which fell from $61.06 per barrel at December 31, 2019 to $20.48 at March 31, 2020, before recovering moderately to $40.22 at September 30, 2020; and
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Decrease in the fair value of our shareholding in PalletOne, Inc. of $2.5 million due to a less favorable outlook for the Company in 2021 and the remainder of 2020.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the nine months
ended September 30, 2019, in connection with our shareholding in MVC, we received dividends in the form of additional MVC shares
valued at $0.2 million.



Also during the nine months
ended September 30, 2019, we dissolved Equus Media Development Company, LLC (“EMDC”), a wholly-owned subsidiary of
the Fund and transferred EMDC’s assets, consisting of approximately $211,000 in cash and various creative entertainment properties,
to the Fund.



24


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During the nine months
ended September 30, 2019, we recorded a net change in unrealized appreciation of $10.7 million, to a net unrealized appreciation
of $27.7 million. Such change in unrealized appreciation resulted primarily from the following changes:



| | (i) | Increase in the fair value of our shareholding in MVC of $0.4 million due to an increase in the share price of MVC and the receipt of dividend payments in the form of additional shares of MVC during the period;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Increase in fair value of our shareholding in PalletOne, Inc. of $6.0 million due to improved operating performance;
| | ---- | --------------------------------------------------------------------------------------------------------------------



| | (iii) | Transfer of unrealized depreciation to realized loss of our holdings in EMDC of $2.8 million in connection with the dissolution of EMDC and the transfer of its assets to the Fund; and
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Increase in the fair value of our holdings in Equus Energy, LLC of $1.5 million, principally due to increases in mineral acreage prices proximate to the company’s leasehold interests and an increase in the short- and long-term prices for crude oil during 2019.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(6)       Plan
of Reorganization

Plan of Reorganization—On
May 14, 2014, we announced that the Fund intended to effect a reorganization pursuant to Section 2(a)(33) of the 1940 Act (hereinafter,
the “Plan of Reorganization”). We intend to finalize the Plan of Reorganization by pursuing a merger or consolidation
with an operating company, which operating company may be a subsidiary or portfolio company of MVC. Our current intention is for
Equus to (i) terminate its election to be classified as a BDC under the 1940 Act, and (ii) be restructured as a publicly-traded
operating company focused on the energy, natural resources, technology, and/or financial services sector. While we are presently
evaluating opportunities in various industry sectors, including technology, real estate, natural resources, and financial services,
that could enable us to complete our Plan of Reorganization, we cannot assure you that we will be able to do so within any particular
time period or at all, particularly given the economic dislocation caused by the coronavirus pandemic and the restrictions on travel
and association that have been imposed throughout most of the world that inhibit our ability to consider and personally examine
potential transaction opportunities. Moreover, we cannot assure you that the terms of any such transaction that would embody the
transformation of Equus into an operating companywould be acceptable to us.



Authorization
to Withdraw BDC Election—On November 14, 2019, holders of a majority of the outstanding common stock of the Fund approved
our cessation as a BDC under the 1940 Act and authorized our Board to cause the Fund’s withdrawal of its election to be classified
as a BDC, effective as of a date designated by the Board and our Chief Executive Officer. Although this authorization, which was
given as a consequence of our Plan of Reorganization, expired on March 31, 2020, we
expect to receive an additional authorization from our stockholders in the future. 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 “Consolidation”, as such term is defined in our Plan of Reorganization. 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.



| | (7) | 2016 Equity Incentive Plan
| | --- | --------------------------



Share-Based
Incentive Compensation—On June 13, 2016, our shareholders approved the adoption of our 2016 Equity Incentive Plan (“Incentive
Plan”). On January 10, 2017, the SEC issued an order approving the Incentive Plan and certain awards intended to be made
thereunder. The Incentive Plan is intended to promote the interests of the Fund by encouraging officers, employees, and directors
of the Fund and its affiliates to acquire or increase their equity interest in the Fund and to provide a means whereby they may
develop a proprietary interest in the development and financial success of the Fund, to encourage them to remain with and devote
their best efforts to the business of the Fund, thereby advancing the interests of the Fund and its stockholders. The Incentive
Plan is also intended to enhance the ability of the Fund and its affiliates to attract and retain the services of individuals who
are essential for the growth and profitability of the Fund.



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The Incentive Plan permits the award of restricted stock as well as
common stock purchase options. The maximum number of shares of common stock that are subject to awards granted under the Incentive
Plan is 2,434,728 shares. The term of the Incentive Plan will expire on June 13, 2026. On March 17, 2017, we granted awards of
restricted stock under the Incentive Plan to certain of our directors and executive officers in the aggregate amount of 844,500
shares. The awards are each subject to a vesting requirement over a 3-year period unless the recipient thereof is terminated or
removed from their position as a director or executive officer without “cause”, or as a result of constructive termination,
as such terms are defined in the respective award agreements entered into by each of the recipients and the Fund. As of September
30, 2019, 280,000 shares of restricted stock which were granted pursuant to the Incentive Plan, remained unvested. We account for
share-based compensation using the fair value method, as prescribed by ASC 718. Accordingly, for restricted stock awards, we measure
the grant date fair value based upon the market price of our common stock on the date of the grant and amortize the fair value
of the awards as share-based compensation expense over the requisite service period, which is generally the vesting term. We recorded
compensation expense of $0.08 million and $0.4 million for the nine months ended September 30, 2020 and 2019, respectively, in
connection with these awards.







| | (8) | Equus Energy, LLC
| | --- | -----------------

Equus Energy
was formed in November 2011 as a wholly-owned subsidiary of the Fund to make investments in companies in the energy sector, with
particular emphasis on income-producing oil & gas properties. In December 2011, we contributed $250,000 to the capital of Equus
Energy. On December 27, 2012, we invested an additional $6.8 million in Equus Energy for the purpose of additional working capital
and to fund the purchase of $6.6 million in working interests, which presently comprise 141 producing and non-producing oil and
gas wells. The working interests include associated development rights of approximately 21,520 acres situated on 11 separate properties
in Texas and Oklahoma. The working interests range from a de minimus amount to 50% of the leasehold that includes these
wells.

The
wells are operated by a number of experienced operators, including Chevron USA, Inc., which has operating responsibility for all
of Equus Energy’s 40 well interests located in the Conger Field, an oil and gas field on the edge of the Permian Basin that
has experienced gas and hydrocarbon extraction in multiple formations. Equus Energy, which holds a 50% working interest in each
of these Conger Field wells, was working with Chevron in a recompletion program, now presently on hold, of existing Conger Field
wells to the Wolfcamp formation, a zone containing oil as well as gas and natural gas liquids. Part of Equus Energy’s acreage
rights described above also includes a 50% working interest in possible new drilling to the base of the Canyon formation on 2,400
acres in the Conger Field. Also included in the interests acquired by Equus Energy are working interests of 7.5% and 2.5% in the
Burnell and North Pettus Units, respectively, which collectively comprise approximately 13,000 acres located in the area known
as the “Eagle Ford Shale” play.



The Impact
of COVID-19 and Other Events—The first quarter of 2020 witnessed unprecedented systemic events that had a material effect
on oil prices globally and continued throughout the year. As described above, the economic impact of the coronavirus during the
first nine months of 2020 has been substantial and is continuing. By the end of 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, particularly
the energy industry, were materially and negatively affected as a result. As of September 30, 2020, many of these restrictions
remained in place and are not expected to be materially relaxed before the end of 2020. In addition, in March 2020, a dispute between
Saudi Arabia and Russia regarding cuts in crude oil production resulted in a 26% drop in the worldwide spot price, which had already
declined approximately 30% since December 31, 2019. Although the parties, including other OPEC members, ultimately agreed to production
cuts of approximately 10 million BBL/day in April 2020, slumping demand has resulted in even lower spot prices. Overall, WTI prices
declined from $61.06 at December 31, 2019 to $20.48 at March 31, 2020 before recovering to $40.65 at June 30, 2020 and stabilizing
at $40.22 at September 30, 2020. The volatility in the price of natural gas was comparatively far milder during the first nine
months of 2020, decreasing from $2.22 per MMBTU at December 31, 2019 to $1.79 per MMBTU at March 31, 2020, decreasing slightly
to $1.76 per MMBTU at June 30, 2020 and then increasing sharply during the third quarter of 2020 to $2.53 at September 30, 2020.
While significant changes in spot prices during the first nine months of 2020 have had a similar effect on the price at which the
well operators have sold hydrocarbons from the various properties in which Equus Energy holds an interest, the long-term pricing
curves for these commodities has also been negatively affected. Although crude oil spot prices increased substantially during the
second quarter of 2020 and stabilized thereafter, changes in the long-term pricing curve since the end of 2019 have resulted in
a decrease in the fair value of these properties and of Equus Energy during the nine months ended September 30, 2020. During the
second quarter of 2020, for example, WTI prices were highly volatile, ranging from a high of $40.65 to a low of $11.21.



26


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As a result,
Equus Energy could see future capital expenditures postponed indefinitely, which could have a material adverse effect upon the
operations and long-term financial condition of Equus Energy. The substantial decrease in WTI spot prices has had a similar effect
upon Equus Energy’s revenue. This decrease, as well as the shut-in of presently uneconomic wells due to low prices and excess
demand has had, and is expected to continue to have, a material adverse effect on the present and near-term cash flows of Equus
Energy. To conserve existing cash resources or create additional cash resources during the next year, Equus Energy intends to either:
(i) attempt to secure equity or debt financing from one or more institutional sources, which sources may include the Fund, a commercial
lender, or other investors, (ii) request that its operators shut-in additional wells, (iii) sell certain of its oil and gas holdings,
or (iv) undertake a combination of the foregoing. However, we cannot assure you that Equus Energy will be able to implement these
plans successfully, or that such plans will generate sufficient liquidity to continue as a going concern. The factors discussed
above, therefore, raise substantial doubt about Equus Energy’s ability to continue as a going concern.



Going-Concern—The
accompanying unaudited condensed consolidated financial statements of Equus Energy have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of
business. As such, the unaudited condensed consolidated financial statements do not include adjustments relating to the recoverability
and classification of assets and their carrying amount, or the amount and classification of liabilities that may result should
the Equus Energy be unable to continue as a going concern.



Revenue and
Income—During the three months ended September 30, 2020, Equus Energy’s revenue, operating revenue less direct
operating expenses, and net loss were $0.1 million, ($0.01) million, and ($0.04) million, respectively, as compared to revenue,
operating revenue less direct operating expenses, and net loss which were $0.1 million, ($0.08) million, and ($0.2) million, respectively,
for the three months ended September 30, 2019.



Capital Expenditures—During
the three months ended September 30, 2020and September 30, 2019, Equus Energy’s
investment, respectively, in capital expenditures for small repairs and improvements was not significant. The operators of the
various working interest communicated their intent to wait until 2021 at the earliest, commensurate with an anticipated gradual
rise in the price of crude oil, to consider any new drilling orrecompletion projects.



We do not consolidate
Equus Energy or its wholly-owned subsidiaries and accordingly only the value of our investment in Equus Energy is included on our
balance sheets. Our investment in Equus Energy is valued in accordance with our normal valuation procedures and is based in part
on a reserve report prepared for Equus Energy by Lee Keeling & Associates, Inc., an independent petroleum engineering firm,
the transactions and values of comparable companies in this sector, and the estimated value of leasehold mineral interests associated
with the acreage held by Equus Energy. A valuation of Equus Energy was performed by a third-party valuation firm, who recommended
a value range of Equus Energy consistent with the fair value determined by our Management (See Schedule of Investments).









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Below is summarized
consolidated financial information for Equus Energy as of September 30, 2020 and December 31, 2019 and for the three and nine months
ended September 30, 2020 and 2019, respectively (in thousands):



EQUUS ENERGY, LLC

Unaudited Condensed Consolidated Balance
Sheets







|                                                           |   | September 30, |        | December 30,
|---------------------------------------------------------- | - | ------------- | ------ | ------------
|                                                           |   | 2020          |        | 2019        
|                                                           |   |               |        |             
|                                                           |   |               |        |             
|Assets                                                     |   |               |        |             
|Current assets:                                            |   |               |        |             
|Cash and cash equivalents                                  |   | $             | 274    |             
|Accounts receivable                                        |   |               | 67     |             
|Other current assets                                       |   |               | —      |             
|Total current assets                                       |   |               | 341    |             
|Oil and gas properties                                     |   |               | 8,061  |             
|Less: accumulated depletion, depreciation and amortization |   |               | (7,805 | )           
|Net oil and gas properties                                 |   |               | 256    |             
|Total assets                                               | $ | 597           |        |             
|                                                           |   |               |        |             
|Liabilities and member's equity                            |   |               |        |             
|Current liabilities:                                       |   |               |        |             
|Accounts payable and other                                 |   | $             | 144    |             
|Due to affiliate                                           |   |               | —      |             
|Total current liabilities                                  |   |               | 144    |             
|Asset retirement obligations                               |   |               | 206    |             
|Total liabilities                                          |   | 350           |        |             
|                                                           |   |               |        |             
|Total member's equity                                      |   |               | 247    |             
|                                                           |   |               |        |             
|Total liabilities and member's equity                      | $ | 597           |        |             







Revenue
and direct operating expenses for the various oil and gas assets included in the unaudited condensed consolidated statements of
operations below represent the net collective working and revenue interests acquired by Equus Energy. The revenue and direct operating
expenses presented herein relate only to the interests in the producing oil and natural gas properties and do not represent all
of the oil and natural gas operations of all of these properties. Direct operating expenses include lease operating expenses and
production and other related taxes.

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EQUUS ENERGY, LLC

Unaudited Condensed Consolidated Statements
of Operations





|                                                    |  | Three months ended
                                                                                September 30, |     | Nine Months Ended
                                                                                September 30,
|--------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- | --- | ---------------------------------------------------------------------------------------------------------------
|                                                    |  | 2020                                                                                                             |     | 2019                                                                                                           
|                                                    |  |                                                                                                                  |     |                                                                                                                
|                                                    |  |                                                                                                                  |     |                                                                                                                
|Operating revenue                                   |  | $                                                                                                                | 98  |                                                                                                                
|Operating expenses                                  |  |                                                                                                                  |     |                                                                                                                
|Direct operating expenses                           |  |                                                                                                                  | 86  |                                                                                                                
|General and administrative                          |  |                                                                                                                  | 50  |                                                                                                                
|Depletion, depreciation, amortization and accretion |  |                                                                                                                  | 7   |                                                                                                                
|Total operating expenses                            |  |                                                                                                                  | 142 |                                                                                                                
|Income tax expense, net                             |  |                                                                                                                  |     |                                                                                                                
|Net loss                                            |  | $                                                                                                                | (44 | )                                                                                                              
|                                                    |  |                                                                                                                  |     |                                                                                                                







EQUUS ENERGY, LLC

Unaudited Condensed Consolidated Statements
of Cash Flows











|                                                     |  | Nine months ended  September 30,
|---------------------------------------------------- |  | --------------------------------
|                                                     |  | 2020                            
|                                                     |  |                                 
|Cash flows from operating activities:                |  |                                 
|                                                     |  |                                 
|Net loss                                             |  | $                               
|Adjustments to reconcile net loss to                 |  |                                 
|net cash (used in) provided by operating activities: |  |                                 
|Depletion, depreciation, amortization and accretion  |  |                                 
|Changes in operating assets and liabilites:          |  |                                 
|Accounts receivable                                  |  |                                 
|Prepaid expenses and other current assets            |  |                                 
|Accounts payable and other                           |  |                                 
|Net cash used in provided by operating activities    |  |                                 
|                                                     |  |                                 
|Cash flows from investing activities:                |  |                                 
|Investment in oil & gas properties                   |  |                                 
|Net cash used in investing activities                |  |                                 
|Net decrease  in cash                                |  |                                 
|Cash and cash equivalents at beginning of period     |  |                                 
|Cash and cash equivalents at end of period           |  | $                               
|Non-cash operating and financing activities:         |  |                                 
|Member’s equity contribution                         |  | $                               





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Critical
Accounting Policies for Equus Energy—Equus Energy and its wholly-owned subsidiary EQS Energy Holdings, Inc. (collectively,
“the Company”) follow the Full Cost Method of Accounting for oil and gas properties. Under the full cost method, all
costs associated with property acquisition, exploration, and development activities are capitalized. Capitalized costs include
lease acquisitions, geological and geophysical work, delay rentals, costs of drilling, completing and equipping successful and
unsuccessful oil and gas wells and related costs. Gains or losses are normally not recognized on the sale or other disposition
of oil and gas properties. Gains or losses are normally reflected as an adjustment to the full cost pool.



The capitalized
costs of oil and gas properties, plus estimated future development costs relating to proved reserves and estimated cost of dismantlement
and abandonment, net of salvage value, are amortized on a unit-of-production method over the estimated productive life of the proved
oil and gas reserves. Unevaluated oil and gas properties are excluded from this calculation. Depletion, depreciation, amortization
and accretion expense for the Company’s oil and gas properties totaled $7 thousand and $84 thousand for the three months
ended September 30, 2020 and 2019, respectively and $21 thousand and $169 thousand for the nine months ended September 30, 2020
and September 30, 2019, respectively .



Capitalized oil and gas property costs are
limited to an amount (the ceiling limitation) equal to the sum of the following:



| | (a) | As of September 30, 2020, the present value of estimated future net revenue from the projected production of proved oil and gas reserves, calculated at the simple arithmetic average, first-day-of-the-month prices during the twelve-month period before the balance sheet date (with consideration of price changes only to the extent provided by contractual arrangements) and a discount factor of 10%;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The cost of investments in unproved and unevaluated properties excluded from the costs being amortized; and
| | --- | -----------------------------------------------------------------------------------------------------------



| | (c) | The lower of cost or estimated fair value of unproved properties included in the costs being amortized.
| | --- | -------------------------------------------------------------------------------------------------------



When it is determined
that oil and gas property costs exceed the ceiling limitation, an impairment charge is recorded to reduce its carrying value to
the ceiling limitation. The Company did not recognize an impairment loss on its oil and gas properties during the nine months ended
September 30, 2020 and 2019, respectively.



The costs of
certain unevaluated leasehold acreage and certain wells being drilled are not amortized. The Company excludes all costs until proved
reserves are found or until it is determined that the costs are impaired. Costs not amortized are periodically assessed for possible
impairment or reduction in value. If a reduction in value has occurred, costs being amortized are increased accordingly.



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Revenue
Recognition—The Company recognizes revenue at the point in time when control of the promised goods is transferred to
customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The Company adopted ASU No. 2014-09, Accounting Standards Codification ("ASC") 606, "Revenue from Contracts
with Customers" ("ASC 606"), which supersedes the revenue recognition requirements in ASC 605, "Revenue Recognition"
("ASC 605"), on January 1, 2019 using the modified retrospective transition method. The Company did not record a change
to its opening retained earnings as of January 1, 2019 as there was no material change to the timing or pattern of revenue recognition
due to the adoption of ASC 606.

The Company’s
revenue is generated primarily from the sale of oil, gas and natural gas liquids (“NGL”) produced from working interests
and to a lesser extent from royalty interests in oil and gas properties owned by the Company. As a working interest owner, the
Company is responsible for the incurred production expenses proportionate to the interest stipulated in the operating agreement.
As a non-operator, the Company does not manage the daily well operations, which are borne by the well operator. Sales of oil, gas
and NGLs are recognized at the time control of the product is transferred to the customer.

Various
arrangements amongst the eleven different oil and gas properties all differ in some respects, although they do share the commonality
that, as a non-operating working interest holder, the Company does not engage in the selling process, but instead relies on the
operator, as their selling agent, for negotiating and determining pricing, volume, and delivery terms. Such pricing terms are often
a function of a specified discount from the daily/monthly NYMEX or Henry Hub average. The discount is usually based on differentials
such as distance of the field/wells from the distribution node or the buyer’s storage facility, as well as the quality of
the product itself (i.e., in the case of oil, its gravity).



Revenue
is measured based on consideration specified in the contract with the customer, and excludes any amounts collected on behalf of
third parties. The Company recognizes revenue in the amount that reflects the consideration it expects to be entitled to in exchange
for transferring control of those goods to the customer. The contract consideration is typically allocated to specific performance
obligations in the contract according to the terms of the contract. Each unit of oil or gas is considered a separate performance
obligation under the contract. Wells are spot measured once a month to determine production and the composition of each of the
products (i.e. oil, gas, NGLs) from the well. Each month the consideration obtained by the operator is allocated to the related
performance obligations.

Performance
Obligations

A performance
obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC
606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when,
or as, the performance obligation is satisfied. Revenue is recognized when performance obligations are satisfied in accordance
with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services
rendered.

Depending
on the contract and commodity, there are various means by which upstream entities can transfer control (i.e., at the wellhead,
inlet, tailgate of the processing plant, or a location where the product is delivered to a third party). The Company has control
of the commodity before it is extracted, therefore consideration must be given to whether the transfer of control of the commodity
is to the operator or to the end customer at the point of sale.

Unless
special arrangements are entered into, the Company’s performance obligations are generally considered performed when control
of the extracted commodity transfers when it is delivered to the end customer at the agreed-upon market or index price. At the
end of each month, when the performance obligation is satisfied, the variable consideration can be reasonably estimated. Variances
between the Company’s estimated revenue and actual payments are recorded in the month the payment is received.

Principal
vs. Agent

While
the guidance on principal versus agent considerations is similar to legacy GAAP, the key difference is that ASC 606 focuses on
control of the specified goods and services as the overarching principle for entities to consider when determining whether they
are acting as a principal or an agent. This could result in entities reaching different conclusions than they did under legacy
GAAP.

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An
entity acting as a principal records revenue on a gross basis if it controls a promised good or service before transferring that
good or service to the customer. An entity is an agent if it does not control the promised good or service before transfer to
the customer. If the entity is an agent, it records as revenue the net amount it retains for its agency services. However, due
to the uncertainty of the variable pricing component and the separation of expenses billed to the Company from the consideration
processed and paid by the operator, the revenue is recorded at net.

Under
the Company’s normal operating activity arrangements, the operator is responsible for negotiating, fulfilling and collecting
the agreed-upon amount from the sale with the end customer and is, therefore, determined to be acting as agent on behalf of the
Company. The principal versus agent consideration will continue to be assessed for new contracts, both within and outside the company’s
normal operating activities.

Depreciation,
Depletion and Amortization—The Company employs the “Units of Production” method in calculating depletion
of its proved oil and gas properties, wherein capitalized costs, as adjusted for future development costs and asset retirement
obligations, are amortized over the total estimated proved reserves.



Income Taxes—A
limited liability company is not subject to the payment of federal income taxes as components of its income and expenses flow through
directly to the members. However, the Company is subject to certain state income taxes. Texas margin tax applies to legal entities
conducting business in Texas. The margin tax is based on our Texas sourced taxable margin. The tax is calculated by applying a
tax rate to a base that considers both revenue and expenses and therefore has the characteristics of an income tax. Taxable Subsidiaries
may generate income tax expense because of the Taxable Subsidiaries’ ownership of the portfolio companies. We reflect any
such income tax expense on our Statements of Operations. The Company had no federal income tax expense for the three and nine month
periods ending September 30, 2020 and 2019.



Asset Retirement Obligations—The
fair value of asset retirement obligations are recorded in the period in which they are incurred if a reasonable estimate of fair
value can be made, and the corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. The
fair value of the asset retirement obligation is measured using expected future cash outflows discounted at the Company’s
credit- adjusted risk-free interest rate. Fair value, to the extent possible, should include a market risk premium for unforeseeable
circumstances. No market risk premium was included in the Company’s asset retirement obligation fair value estimate since
a reasonable estimate could not be made. The liability is accreted to its then present value each period, and the capitalized cost
is depleted or amortized over the estimated recoverable reserves using the units-of-production method.



| | (9) | Subsequent Events
| | --- | -----------------



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



On October 8, 2020, the $27.0 million
U.S. Treasury Bills we acquired on margin in September 2020 matured and we used the proceeds therefrom to repay the margin loan.



During October and November
2020, up to and including the date of filing of this Quarterly Report, we sold a portion of our shares of MVC for gross cash
proceeds of approximately $3.0 million.



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Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations



Equus Total
Return, Inc. (“we,” “us,” “our,” “Equus,” and the “Fund”), a Delaware
corporation, was formed on August 16, 1991. Our shares trade on the New York Stock Exchange under the symbol ‘EQS’.
Our investment strategy seeks to provide the highest total return, consisting of capital appreciation and current income.



The information
contained in this section should be read in conjunction with our financial statements and notes thereto appearing elsewhere in
this Quarterly Report and in conjunction with the financial statements and notes thereto in the Fund’s Form 10-K for the
year ended December 31, 2019, as filed with the SEC. In addition, some of the statements in this report constitute forward-looking
statements. The matters discussed in this Quarterly Report, as well as in future oral and written statements by management of Equus,
that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties
which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements.
Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements
by terminology such as “may,” “will,” “should,” “expects,” “plans,”
“anticipates,” “could,” “intends,” “target,” “projects,” “believes,”
“estimates,” “predicts,” “potential” or “continue” or the negative of these terms
or other similar words. Important assumptions include our ability to originate new investments, achieve certain margins and levels
of profitability, and the availability of additional capital. In light of these and other uncertainties, the inclusion of a forward-looking
statement in this Quarterly Report should not be regarded as a representation by us that our plans or objectives will be achieved.
The forward- looking statements contained in this Quarterly Report include statements as to:



| | • | our future operating results;                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | our business prospects and the prospects of our existing and prospective portfolio companies;                                                                                        
| | • | the return or impact of current and future investments;                                                                                                                              
| | • | our contractual arrangements and other relationships with third parties;                                                                                                             
| | • | the dependence of our future success on the general economy and its impact on the industries in which we invest;                                                                     
| | • | the financial condition and ability of our existing and prospective portfolio companies to achieve their objectives;                                                                 
| | • | our expected financings and investments;                                                                                                                                             
| | • | our regulatory structure and tax treatment;                                                                                                                                          
| | • | our ability to qualify and operate as a BDC and a RIC, including the impact of changes in laws or regulations governing our operations, or the operations of our portfolio companies;
| | • | the adequacy of our cash resources and working capital;                                                                                                                              
| | • | the timing of cash flows, if any, from the operations of our portfolio companies;                                                                                                    
| | • | the impact of fluctuations in interest rates on our business;                                                                                                                        



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| | • | the valuation of our investments in portfolio companies, particularly those having no liquid trading market;                                                                                                                                                                                                                                
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | our ability to recover unrealized losses;                                                                                                                                                                                                                                                                                                   
| | • | market conditions and our ability to access additional capital, if deemed necessary;                                                                                                                                                                                                                                                        
| | • | the level of domestic capital spending by the oil and natural gas industry, which has been significantly impacted by the continuation of a swift and material decline in global crude oil demand and crude oil prices for an uncertain period of time that correspondingly have led to a significant reduction in domestic capital spending;
| | • | developments in the global economy as well as the public health crisis related to the COVID-19 virus and resulting demand and supply for oil and natural gas;                                                                                                                                                                               
| | • | uncertainty regarding the future actions of oil producers and the risk that they take actions that will prolong or exacerbate the current over-supply of crude oil;                                                                                                                                                                         
| | • | uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and therefore the demand for the services we provide and the commercial opportunities available to us;                                                                  
| | • | natural or man-made disasters and other external events that may disrupt our operations; and                                                                                                                                                                                                                                                
| | • | continued volatility of oil and natural gas prices.                                                                                                                                                                                                                                                                                         



There
are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated
by such forward-looking statements. For a discussion of factors that could cause our actual results to differ from forward-looking
statements contained in this Quarterly Report, please see the discussion in Part II, “Item 1A. Risk Factors”,
and in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December
31, 2019 (“10-K”). In particular, you should carefully consider the risks we have described in the 10-K and elsewhere
in this Quarterly Report concerning the coronavirus pandemic and the economic impact of the coronavirus on the Fund and our portfolio
companies and oil and gas markets. You should not place undue reliance on these forward-looking statements. The forward-looking
statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no
obligation to update any forward-looking statement to reflect events or circumstances occurring after the date this Quarterly Report
is filed with the SEC.

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 with a total enterprise value of between $5.0 million and $75.0 million, although we may
engage in transactions with smaller or larger 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 subordinate 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 and sale of warrants received in connection
with the financing. We seek to achieve capital appreciation by making investments in equity and equity-oriented securities issued
by privately-owned companies (and smaller public companies) in transactions negotiated directly with such companies. Given market
conditions over the past several years and the performance of our portfolio, our management and Board of Directors believe it is
prudent to continue to review alternatives to refine and further clarify the current strategies.





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We elected to
be treated as a BDC under the 1940 Act. We currently qualify as a RIC for federal income tax purposes and, therefore, are not required
to pay corporate income taxes on any income or gains that we distribute to our stockholders. We have a wholly-owned Taxable Subsidiary
which holds one of our portfolio investments listed on our Schedules of Investments. The purpose of this Taxable Subsidiary is
to permit us to hold certain income-producing investments or portfolio companies organized as limited liability companies, or LLCs,
(or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross revenue for
income tax purposes must consist of investment income. Absent the Taxable Subsidiary, a portion of the gross income of these income-
producing investments or of any LLC (or other pass-through entity) portfolio investment, as the case may be, would flow through
directly to us for the 90% test. To the extent that such income did not consist of investment income, it could jeopardize our ability
to qualify as a RIC and, therefore, cause us to incur significant federal income taxes. The income of the LLCs (or other pass-through
entities) owned by Taxable Subsidiary is taxed to the Taxable Subsidiary and does not flow through to us, thereby helping us preserve
our RIC status and resultant tax advantages. We do not consolidate the Taxable Subsidiary for income tax purposes and they may
generate income tax expense because of the Taxable Subsidiary’s ownership of the portfolio investment. We reflect any such
income tax expense on our Statements of Operations.





Plan of Reorganization



Plan
of Reorganization— On May 14, 2014, we announced that the Fund intended to effect a reorganization pursuant to Section
2(a)(33) of the 1940 Act (hereinafter, the “Plan of Reorganization”). We intend to finalize the Plan of Reorganization
by pursuing a merger or consolidation with an operating company, which operating company may be a subsidiary or portfolio company
of MVC. Our current intention is for Equus to (i) terminate its election to be classified as a BDC under the 1940 Act, and (ii)
be restructured as a publicly-traded operating company focused on the energy, natural resources, technology, and/or financial services
sector. While we are presently evaluating various opportunities that could enable us to complete our Plan of Reorganization, we
cannot assure you that we will be able to do so within any particular time period or at all, particularly given the economic dislocation
caused by the coronavirus pandemic and the restrictions on travel and association that have been imposed throughout most of the
world that inhibit our ability to consider and personally examine potential transaction opportunities. Moreover, we cannot assure
you that the terms of any such transaction that would embody the transformation of Equus into
an operating companywould be acceptable to us.

Authorization
to Withdraw BDC Election—On November 14, 2019, holders of a majority of the outstanding common stock of the Fund approved
our cessation as a BDC under the 1940 Act and authorized our Board to cause the Fund’s withdrawal of its election to be classified
as a BDC, effective as of a date designated by the Board and our Chief Executive Officer. Although this authorization, which was
given as a consequence of our Plan of Reorganization, expired on March 31, 2020, we
expect to receive an additional authorization from our stockholders in the future. 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 “Consolidation”, as such term is defined in our Plan of Reorganization. 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.

Reduction in Asset Coverage Ratio

On November
14, 2019, our shareholders approved a reduction in our asset coverage ratio from 200% to 150%. Prior to the reduction ,we were
restricted in the amount that we could borrow to the value of our net assets. The reduction in our asset coverage from 200% to
150% means that we may now borrow up to twice the value of our net assets. Except for a margin loan that we procure each quarter
to acquire U.S. Treasury bills as part of the maintenance of our RIC status, we have not incurred any additional borrowings as
a consequence of this authorization.







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2016 Equity Incentive Plan



On June 13,
2016, our shareholders approved the adoption of our 2016 Equity Incentive Plan (“Incentive Plan”). On January 10, 2017,
the SEC issued an order approving the Incentive Plan and certain awards intended to be made thereunder. The Incentive Plan is intended
to promote the interests of the Fund by encouraging officers, employees, and directors of the Fund and its affiliates to acquire
or increase their equity interest in the Fund and to provide a means whereby they may develop a proprietary interest in the development
and financial success of the Fund, to encourage them to remain with and devote their best efforts to the business of the Fund,
thereby advancing the interests of the Fund and its stockholders. The Incentive Plan is also intended to enhance the ability of
the Fund and its affiliates to attract and retain the services of individuals who are essential for the growth and profitability
of the Fund. The Incentive Plan permits the award of restricted stock as well as common stock purchase options. The maximum number
of shares of common stock that are subject to awards granted under the Incentive Plan is 2,434,728 shares. The term of the Incentive
Plan will expire on June 13, 2026. On March 17, 2017, we granted awards of restricted stock under the Plan to certain of our directors
and executive officers in the aggregate amount of 844,500 shares. The awards were each
subject to a vesting requirement over a 3-year period unless the recipient thereof was
terminated or removed from their position as a director or executive officer without “cause”, or as a result of constructive
termination, as such terms are defined in the respective award agreements entered into by each of the recipients and the Fund.
As of March 31, 2020, all awards granted under the Incentive Plan have become vested. We recorded compensation expense of $0.08
million for the three months ended September 30, 2020 and 2019, respectively, and $0.08 million and $0.24 million for the nine
months ended September 30, 2020 and 2019 in connection with these awards.



Critical Accounting Policies



See the Fund’s
Critical Accounting Policies from the disclosure set forth in the Fund’s Annual Report on Form 10-K for the year ended December
31, 2019.



Current Market Conditions



Impact of
the Coronavirus Generally. The introduction of 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. Beginning in the first quarter
of 2020, all U.S. states and many foreign countries implemented significant travel, movement, and assembly restrictions, as well
as restrictions on the movement of goods. As of the date of filing of this Quarterly Report on Form 10-Q, many of these restrictions
are still in place and it remains uncertain as to how long they will continue, particularly given recent resurgence in infections
that arose in various part of the country in September 2020. Substantial portions of the U.S. economy, including those in which
certain of our portfolio companies operate, have been materially and negatively affected as a result of these restrictions and
by the general reduction in commercial and consumer activity.



Impact of
the Coronavirus on Our Operations. 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. In the case of Equus, 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 of our existing
portfolio investments have 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.

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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. Although the price of crude recovered somewhat to $40.65 as of June 30, 2020 and stabilized at $40.22 as of
September 30, 2020, should prices not increase to more sustainable levels, a number of  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 substantial decrease in WTI spot
prices during the first and second quarters has had a similar effect upon the price at which the operators of the various wells
in which Equus Energy holds an interest are able to sell hydrocarbons. This decrease, as well as the shut-in of presently uneconomic
wells due to low prices and excess capacity has had, and is expected to continue to have,  a material adverse effect on the present
and near-term cash flows of Equus Energy. Should present conditions continue, Equus Energy may request that its operators shut-in
additional uneconomic wells to conserve cash, may attempt to secure equity or debt financing from one or more institutional sources
to provide additional liquidity, may sell certain of its oil and gas holdings to produce additional cash, or may pursue a combination
of the foregoing. However, we cannot assure you that Equus Energy will be able to implement these plans successfully, or that such
plans will generate sufficient liquidity to continue as a going concern. The factors discussed above, therefore, raise substantial
doubt about Equus Energy’s ability to continue as a going concern within the twelve-month period following the date of issuance
of this report on Form 10-Q.



The U.S.
Economy. Largely resulting from the economic disruption caused by the coronavirus, the U.S. economy was highly volatile, shrinking
during the second quarter of 2020 at an annualized rate of 31.4%, by far the highest GDP decline ever recorded, before rebounding
at an annualized rate of 33.1%, the largest percentage increase since 1947. Notwithstanding the third quarter increase, The Conference
Board Economic Forecast expects U.S. GDP to shrink overall in 2020 by 3.5% compared to 2019. The overall downturn in the U.S. economy,
which began in March 2020, ended six straight years of positive quarterly growth. The sectors that contributed most significantly
to the GDP increase during the third quarter of 2020 were consumer spending, inventory reductions, and business investment. Given
that most of the fiscal stimulus had been appropriated during the second quarter of 2020, the third quarter saw a reduction in
federal, state, and local government spending. (Sources: U.S. Dept. of Commerce Bureau of Economic Analysis, Conference Board
Leading Economic Index)



Employment
and Housing. The U.S. began the first quarter of 2020 with an unemployment rate at 3.5%, a historic low, peaked at 14.7% in
April 2020, and finished the first nine months of 2020 at 7.9%, which was significantly lower than many estimates of 10.0% or higher
for the end of the third quarter of 2020. In keeping with this trend, housing starts decreased 22.3% from February 2020 to March
2020, and another 30.2% from March 2020 to April 2020, each the largest month-on-month declines since 1984. Beginning in May 2020,
however, the U.S. housing market began marking substantial gains that largely continued through to the end of the third quarter
of 2020, driven by historically low mortgage rates. The third quarter of 2020 witnessed an increase of 59.3% in residential fixed
investment, while housing starts increased 1.9% during September 2020, although new home construction and sales remained below
comparable 2019 figures. (Sources: U.S. Dept. of Commerce, Bureau of Labor Statistics, CNBC).



Merger, Acquisition,
and Private Equity Activity. Merger and acquisition activity was robustin 2019,
with $3.9 trillion in transactions during the year, and expectations at the end of 2019 were for another strong year of business
combinations and divestitures. The onset of the coronavirus pandemic, however, changed all of these assumptions and has put a number
of potential and pending transactions on an indefinite pause or caused parties to abandon certain business combinations altogether.
Although nine-month figures are not available, most analysts expect worldwide merger and acquisition activity to continue to lag
substantially behind comparable 2019 figures. Private equity volume, which often mirrors mergers and acquisition activity, also
witnessed substantial decreases during the first nine months of 2020 as compared to the same period in 2019.



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The continuation
of the coronavirus pandemic is expected to slow the recovery of transaction activity, as the restrictions on movement and meetings
has resulted in a lesser number of transactions being effected and a number of pending transactions being delayed or abandoned.
As social distancing restrictions become relaxed in 2021, a number of economists expect to see significantly increased merger and
acquisition activity resulting from consolidations within industry sectors negatively affected by the economic dislocation caused
by coronavirus. This largely contrasts with the more opportunistic character of most merger and acquisition activity that occurred
in the five years preceding the coronavirus pandemic. (Sources: Forbes; Barrons;
The Wall Street Journal, PitchBook).

During the nine months ended September
30, 2020, our net asset value decreased from $3.40 per share to $2.77 per share, a decrease of 18.5%. As of September 30, 2020,
our common stock is trading at a 56.3% discount to our net asset value as compared to 46.5% as of December 31, 2019.



Over the past
several years, we have executed certain initiatives to enhance liquidity, achieve a lower operational cost structure, provide more
assistance to portfolio companies and realize certain of our portfolio investments. Specifically, we changed the composition of
our Board of Directors and Management, terminated certain of our follow-on investments, internalized the management of the Fund,
suspended our managed distribution policy, modified our investment strategy to pursue shorter term liquidation opportunities, pursued
non-cash investment opportunities, and sold certain of our legacy and underperforming investment holdings. We believe these actions
continue to be necessary to protect capital and liquidity in order to preserve and enhance shareholder value. Because our Management
is internalized, certain of our expenses should not increase commensurate with an increase in the size of the Fund and, therefore,
to the extent we remain a BDC, we expect to achieve efficiencies in our cost structure if we are able to grow the Fund.



Liquidity and Capital Resources



We generate
cash primarily from maturities, sales of securities and borrowings, as well as capital gains realized upon the sale of portfolio
investments. We use cash primarily to make additional investments, either in new companies or as follow-on investments in the existing
portfolio companies and to pay the dividends to our stockholders.



Because of the
nature and size of the portfolio investments, we may periodically borrow funds to make qualifying investments to maintain our tax
status as a RIC. We often borrow such funds by utilizing a margin account with a securities brokerage firm. There is no assurance
that such arrangement will be available in the future. If we areunable to borrow funds
to make qualifying investments, Equusmay no longer qualify as a RIC. The Fund would
then be subject to corporate income tax on its net investment income and realized capital gains, and distributions to stockholders
would be subject to income tax as ordinary dividends.



The Fund has
the ability to borrow funds and issue forms of senior securities representing indebtedness or stock, such as preferred stock, subject
to certain restrictions. Net taxable investment income and net taxable realized gains from the sales of portfolio investments are
intended to be distributed at least annually, to the extent such amounts are not reserved for payment of expenses and contingencies
or to make follow-on or new investments.



We reserve the
right to retain net long-term capital gains in excess of net short-term capital losses for reinvestment or to pay contingencies
and expenses. Such retained amounts, if any, will be taxable to the Fund as long-term capital gains and stockholders will be able
to claim their proportionate share of the federal income taxes paid on such gains as a credit against their own federal income
tax liabilities. Stockholders will also be entitled to increase the adjusted tax basis of their Fund shares by the difference between
their undistributed capital gains and their tax credit.



We are evaluating
the impact of current market conditions on our portfolio company valuations and their ability to provide current income. Further,
we are also engaging in the process of selling all or a portion of one or more of our portfolio investments before the end of 2020.
We believe we have followed valuation techniques in a reasonably consistent manner; however, we are cognizant of current market
conditions that might affect future valuations of portfolio securities. In view of our present status as a BDC and our anticipated
transformation into an operating company, we believe that our operating cash flow and cash on hand will be sufficient to meet operating
requirements and to finance routine capital expenditures through the next twelve months.

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Results of Operations



Investment Income and Expense



Net
investment loss was $0.7 million and $0.8 million for the three months ended September 30, 2020 and September
30,2019, respectively, and $2.3 million and $2.6 million
for the nine months ended September 30, 2020 and September 30, 2019, respectively, due to an increase in investment income and
a modest decline in compensation expense for the period.



Investment income
was $0.1 million for the three months ended September 30, 2020 and 2019, respectively and $0.3 million and $0.2 million for the
nine months ended September 30, 2020 and 2019, respectively. Total expense was $0.8 million and $0.9 million for each of the three
months ended September 30, 2020 and 2019, respectively and $2.6 million and 2.9 million for the nine months ended September 30,
2020 and 2019, respectively.



Realized Gains and Losses on Sales
of Portfolio Securities



During the nine months ended September
30, 2020, we realized a gain of $8.0 thousand from the sale of temporary cash investments.



During the nine months ended September
30, 2019, we realized a loss of $2.8 million from the dissolution and liquidation of Equus Media Development Company LLC (“EMDC”).



Changes in Unrealized Appreciation/Depreciation of Portfolio
Securities



During the
nine months ended September 30, 2020, we recorded a net change in unrealized appreciation of $6.3 million, to a net unrealized
appreciation of $19.0 million. Such change in unrealized appreciation resulted primarily from the following changes:

| | (i) | Decrease in the fair value of our shareholding in MVC of $0.8 million due to a decrease in the share price of MVC which was partially offset bythe receipt of dividend payments in the form of additional shares of MVC during the period;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Decrease in the fair value of our holdings in Equus Energy, LLC of $3.0 million, principally due to decreases in mineral acreage prices and a substantial decrease in the short- and long-term prices for crude oil, which fell from $61.06 per barrel at December 31, 2019 to $20.48 at March 31, 2020, before recovering moderately to $40.22 at September 30, 2020; and
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Decrease in the fair value of our shareholding in PalletOne, Inc. of $2.5 million due to a less favorable outlook for the Company in 2021 and the remainder of 2020.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the nine months
ended September 30, 2019, we recorded a net change in unrealized appreciation of $10.7 million, to a net unrealized appreciation
of $27.7 million. Such change in unrealized appreciation resulted primarily from the following changes:



| | (i) | Increase in the fair value of our shareholding in MVC of $0.4 million due to an increase in the share price of MVC and the receipt of dividend payments in the form of additional shares of MVC during the period;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Increase in fair value of our shareholding in PalletOne, Inc. of $6.0 million due to improved operating performance;
| | ---- | --------------------------------------------------------------------------------------------------------------------



| | (iii) | Transfer of unrealized depreciation to realized loss of our holdings in EMDC of $2.8 million in connection with the dissolution of EMDC and the transfer of its assets to the Fund; and
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Increase in the fair value of our holdings in Equus Energy, LLC of $1.5 million, principally due to increases in mineral acreage prices proximate to the company’s leasehold interests and an increase in the short- and long-term prices for crude oil during 2019.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Dividends



We will pay out net investment income
and/or realized capital gains, if any, on an annual basis as required under the Investment Company Act of 1940.



Portfolio Securities



During the nine months
ended September 30, 2020, in connection with our shareholding in MVC, we received dividends in the form of additional MVC shares
valued at $0.2 million, together with $134,585 in cash.



Also during the nine months ended September
30, 2020, we converted into equity $0.6 million in advances we made to Equus Energy, LLC, our wholly-owned subsidiary.

During the nine months
ended September 30, 2019, in connection with our shareholding in MVC, we received dividends in the form of additional MVC shares
valued at $0.2 million.



Also during the nine months
ended September 30, 2019, we dissolved EMDC, a wholly-owned subsidiary of the Fund and transferred EMDC’s assets, consisting
of approximately $211,000 in cash and various creative entertainment properties, to the Fund.



Subsequent Events



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



On October 8,
the $27.0 million U.S. Treasury Bills we acquired on margin in September 2020 matured and we used the proceeds therefrom to repay
the margin loan.



During October and November
2020, up to and including the date of filing of this Quarterly Report, we sold a portion of our shares of MVC for gross cash
proceeds of approximately $3.0 million.



Item 3. Quantitative and Qualitative Disclosure about Market
Risk



We are subject
to financial market risks, including changes in interest rates with respect to investments in debt securities and outstanding debt
payable, as well as changes in marketable equity security prices. In the future, we may invest in companies outside the United
States, including in Europe and Asia, which would give rise to exposure to foreign currency value fluctuations. We do not use derivative
financial instruments to mitigate any of these risks. The return on investments is generally not affected by foreign currency fluctuations.



Our investments
in portfolio securities consist of some fixed-rate debt securities. Since the debt securities are generally priced at a fixed rate,
changes in interest rates do not directly affect interest income. In addition, changes in market interest rates are not typically
a significant factor in the determination of fair value of these debt securities, since the securities are generally held to maturity.
We determine their fair values based on the terms of the relevant debt security and the financial condition of the issuer.



A major portion
of our investment portfolio consists of debt and equity investments in private companies. Modest changes in public market equity
prices generally do not significantly impact the estimated fair value of these investments. However, significant changes in market
equity prices can have a longer-term effect on valuations of private companies, which could affect the carrying value and the amount
and timing of gains or losses realized on these investments. A small portion of the investment portfolio could also consist of
common stock in publicly traded companies. These investments are directly exposed to equity price risk, in that a hypothetical
ten percent change in these equity prices would result in a similar percentage change in the fair value of these securities.



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Table of Contents




Item 4. Controls and Procedures



We maintain
disclosure controls and other procedures that are designed to ensure that information required to be disclosed by the Fund in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.



Our management,
with the participation of our Fund’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness
of the design and operations of the Fund’s “disclosure controls and procedures” (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934) as of September 30, 2020. Based on their evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective at a reasonable assurance
level. There has been no change in our internal control over financial reporting during the quarter ended September 30, 2020, that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

|
|

Part II. Other Information



Item 1. Legal Proceedings

From time to
time, the Fund is a party 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 these legal proceedings cannot at this time be predicted
with certainty, we do not expect that these proceedings will have a material effect upon the Fund’s financial condition or
results of operations.



Item 1A. Risk Factors



In connection
with our efforts to convert Equus into an operating company in furtherance of our Plan of Reorganization, we may be subject to
a number of risks associated with this process, the transactions that would embody a Consolidation of Equus with another company,
as well as specific risks associated with the commercial enterprise with which Equus may seek to combine itself. We intend to identify,
as will be reasonably possible, such risks and include the same in our subsequent filings and reports with the SEC.



Moreover, the
economic dislocation precipitated by the coronavirus pandemic is still rapidly evolving. As of the date of filing of this Quarterly
Report on Form 10-Q (“10-Q”), we are 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. To the greatest extent possible, we intend to operate our business in the ordinary course, which will likely include
a disposition of a portion or all of one or more of our portfolio investments in the next six months. Nevertheless, 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. In addition to one or more portfolio dispositions, we may also seek debt or equity financing to increase our liquidity
and availability to make future investments or pursue a transformative transaction.



Readers should
carefully consider these risks and all other information contained in our annual report on Form 10-K (“10-K”) for the
year ended December 31, 2019, including the Fund’s financial statements and the related notes thereto. The risks and uncertainties
described in our 10-K and throughout this 10-Q are not the only ones facing the Fund.



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



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Table of Contents




Item 6. Exhibits



| | 3. | Articles of Incorporation and by-laws
| | -- | -------------------------------------



| | (a) | Restated Certificate of Incorporation of the Fund, as amended. [Incorporated by reference to Exhibit 3(a) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007]
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Certificate of Merger dated June 30, 1993, between the Fund and Equus Investments Incorporated [Incorporated by reference to Exhibit 3 (b) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007]
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Amended and Restated Bylaws of the Fund. [Incorporated by reference to Exhibit 3(c) to Registrant’s Current Report on Form 8-K filed on June 30, 2014.]
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------





| | 10.Material | Contracts.
| | ----------- | ----------



| | (a) | Safekeeping Agreement between the Fund and Amegy Bank dated August 16, 2008. [Incorporated by reference to Exhibit 10(c) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008.]
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Form of Indemnification Agreement between the Fund and its directors and certain officers. [Incorporated by reference to Exhibit 10(d) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011.]
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Form of Release Agreement between the Fund and certain of its officers and former officers. [Incorporated by reference to Exhibit 10(h) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.]
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | Code of Ethics of the Fund (Rule 17j-1) [Incorporated by reference to Exhibit 10(f) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009.]
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (e) | 2016 Equity Incentive Plan, adopted June 13, 2016 [Incorporated by reference to Exhibit 1 to Registrant’s Definitive Proxy Statement filed on May 5, 2016.]
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.Rule | 13a-14(a)/15d-14(a) Certifications
| | ------- | ----------------------------------



| | 1. | Certification by Chief Executive Officer
| | -- | ----------------------------------------



| | 2. | Certification by Chief Financial Officer
| | -- | ----------------------------------------



| | 32.Section | 1350 Certifications
| | ---------- | -------------------



| | 1. | Certification by Chief Executive Officer
| | -- | ----------------------------------------



| | 2. | Certification by Chief Financial Officer
| | -- | ----------------------------------------





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SIGNATURE



Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed by the undersigned,
thereunto duly authorized.







Dated: November 16, 2020







|EQUUS TOTAL RETURN, INC.
|------------------------
|                        
|/s/ John A. Hardy       
|John A. Hardy           
|Chief Executive Officer 

























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