UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended
March 31, 2015

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

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 and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post 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☐
|------------------------ | ------------------ | ---------------------- | --------------------------

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

There were 12,673,646 shares of
the registrant’s common stock, $.001 par value, outstanding, as of May 14, 2015.



Table of Contents







EQUUS TOTAL RETURN, INC.

(A Delaware Corporation)



INDEX





|                                                                                              | PAGE
|--------------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL INFORMATION                                                                 |     
|Item 1. Financial Statements                                                                  | 3   
|Balance Sheets                                                                                | 3   
|Statements of Operations                                                                      | 4   
|Statements of Changes in Net Assets                                                           | 5   
|Statements of Cash Flows                                                                      | 6   
|Supplemental Information—Selected Per Share Data and Ratios                                   | 7   
|Schedules of Investments                                                                      | 8   
|Notes to Financial Statements                                                                 | 12  
|Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26  
|Item 3. Quantitative and Qualitative Disclosure about Market Risk                             | 31  
|Item 4. Controls and Procedures                                                               | 32  
|PART II. OTHER INFORMATION                                                                    |     
|Item 1. Legal Proceedings                                                                     | 32  
|Item 1A. Risk Factors                                                                         | 33  
|Item 6. Exhibits                                                                              | 34  
|SIGNATURE                                                                                     | 35  
|                                                                                              |     







































Table of Contents2







EQUUS TOTAL RETURN, INC.

BALANCE SHEETS



Part I. Financial Information

Item 1. Financial Statements





|                                                                                           |  | March 31,  2015 |         | December 31,  2014
|------------------------------------------------------------------------------------------ |  | --------------- | ------- | ------------------
|                                                                                           |  | (Unaudited)     |         |                   
|(in thousands, except per share amounts)                                                   |  |                 |         |                   
|Assets                                                                                     |  |                 |         |                   
|Investments in portfolio securities at fair value:                                         |  |                 |         |                   
|Control investments (cost at $10,050 and $16,058 respectively)                             |  | $               | 9,215   |                   
|Affiliate investments (cost at $350 and $350 respectively)                                 |  |                 | 2,208   |                   
|Non-affiliate investments - related party (cost at $5,760 and $5,706 respectively)         |  |                 | 3,890   |                   
|Non-affiliate investments (cost at $915 and $1,097 respectively)                           |  |                 | 915     |                   
|Total investments in portfolio securities at fair value                                    |  |                 | 16,228  |                   
|Cash and cash equivalents                                                                  |  |                 | 18,971  |                   
|Restricted cash and temporary cash investments                                             |  |                 | —       |                   
|Accounts receivable from investments                                                       |  |                 | 616     |                   
|Accrued interest receivable                                                                |  |                 | 30      |                   
|Accrued dividend receivable                                                                |  |                 | —       |                   
|Accounts receivable and other                                                              |  |                 | 22      |                   
|Total assets                                                                               |  |                 | 35,867  |                   
|Liabilities and net assets                                                                 |  |                 |         |                   
|Accounts payable and accrued liabilities                                                   |  |                 | 222     |                   
|Accounts payable to related parties                                                        |  |                 | 283     |                   
|Borrowing under margin account                                                             |  |                 | —       |                   
|Total liabilities                                                                          |  |                 | 505     |                   
|                                                                                           |  |                 |         |                   
|Commitments and contingencies (see Note 2)                                                 |  |                 |         |                   
|                                                                                           |  |                 |         |                   
|Net assets                                                                                 |  | $               | 35,362  |                   
|                                                                                           |  |                 |         |                   
|Net assets consist of:                                                                     |  |                 |         |                   
|Common stock, par value                                                                    |  | $               | 13      |                   
|Capital in excess of par value                                                             |  |                 | 54,227  |                   
|Undistributed net investment losses                                                        |  |                 | (18,031 | )                 
|Undistributed net capital gains                                                            |  |                 | —       |                   
|Unrealized appreciation (depreciation) of portfolio securities, net                        |  |                 | 1,023   |                   
|Unrealized depreciation of portfolio securities - related party, net                       |  |                 | (1,870  | )                 
|Total net assets                                                                           |  | $               | 35,362  |                   
|Shares of common stock issued and outstanding, $.001 par value, 50,000 shares authorized   |  |                 | 12,674  |                   
|Shares of preferred stock issued and outstanding, $.001 par value, 5,000 shares authorized |  |                 | —       |                   
|Net asset value per share                                                                  |  | $               | 2.79    |                   



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



Table of Contents3







EQUUS TOTAL RETURN, INC.

STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                              |  | Three months ended March 31,
|----------------------------------------------------------------------------- |  | ----------------------------
|(in thousands, except per share amounts)                                      |  | 2015                        
|Investment income:                                                            |  |                             
|Interest and dividend income:                                                 |  |                             
|Control investments                                                           |  | $                           
|Non-affiliate investments                                                     |  |                             
|Total interest and dividend income                                            |  |                             
|Interest from temporary cash investments                                      |  |                             
|Total investment income                                                       |  |                             
|                                                                              |  |                             
|Expenses:                                                                     |  |                             
|Professional fees                                                             |  |                             
|Compensation expense                                                          |  |                             
|Director fees and expenses                                                    |  |                             
|General and administrative expense                                            |  |                             
|Mailing, printing and other expenses                                          |  |                             
|Taxes                                                                         |  |                             
|Interest expense                                                              |  |                             
|Total expenses                                                                |  |                             
|                                                                              |  |                             
|Net investment loss                                                           |  |                             
|                                                                              |  |                             
|Net realized gain (loss):                                                     |  |                             
|Control investments                                                           |  |                             
|Non-affiliate investments                                                     |  |                             
|Temporary cash investments                                                    |  |                             
|Net realized loss                                                             |  |                             
|                                                                              |  |                             
|Net unrealized appreciation (depreciation) of portfolio securities:           |  |                             
|End of period                                                                 |  |                             
|Beginning of period                                                           |  |                             
|Net change in unrealized appreciation (depreciation) of portfolio securities  |  |                             
|                                                                              |  |                             
|Net unrealized depreciation of portfolio securities - related party:          |  |                             
|End of period                                                                 |  |                             
|Beginning of period                                                           |  |                             
|Net change in unrealized depreciation of portfolio securities - related party |  |                             
|                                                                              |  |                             
|Net decrease in net assets resulting from operations                          |  | $                           
|                                                                              |  |                             
|Net decrease in net assets resulting from operations per share:               |  |                             
|Basic and diluted                                                             |  | $                           
|Weighted average shares outstanding:                                          |  |                             
|Basic and diluted                                                             |  |                             





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



Table of Contents4







EQUUS TOTAL RETURN, INC.

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)







|                                                     |  | Three months ended March 31,
|---------------------------------------------------- |  | ----------------------------
|(in thousands)                                       |  | 2015                        
|Net decrease in net assets resulting from operations |  | $                           
|Net assets at beginning of period                    |  |                             
|Net assets at end of period                          |  | $                           









































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



Table of Contents5







EQUUS TOTAL RETURN, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)





|                                                                                          |  | Three months ended March 31,
|----------------------------------------------------------------------------------------- |  | ----------------------------
|(in thousands)                                                                            |  | 2015                        
|Reconciliation of decrease in net assets resulting from operations to net cash            |  |                             
|provided by operating activities:                                                         |  |                             
|Net decrease in net assets resulting from operations                                      |  | $                           
|Adjustments to reconcile net decrease in net assets resulting from operations to net cash |  |                             
|provided by operating activities:                                                         |  |                             
|Net realized loss                                                                         |  |                             
|Net change in unrealized depreciation of portfolio securities                             |  |                             
|Net change in unrealized depreciation of portfolio securities - related party             |  |                             
|Changes in operating assets and liabilities:                                              |  |                             
|Purchase of portfolio securities                                                          |  |                             
|Net proceeds from dispositions of portfolio securities                                    |  |                             
|Principal payments received from portfolio securities                                     |  |                             
|Sales of temporary cash investments, net                                                  |  |                             
|Decrease (increase) in accounts receivable from investments                               |  |                             
|Increase in accrued interest receivable                                                   |  |                             
|Increase (decrease) in accounts receivable and other                                      |  |                             
|(Decrease) increase  in accounts payable and accrued liabilities                          |  |                             
|(Decrease) increase in accounts payable to related parties                                |  |                             
|Net cash provided by operating activities                                                 |  |                             
|Cash flows from financing activities:                                                     |  |                             
|Repayments under margin account                                                           |  |                             
|Net cash used in financing activities                                                     |  |                             
|Net increase (decrease) in cash and cash equivalents                                      |  |                             
|Cash and cash equivalents at beginning of period                                          |  |                             
|                                                                                          |  |                             
|Cash and cash equivalents at end of period                                                |  | $                           
|Non-cash operating and financing activities:                                              |  |                             
|Accrued interest or dividends exchanged for portfolio securities                          |  | $                           
|Accrued interest or dividends exchanged for portfolio securities - related party          |  | $                           
|                                                                                          |  |                             
|Supplemental disclosure of cash flow information:                                         |  |                             
|Interest paid                                                                             |  | $                           
|Income taxes paid                                                                         |  | $                           



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



Table of Contents6







EQUUS TOTAL RETURN, INC.

SUPPLEMENTAL INFORMATION—SELECTED
PER SHARE DATA AND RATIOS

(Unaudited)





|                                                                                    |  | Three months ending March 31,
|----------------------------------------------------------------------------------- |  | -----------------------------
|                                                                                    |  | 2015                         
|                                                                                    |  |                              
|Investment income                                                                   |  | $                            
|Expenses                                                                            |  |                              
|                                                                                    |  |                              
|Net investment loss                                                                 |  |                              
|                                                                                    |  |                              
|Net realized loss                                                                   |  |                              
|Net change in unrealized depreciation                                               |  |                              
|Net change in unrealized depreciation - related party                               |  |                              
|Net decrease 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 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 statement

Table of Contents7







EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS

MARCH 31, 2015

(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      |   | 9,000   
|Equus Media Development Company, LLC
                                 Houston, TX                     | Media                          | January 2007    | Member interest (100%)                    |        |           |       | 3,000      |   | 215     
|Total Control Investments: Majority-owned (represents 56.8% of total investments at fair value)       |                                |                 | $                                         | 10,050 | $         | 9,215
|Affiliate Investments(4):                                                                             |                                |                 |                                           |        |           |       |            |   |         
|PalletOne, Inc.
        Bartow, FL                                                                    | Shipping products and services | October 2001    | 350,000 shares of common stock (18.8%)    |        |           | $     | 350        | $ | 2,208   
|Total Affiliate Investments (represents 13.6% of total investments at fair value)                     |                                |                 | $                                         | 350    | $         | 2,208
|Non-Affiliate Investments - Related Party (less than 5% owned):                                       |                                |                 |                                           |        |           |      
|MVC Capital, Inc.
                                    Purchase, NY                                    | Financial services             | September 2014  | 410,360 shares of common stock (1.7%) (5) |        |           | $     | 5,760      | $ | 3,890   
|Total Non-Affiliate Investments - Related Party (represents 24.0% of total investments at fair value) |                                |                 | $                                         | 5,760  | $         | 3,890
|Non-Affiliate Investments (less than 5% owned):                                                       |                                |                 |                                           |        |           |      
|5TH
    Element Tracking LLC Boston, MA                                                               | Business products and services | January 2015    | 14% promissory note due 1/16 (2)          | $      | 915       | $     | 915        | $ | 915     
|Total Non-Affiliate Investments (represents 5.6% of total investments at fair value)                  |                                |                 | $                                         | 915    | $         | 915  
|Total Investment in Portfolio Securities                                                              |                                |                 |                                           |        |           | $     | 17,075     | $ | 16,228  







|(1) | See Note 3 to the financial statements, Valuation of Investments.                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Income-producing.                                                                                                                                                                                                                                                                                                                                        
|(3) | Majority owned investments are generally defined under the Investment Company Act of 1940 as companies in which we own more than 50% of the voting securities of the company.                                                                                                                                                                            
|(4) | Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which we own at least 5% but not more than 25% voting securities of the company.                                                                                                                                                                    
|(5) | Pursuant to a
    Share Exchange Agreement between the Fund and MVC dated May 14, 2014, MVC has the right to rescind the Agreement and cancel
    the Share Exchange if Equus does not complete a “reorganization” (as defined under Section 2(a)(33) of the 1940
    Act) within a 90-day period following the 1-year anniversary date of the Agreement.
|    |                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                          







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



Table of Contents8







EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS –
(Continued)

MARCH 31, 2015

(Unaudited)



Except for our holding of shares of
MVC Capital, Inc. (“MVC”), substantially 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 foreign 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.



We may invest up to 30% of
our assets in non-qualifying portfolio investments, as permitted by the Investment Company Act of 1940 (hereafter,
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 March 31, 2015, except for our shareholding in 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 56.8% of the total value of the investments in
portfolio securities as of March 31, 2015.



Our investments in portfolio securities
consist of the following types of securities as of March 31, 2015 (in thousands):





|Type of Securities                    |  | Cost |        | Fair Value |  | Fair
    Value as Percentage of Net
    Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | ----------------------------------------------
|Limited liability company investments |  | $    | 10,050 |            |  | $                                             
|Common stock                          |  |      | 6,110  |            |  |                                               
|Secured and subordinated debt         |  |      | 915    |            |  |                                               
|                                      |  |      |        |            |  |                                               
|Total                                 |  | $    | 17,075 |            |  | $                                             





The following is a summary by industry
of the Fund’s investments in portfolio securities as of March 31, 2015 (in thousands):





|Industry                       |  | Fair Value |        | Fair Value as Percentage of Net Assets
|------------------------------ |  | ---------- | ------ | --------------------------------------
|Energy                         |  | $          | 9,000  |                                       
|Financial services             |  |            | 3,890  |                                       
|Shipping products and services |  |            | 2,208  |                                       
|Business products and services |  |            | 915    |                                       
|Media                          |  |            | 215    |                                       
|Total                          |  | $          | 16,228 |                                       



















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

Table of Contents9







EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2014

(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 (4):                                                              |                                |                 |                                                                      |        |           |        |            |   |         
|Equus Energy, LLC
        Houston, TX                                                                 | Energy                         | December 2011   | Member interest (100%)                                               |        |           | $      | 7,050      | $ | 9,800   
|Equus Media Development Company, LLC
        Houston, TX                                              | Media                          | January 2007    | Member interest (100%)                                               |        |           |        | 3,000      |   | 215     
|Spectrum Management, LLC
        Carrolton, TX                                                        | Business products and services | December 1999   | 285,000 units of Class A member interest (92.1%/82.5% fully diluted) |        |           |        | 2,850      |   | -       
|                                                                                                      |                                |                 | 16% subordinated promissory note due 11/11 (3)                       | $      | 3,158     |        | 3,158      |   | 3,158   
|                                                                                                      |                                |                 |                                                                      |        |           |        | 6,008      |   | 3,158   
|Total Control Investments: Majority-owned (represents 38.0% of total investments at fair value)       |                                |                 | $                                                                    | 16,058 | $         | 13,173
|Affiliate Investments (5):                                                                            |                                |                 |                                                                      |        |           |        |            |   |         
|PalletOne, Inc.
        Bartow, FL                                                                    | Shipping products and services | October 2001    | 350,000 shares of common stock (18.8%)                               |        |           | $      | 350        | $ | 960     
|                                                                                                      |                                |                 |                                                                      |        |           |        |            |   |         
|Total Affiliate Investments (represents 2.8% of total investments at fair value)                      |                                |                 | $                                                                    | 350    | $         | 960   
|Non-Affiliate Investments - Related Party (less than 5% owned):                                       |                                |                 |                                                                      |        |           |       
|MVC Capital, Inc.
        Purchase, NY                                                                | Financial services             | September 2014  | 404,968 shares of common stock (1.7%) (6)                            |        |           | $      | 5,706      | $ | 3,981   
|Total Non-Affiliate Investments - Related Party (represents 11.5% of total investments at fair value) |                                |                 | $                                                                    | 5,706  | $         | 3,981 
|Non-Affiliate Investments (less than 5% owned):                                                       |                                |                 |                                                                      |        |           |       
|Orco Property Group S. A.
        Paris, France                                                       | Real estate                    | April 2011      | 10% promissory note due 2/18 (2)(7)                                  | $      | 597       |        | 597        |   | 1,032   
|Security Monitor Holdings, LLC
        Boston, MA                                                     | Business products and services | November 2013   | 14% promissory note due 6/14 (2)                                     |        | 500       |        | 500        |   | 500     
|Total Non-Affiliate Investments (represents 4.4% of total investments at fair value)                  |                                |                 | $                                                                    | 1,097  | $         | 1,532 
|Total Investment in Portfolio Securities                                                              |                                |                 |                                                                      |        |           | $      | 23,211     | $ | 19,646  
|Temporary Cash Investments                                                                            |                                |                 |                                                                      |        |           |        |            |   |         
|U.S. Treasury Bill                                                                                    | Government                     | December 2014   | UST 0% 6/15                                                          |        | 14,999    | $      | 14,999     | $ | 14,996  
|Total Temporary Cash Investments (represents 43.3% of total investments at fair value)                |                                |                 | $                                                                    | 14,999 | $         | 14,996
|Total Investments                                                                                     |                                |                 |                                                                      |        |           | $      | 38,210     | $ | 34,642  



|(1) | See Note 3 to the financial statements, Valuation of Investments.                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Income-producing.                                                                                                                                                                                                                                                                                                                                       
|(3) | Non-income producing.                                                                                                                                                                                                                                                                                                                                   
|(4) | Majority owned investments are generally defined under the Investment Company Act of 1940 as companies in which we own more than 50% of the voting securities of the company.                                                                                                                                                                           
|(5) | Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which we own at least 5% but not more than 25% voting securities of the company.                                                                                                                                                                   
|(6) | Pursuant to a
    Share Exchange Agreement between the Fund and MVC dated May 14, 2014, MVC has the right to rescind the Agreement and cancel
    the Share Exchange if Equus does not complete a “reorganization” (as defined under Section 2(a)(33) of the 1940
    Act) within a 90-day period following the 1-year anniversary date of the Agreement
|(7) | In October 2014, the terms of these notes were amended to provide, among other changes, an extension of the maturity date to October 2019, and a reduction in the interest rate applicable to the notes from a combination of 5% cash and 5% payment-in-kind securities, to 7% in cash.                                                                 























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



Table of Contents10







EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS – (Continued)

DECEMBER 31, 2014



Except for our holding of shares
of MVC and our notes of Orco Property Group S.A. (“OPG”), substantially all of our portfolio securities as of
December 31, 2014 are restricted from public sale without prior registration under the Securities Act. 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 defined in the 1940 Act, all of our
investments are in eligible portfolio companies. We provide significant managerial assistance to portfolio companies that comprise
67.1% of the total value of the investments in portfolio securities as of December 31, 2014.



Our investments in portfolio securities
consist of the following types of securities as of December 31, 2014 (in thousands):



|Type of Securities                    |  | Cost |        | Fair Value |  | Fair Value as
        Percentage of
        Net Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | ------------------------------------------------------
|Limited liability company investments |  | $    | 12,900 |            |  | $                                                     
|Secured and subordinated debt         |  |      | 4,255  |            |  |                                                       
|Common stock                          |  |      | 6,056  |            |  |                                                       
|Total                                 |  | $    | 23,211 |            |  | $                                                     



Interest payments are being received
and/or accrued on notes with a fair value of $1.5 million, while accrued interest has been impaired on notes receivable included
in secured and subordinated debt with a fair value of $3.2 million.



The following is a summary by industry of our investments
in portfolio securities as of December 31, 2014 (in thousands):



|Industry                       |  | Fair Value |        | Fair Value as
        Percentage of
        Net Assets
|------------------------------ |  | ---------- | ------ | ------------------------------------------------------
|Energy                         |  | $          | 9,800  |                                                       
|Financial services             |  |            | 3,981  |                                                       
|Business products and services |  |            | 3,658  |                                                       
|Real estate                    |  |            | 1,032  |                                                       
|Shipping products and services |  |            | 960    |                                                       
|Media                          |  |            | 215    |                                                       
|Total                          |  | $          | 19,646 |                                                       









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



Table of Contents11







EQUUS TOTAL RETURN, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2015

(Unaudited)



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



Description of Business—
Equus Total Return, Inc. (“we,” “us,” “our,” “Equus” the “Company”
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.



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 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 business
development company (“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 certain wholly owned taxable subsidiaries (“Taxable Subsidiaries”) each of which holds
one or more portfolio investments listed on our Schedules of Investments. The purpose of these Taxable Subsidiaries 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 Subsidiaries, 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 Subsidiaries is taxed to the Taxable Subsidiaries and does not flow through to us, thereby helping us
preserve our RIC status and resultant tax advantages. We do not consolidate the Taxable Subsidiaries for income tax purposes and
they 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.



Basis of Presentation—In
accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and the Securities Exchange Act of 1934, 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, or 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 Securities Exchange Act of 1934, as amended. Accordingly, they are unaudited and exclude some disclosures required
for annual financial statements. Management believes it has 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
months ended March 31, 2015 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 Form 10-K for the fiscal year ended December 31, 2014, as filed with the Securities
and Exchange Commission (“SEC”).







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| | (2) | Liquidity and Financing Arrangements
| | --- | ------------------------------------



Liquidity—There are several
factors that may materially affect our liquidity during the reasonably foreseeable future. We view this period as the twelve month
period from the date of the financial statements in this Form 10-Q, i.e., the period through March 31, 2016. We are evaluating
the impact of current market conditions on our portfolio company valuations and their ability to provide current income. 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. We believe that our operating cash flow and cash on hand will be sufficient to meet
operating requirements and to finance routine follow-on investments, if any, through the next twelve months.



Cash and Cash Equivalents—As
of March 31, 2015, we had cash and cash equivalents of $19.0 million. We had $16.2 million of our net assets of $35.4 million invested
in portfolio securities.



As of December 31, 2014, we had cash
and cash equivalents of $15.7 million. We had $19.7 million of our net assets of $36.2 million invested in portfolio securities.
We also had $15.1 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, $15.0 million was invested in U.S. Treasury bills and $0.1 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 2, 2015 and we subsequently repaid this margin loan. The margin
loan and interest was paid on February 4, 2015.



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



Investment Commitments—As
of March 31, 2015, we had no outstanding commitments to our portfolio company investments.



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.



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. There is no assurance that 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. Failure to continue to qualify as a RIC could be materially adverse to us and our
stockholders.



We had no RIC borrowings or restricted
cash as of March 31, 2015.



As of December 31, 2014, we borrowed
$15.0 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 $15.1 million. The U.S. Treasury bills
were sold on January 2, 2015 and the total amount borrowed was repaid at that time. The margin loan and interest was paid on February
4, 2015.



Certain Risks and Uncertainties—
During the years following the 2008 financial crisis and continuing to the present, the relatively limited amount of available
debt financing for small and medium-sized companies such as Equus and its portfolio companies 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 the first three months of 2015, the price of our common stock continued to fall 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. Although we cannot assure you that such initiatives will be sufficient, we
believe we have sufficient liquidity to meet our 2015 operating requirements.





Table of Contents13







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



The following is a summary of significant
accounting policies followed by the Fund in the preparation of its 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—We
follow ASC Topic 820 for measuring fair value. Prior to our election to become a BDC, we also followed the guidance in ASC Topic
820 in disclosing the fair value reported for all financial instruments that were either impaired or available for sale securities,
using the definitions provided in Accounting Standards Codification Topic 320, “Investments – Debt and Equity Securities”
(“ASC Topic 320”). 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 under ASC Topic 820 as assumptions market participants would
use in pricing an asset or liability. The three levels of the fair value hierarchy under ASC Topic 820 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.



We consider a two-step process when
appraising investments of privately held companies. The first step involves determining the enterprise value of the portfolio company.
During this step, we consider three different valuation approaches: a market approach, an income approach, and a cost approach.
The particular facts and circumstances of each portfolio company determine which approach, or combination of approaches, will be
utilized. The second step when appraising equity investments of privately held companies involves allocating value to the various
debt and equity securities of the company. We allocate value to these securities based on their relative priorities. For equity
securities such as warrants, we may also incorporate alternative methodologies including the Black-Scholes Option Pricing Model.
Yield analysis is also employed to determine if a debt security has been impaired.



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. The 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. 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. Application of these valuation methodologies involves a significant degree of judgment by management.
Fair values of new investments are generally assumed to be equal to their cost to the Company for up to three months after their
initial purchase.



Table of Contents14







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.



Equity in a portfolio company that invests
in loans will typically be valued by arriving at a fair value of such vehicle’s loan assets (plus, when appropriate, the
carrying value of certain other assets), and deducting the book value or fair value (as appropriate) of such vehicle’s liabilities
to arrive at a fair value for the equity. When appropriate, in order to recognize value that would be created by growth opportunities
of such portfolio company, equity in a portfolio company may also be valued by taking into consideration the magnitude, timing,
and effective life of its expected future investments in loans.



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, a valuation process as described below:



|• |  | For each debt investment, a basic credit rating review process is completed. The risk rating on every credit facility is reviewed and either reaffirmed or revised by our Investment Committee.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|• |  | Each portfolio company or investment is valued by an investment professional.
|- |  | -----------------------------------------------------------------------------



|• |  | Third
    party valuation firm(s) are engaged to provide valuation services as requested, by reviewing Management’s preliminary
    valuations. Our Management’s preliminary fair value conclusions on each of the Fund’s assets for which
    sufficient     market quotations are not readily available, where determined by our Management, is reviewed and assessed by
    a     third-party     valuation firm at     least once in every     12-month period, and more often as determined by the
    Audit     Committee or     required by our valuation     policy. Such valuation     assessment may be in the form of
    positive     assurance, range of values     or another valuation method     based on the discretion of     our
    Board.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|• |  | The Audit Committee reviews the preliminary valuations of our Management and independent valuation firms and, if appropriate, recommends the approval of the valuations by the Board.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|• |  | Our Board discusses valuations and determines the fair value of each investment in the portfolio in good faith based on the input of Management, the Audit Committee and, where appropriate, the respective independent valuation firms.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following sections describe the
valuation techniques we use to measure different financial instruments at fair value and include the levels within the fair value
hierarchy in which the financial instruments are categorized.



Market approach – The market
approach typically employed by Management calculates the enterprise value of a company as a multiple of earnings before interest,
taxes, depreciation and amortization (“EBITDA”) generated by the company for the trailing twelve month period. Adjustments
to the company’s EBITDA, including those for non-recurring items, may be considered. Multiples are estimated based on current
market conditions and past experience in the private company marketplace and are subjective in nature. We will apply liquidity
and other discounts as deemed appropriate to equity valuations where applicable. We may also use, when available, third-party transactions
in a portfolio company’s securities as the basis of valuation (the “private market method”). The private market
method will be used only with respect to completed transactions or firm offers made by sophisticated, independent investors.

Table of Contents15







Income approach – The income
approach typically utilized by our Management calculates the enterprise value of a company utilizing a discounted cash flow model
incorporating projected future cash flows of the company. Projected future cash flows consider the historical performance of the
company as well as current and projected market participant performance. Discount rates are estimated based on current market conditions
and past experience in the private company marketplace and are subjective in nature. We will apply liquidity and other discounts
as deemed appropriate to equity valuations where applicable.



Asset approach – We consider
the asset approach to determine the fair value of significantly deteriorated investments demonstrating circumstances indicative
of a liquidation analysis. This situation may arise when a portfolio company: 1) cannot generate adequate cash flow to meet the
principal and interest payments on its indebtedness; 2) is not successful in refinancing its debt upon maturity; 3) we believe
the credit quality of a loan has deteriorated due to changes in the business and underlying asset or market conditions may result
in the company’s inability to meet future obligations; or 4) the portfolio company’s reorganization or bankruptcy.
Consideration is also given as to whether a liquidation event would be orderly or forced.



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



Our general intent is to hold our loans
to maturity when appraising our privately held debt investments. As such, we believe that the fair value will not exceed the cost
of the investment. However, in addition to the previously described analysis involving allocation of value to the debt instrument,
we perform a yield analysis to determine if a debt security has been impaired. Certificates of deposit purchased by the Fund generally
will be valued at their face value, plus interest accrued to the date of valuation.



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 and, where necessary, with independent valuation firms engaged by the Fund;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | The independent valuation firms conduct independent valuations and make their own independent assessments;
|-- |  | ----------------------------------------------------------------------------------------------------------



|3. |  | The Audit Committee of our Board reviews and discusses the preliminary valuation of the Fund and that of the independent valuation firms; and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The Board discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of our Management, the respective independent valuation firm and the Audit Committee.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.

Table of Contents16







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.



Because of the inherent uncertainty
of the valuation of portfolio securities which do not have readily ascertainable market values, amounting to $12.3 million and
$15.7 million as of March 31, 2015 and December 31, 2014, respectively, our fair value determinations may materially differ from
the values that would have been used had a ready market existed for the securities. As of March 31, 2015, one of our portfolio
investments, 410,360 common shares of MVC, was publicly listed on the NYSE. As of December 31, 2014, one of our portfolio investments,
404,968 common shares of MVC was publicly listed on the NYSE and our holding of €1,200,790 [$1.5 million] in OPG notes was
publicly listed on the Luxembourg Stock Exchange.



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’sand The Wall Street Journal.



For loan and debt securities, the Fund
has performed a yield analysis assuming a hypothetical current sale of the security. 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.



We will 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.





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 quarter ended March 31, 2015 and the year ended December 31, 2014.



As of March 31, 2015, 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 March 31, 2015
|----------------------------------------- |  | --------------------------------------------
|(in thousands)                            |  | Total                                       
|Assets                                    |  |                                             
|Investments:                              |  |                                             
|Control investments                       |  | $                                           
|Affiliate investments                     |  |                                             
|Non-affiliate investments - related party |  |                                             
|Non-affiliate investments                 |  |                                             
|Total investments in portfolio securities |  | $                                           





Table of Contents17







As of December 31, 2014, 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, 2014                               
|------------------------------------------------ |  | ----- | ------ | ------------------------------------------------------------------------------
|(in thousands)                                   |  | Total |        | Quoted Prices in Active Markets for
        Identical Assets
        (Level 1)
|Assets                                           |  |       |        |                                                                               
|Investments:                                     |  |       |        |                                                                               
|Control investments                              |  | $     | 13,173 |                                                                               
|Affiliate investments                            |  |       | 960    |                                                                               
|Non-affiliate investments - related party        |  |       | 3,981  |                                                                               
|Non-affiliate investments                        |  |       | 1,532  |                                                                               
|Total investments                                |  |       | 19,646 |                                                                               
|Temporary cash investments                       |  |       | 14,996 |                                                                               
|Total investments and temporary cash investments |  | $     | 34,642 |                                                                               



The following table provides a reconciliation
of fair value changes during the three months ended March 31, 2015 for all investments for which we determine fair value using
unobservable (Level 3) factors (unaudited):



|                                                 |  | Fair value measurements using significant unobservable
    inputs (Level 3)
|------------------------------------------------ |  | ---------------------------------------------------------------------------
|(in thousands)                                   |  | Control Investments                                                        
|Fair value as of December 31, 2014               |  | $                                                                          
|Realized gains (losses)                          |  |                                                                            
|Change in unrealized appreciation (depreciation) |  |                                                                            
|Purchases of portfolio securities                |  |                                                                            
|Proceeds from sales/dispositions                 |  |                                                                            
|Fair value as of March 31, 2015 (unaudited)      |  | $                                                                          





The following table provides a reconciliation
of fair value changes during the three months ended March 31, 2014 for all investments for which we determine fair value using
unobservable (Level 3) factors (unaudited):





|                                            |  | Fair value measurements using significant unobservable
    inputs (Level 3)
|------------------------------------------- |  | ---------------------------------------------------------------------------
|(in thousands)                              |  | Control Investments                                                        
|Fair value as of December 31, 2013          |  | $                                                                          
|Purchases of portfolio securities           |  |                                                                            
|Fair value as of March 31, 2014 (unaudited) |  | $                                                                          





Foreign Exchange—We record
temporary changes in foreign exchange rates of portfolio securities denominated in foreign currencies as changes in fair value.
These changes are therefore reflected as unrealized gains or losses until realized.



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.



Table of Contents18







As of March 31, 2015 and December 31,
2014, we had no outstanding commitments to our portfolio company investments; however, 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. Follow-on investments may include capital infusions which are expenditures made directly
to the portfolio company to ensure that operations are completed, thereby allowing the portfolio company to generate cash flows
to service the debt.



Interest 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.



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. We will continue to 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.



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



Taxes—We intend to comply
with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company 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 incorporated 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 $0.02 million for the year ended December 31, 2014.



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 did not owe state income tax for the year ended December 31, 2014



Significant Unobservable Inputs—
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.



Table of Contents19







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 March 31, 2015 (unaudited):





|                                      |  |            |        |                      |  |                                                    |  | Range                                                             
|------------------------------------- |  | ---------- | ------ | -------------------- |  | -------------------------------------------------- |  | ------------------------------------------------------------------
|(in thousands)                        |  | Fair Value |        | Valuation Techniques |  | Unobservable Inputs                                |  | Minimum                                                           
|Secured and subordinated debt         |  | $          | 915    |                      |  | Enterprise value                                   |  | Discount for lack of marketability                                
|Common stock                          |  |            | 2,208  |                      |  | Income/Market approach                             |  | EBITDA Multiple/Discount for lack of marketability/Control premium
|                                      |  |            |        |                      |  |                                                    |  |                                                                   
|                                      |  |            |        |                      |  | Asset approach                                     |  | Recovery rate                                                     
|Limited liability company investments |  |            | 9,215  |                      |  | Discounted cash flow; Guideline transaction method |  | Reserve adjustment factors                                        
|                                      |  | $          | 12,338 |                      |  |                                                    |  |                                                                   







| | (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 $20,000 paid quarterly in arrears, a fee of $2,000
for each meeting of the Board of Directors attended in person, a fee of $1,000 for participation in each telephonic meeting of
the Board and a fee of $1,000 for each committee meeting attended, and reimbursement of all out-of-pocket expenses relating to
attendance at such meetings. A quarterly fee of $15,000 is paid to the Chairman of the Audit Committee and a quarterly fee of $3,750
is paid to the Chairman of the Independent Directors. 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.



In 2011, Equus Energy, LLC, a wholly-owned
subsidiary of the Fund, entered into a consulting agreement with Global Energy Associates, LLC (“Global Energy”) to
provide consulting services for energy related investments. Henry W. Hankinson, Director, is a managing partner and co-founder
of Global Energy. Payments to Global Energy totaled $18,750 for each of the quarters ended March 31, 2015 and 2014.



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 $250 per hour
for services rendered. During the quarters ended March 31, 2015 and 2014, we paid Kenneth I. Denos, P.C., a professional corporation
owned by Kenneth I. Denos, a director of the Fund, $91,813 and $83,375, respectively, for services provided to the Fund.



| | (5) | Dividends
| | --- | ---------



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



| | (6) | Portfolio Securities
| | --- | --------------------



On January 6, 2015, we sold our
interests in Spectrum to 5th Element Tracking, LLC (“5th
Element”). The purchase price of $3.9 million paid by 5th Element
consisted of $3.0 million in cash and a 1-year subordinated note in the original principal amount of $0.9 million, bearing interest
at the rate of 14% per annum. We realized a net capital loss of $2.8 million in connection with the sale of our interest in Spectrum.

Also on January 6, 2015, in connection
with the sale of our interest in Spectrum, our $0.5 million loan to Security Monitor Holdings, LLC, together with all accrued interest
amounting to approximately $0.1 million, was repaid.



On January 30, 2015, we received a partial
redemption payment in respect of our holding of OPG Notes in the amount of €36,587 [$41,478].



Table of Contents20







On February 20, 2015, we sold our OPG
Notes at a discount of 23% to their par value, receiving $1.0 million in cash and a realized gain of $0.4 million.



During the three months ended March
31, 2015, we recorded a net change in unrealized depreciation of $2.7 million, to a net unrealized depreciation of $0.8 million.
Such change in unrealized depreciation resulted primarily from the following changes:



| | (i) | Decrease in the fair value of our holdings in Equus Energy, LLC of $0.8 million, principally due to a combination of decreased production and declining oil and prices;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Decrease in the fair value of our shareholding in MVC of $0.1 million due to a decrease in the MVC share price during the quarter;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Increase in fair value of our shareholding in PalletOne, Inc. of $1.2 million due to an overall improvement in the industry sector for packaging companies, as well as continued revenue and earnings growth;
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Transfer of unrealized depreciation to realized gain on our holding of OPG Notes of $0.4 million in connection with the sale of our interest in the OPG Notes; and,
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Transfer of unrealized depreciation to realized loss on our holdings in Spectrum of $2.9 million in connection with the sale of our interest in Spectrum.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



During the three months ended March
31, 2014, we capitalized legal and consulting expenses of $0.7 million relating to the sale of our holdings in Spectrum. We also
received a semi-annual interest payment of $0.04 million in respect of our holding of €1.2 million [$1.5 million] in OPG notes.



During the three months ended March
31, 2014, we did not realize any significant gains or losses on sales of portfolio securities.



During the three months ended March
31, 2014, net unrealized depreciation on investments increased $0.07 million, to a net unrealized depreciation of $4.0 million.
Such increase in unrealized depreciation is largely due to the decrease in fair value of our holdings in OPG of $0.1 million due
to a decline in the price of our OPG shares, which we sold in April 2014.



| | (7) | Plan of Reorganization - Share Exchange with MVC Capital
| | --- | --------------------------------------------------------



On May 14, 2014, we announced that the
Fund intended to effect a reorganization pursuant to Section 2(a)(33) of the 1940 Act. As a first step to consummating the reorganization,
we sold to MVC 2,112,000 newly-issued shares of the Fund’s common stock in exchange for 395,839 shares of MVC (such transaction
is hereinafter referred to as the “Share Exchange”). MVC is a business development company traded on the New York Stock
Exchange that provides long-term debt and equity investment capital to fund growth, acquisitions and recapitalizations of companies
in a variety of industries. The Share Exchange was calculated based on the Fund’s and MVC’s respective net asset value
per share. At the time of the Share Exchange, the number of MVC shares received by Equus represented approximately 1.73% of MVC’s
total outstanding shares of common stock.



Pursuant to the terms of a Share Exchange
Agreement, dated May 12, 2014, entered into by Equus and MVC which memorialized the Share Exchange, we intend to finalize the reorganization
by pursuing a merger or consolidation with MVC, a subsidiary of MVC, or one or more of MVC’s portfolio companies (the “Consolidation”).
Absent Equus merging or consolidating with/into MVC or a subsidiary thereof, our current intention is for Equus to (i) consummate
the Consolidation with a portfolio company of MVC, (ii) terminate its election to be classified as a BDC under the 1940 Act, and
(iii) be restructured as a publicly-traded operating company focused on the energy and/or financial services sector. Our original
intention was to consummate the Consolidation within one year from the date of our announcement, although actual completion may
require additional time.



| | (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 certain oil and gas working interests which are presently
derived from 130 producing and non-producing oil and gas wells.  The working interests include associated development rights
of approximately 21,220 acres situated on 13 separate properties in Texas and Oklahoma. The working interests range from a de
minimus amount to 50% of the leasehold that includes these wells

Table of Contents21







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 producing
well interests located in the Conger Field, a productive oil and gas field on the edge of the Permian Basin that has experienced
successful gas and hydrocarbon extraction in multiple formations. Equus Energy, which holds a 50% working interest in each of these
Conger Field wells, is working with Chevron in a recompletion program 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 (appx. 8,500 feet) 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.



Revenue and Income. During the
three months ended March 31, 2015, Equus Energy’s revenue, operating revenue less direct operating expenses, and net loss
were $0.3 million, $0.02 million, and ( $0.3) million, respectively, as compared to revenue, operating revenue less direct operating
expenses, and net loss of $0.5 million, $0.2 million, and ($0.1) million, respectively, for the three months ended March 31, 2014.



Capital Expenditures. During
the three months ended March 31, 2015, Equus Energy did not make any capital expenditures or otherwise participate in any new drilling
or recompletion activities. The operators of the various working interest have communicated their intent to wait until later in
2015, commensurate with a gradual rise in the price of crude oil, to commence new drilling and recompletion 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 statement of
assets and liabilities. Our investment in Equus Energy is valued in accordance with our normal valuation procedures and is based
in part on using a discounted cash flow analysis based 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 we ascribed in our
Schedule of Investments on page 39.



Below is summarized consolidated financial
information for Equus Energy as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014,
respectively, (in thousands).



EQUUS ENERGY, LLC.

Consolidated Balance Sheets

(unaudited)





|                                                           |  | March 31,  2015 |        | December 31,  2014
|---------------------------------------------------------- |  | --------------- | ------ | ------------------
|Assets                                                     |  |                 |        |                   
|Current assets:                                            |  |                 |        |                   
|Cash and cash equivalents                                  |  | $               | 635    |                   
|Accounts receivable                                        |  |                 | 169    |                   
|Prepaid expenses/deposits                                  |  |                 | 14     |                   
|Total current assets                                       |  |                 | 818    |                   
|Oil and gas properties                                     |  |                 | 8,245  |                   
|Less: accumulated depletion, depreciation and amortization |  |                 | (1,957 | )                 
|Net oil and gas properties                                 |  |                 | 6,288  |                   
|Other non-current investment                               |  |                 | 193    |                   
|Total assets                                               |  | $               | 7,299  |                   
|Liabilities and members capital                            |  |                 |        |                   
|Current liabilities:                                       |  |                 |        |                   
|Accounts payable and other                                 |  | $               | 82     |                   
|Due to affiliate                                           |  |                 | 611    |                   
|Total current liabilities                                  |  |                 | 693    |                   
|Asset retirement obligations                               |  |                 | 180    |                   
|Total liabilities                                          |  |                 | 873    |                   
|Total members capital                                      |  |                 | 6,426  |                   
|Total liabilities and members capital                      |  | $               | 7,299  |                   



Table of Contents22







Revenue and direct operating expenses
for the various oil and gas assets included in the accompanying statements 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. General and administrative expenses,
depletion, depreciation and amortization (“DD&A”) of oil and gas properties and federal and state taxes have been
excluded from direct operating expenses in the accompanying statements of revenues and direct operating expenses because the allocation
of certain expenses would be arbitrary and would not be indicative of what such costs would have been had Equus Energy been operated
as a stand-alone entity.The statements of revenue and direct operating expenses presented are not indicative of the financial
condition or results of operations of Equus Energy on a go forward basis due to changes in the business and the omission of various
operating expenses.



EQUUS ENERGY, LLC.

Consolidated Statements of Operations

(unaudited)







|                                                    |  | Three months ended March 31,
|--------------------------------------------------- |  | ----------------------------
|                                                    |  | 2015                        
|Operating revenue                                   |  | $                           
|Operating expenses                                  |  |                             
|Direct operating expenses                           |  |                             
|Depletion, depreciation, amortization and accretion |  |                             
|General and administrative                          |  |                             
|Total operating expenses                            |  |                             
|Net loss                                            |  | $                           





Table of Contents23







EQUUS ENERGY, LLC.

Consolidated Statements of Cash Flows

(unaudited)







|                                                    |  | Three months ended                                                                            
|--------------------------------------------------- |  | ----------------------------------------------------------------------------------------------
|                                                    |  | March 31,
                                                                                2015
|Cash flows from operating activities:               |  |                                                                                               
|Net loss                                            |  | $                                                                                             
|Adjustments to reconcile net loss to                |  |                                                                                               
|net cash provided by operating activities:          |  |                                                                                               
|Depletion, depreciation and amortization            |  |                                                                                               
|Changes in operating assets and liabilities:        |  |                                                                                               
|Accounts receivable and other                       |  |                                                                                               
|Affiliate payable/receivable                        |  |                                                                                               
|Accounts payable and other                          |  |                                                                                               
|Net cash provided by (used in) operating activities |  |                                                                                               
|Cash flows from investing activities:               |  |                                                                                               
|Investment in oil & gas properties                  |  |                                                                                               
|Net cash used in investing activities               |  |                                                                                               
|Net increase (decrease) in cash                     |  |                                                                                               
|Cash and cash equivalents at beginning of period    |  |                                                                                               
|Cash and cash equivalents at end of period          |  | $                                                                                             





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 and amortization
expense for the Company’s oil and gas properties totaled $0.2 million for the three months ended March 31, 2015 and March
31, 2014.



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



| | (a) | As of March 31, 2015, 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 2014 or during the three months ended March
31, 2015.

Table of Contents24







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.



Revenue Recognition -Revenue
recognized for oil and natural gas sales under the sales method of accounting. Under this method, revenue recognized on production
as it is taken and delivered to its purchasers. The volumes sold may be more or less than the volumes entitled to, based on the
owner’s net leasehold interest. These differences result from production imbalances, which are not significant, and are reflected
as adjustments to proven reserves and future cash flows in the unaudited consolidated financial information included herein.



Accounting Policy on DD&A
- 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.  As of March 31, 2015 and March 31, 2014, the Company recorded $0 in federal
income taxes, respectively.



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 there were no subsequent events.



Table of Contents25







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



Equus Total Return, Inc. (“we,”
“us,” “our,” “Equus,” the “Company,” 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.



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 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.



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 certain wholly owned Taxable
Subsidiaries each of which holds one or more portfolio investments listed on our Schedules of Investments. The purpose of these
Taxable Subsidiaries 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 Subsidiaries, 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 Subsidiaries is taxed to the Taxable Subsidiaries and does not flow
through to us, thereby helping us preserve our RIC status and resultant tax advantages. We do not consolidate the Taxable Subsidiaries
for income tax purposes and they may generate income tax expense because of the Taxable Subsidiaries’ ownership of the portfolio
investments. We reflect any such income tax expense on our Statements of Operations.



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. As a first step to
consummating the reorganization, we sold to MVC 2,112,000 newly-issued shares of the Fund’s common stock in exchange
for 395,839 shares of MVC (such transaction is hereinafter referred to as the “Share Exchange”). MVC is a
business development company traded on the New York Stock Exchange that provides long-term debt and equity investment capital
to fund growth, acquisitions and recapitalizations of companies in a variety of industries. The Share Exchange was calculated
based on the Fund’s and MVC’s respective net asset value per share. At the time of the Share Exchange, the number
of MVC shares received by Equus represented approximately 1.73% of MVC’s total outstanding shares of common stock. The
number of Equus shares sold to MVC pursuant to the Share Exchange represents approximately 16.7% of our issued
and outstanding shares of common stock at March 31, 2015. We incurred dilution of $0.11 per share as a result of the
Share Exchange. Since the announcement, we have received 14,521 shares of MVC (market value of $0.2 million calculated as of
the date of receipt) in the form of dividend payments.



Pursuant to the terms of
a Share Exchange Agreement, dated May 14, 2014, entered into by Equus and MVC which memorialized the Share Exchange, we intend
to finalize the reorganization by pursuing a merger or consolidation with MVC, or a subsidiary of MVC, or one or more of MVC’s
portfolio companies (the “Consolidation”). Absent Equus merging or consolidating with/into MVC, our current intention
is for Equus to (i) consummate the Consolidation, (ii) terminate its election to be classified as a business development company
under the 1940 Act, and (iii) be restructured as a publicly-traded operating company focused on the energy and/or financial services
sector.



Critical Accounting Policies



We follow the accounting and reporting
guidance in FASB Accounting Standards Codification 946. Our financial statements are based on the selection and application of
significant accounting policies, which require management to make significant estimates and assumptions. We believe that the following
are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial
condition and results of operations.

Table of Contents26







Valuation of Investments—
Portfolio investments are carried at fair value with the net change in unrealized appreciation or depreciation included in the
determination of net assets. Valuations of portfolio securities are performed in accordance with GAAP and the financial reporting
policies of the Securities and Exchange Commission. The applicable methods prescribed by such principles and policies are described
below:



Publicly-traded portfolio securities—Investments
in companies whose securities are publicly traded are generally valued at their quoted market price at the close of business on
the valuation date.



Privately-held portfolio securities—The
fair value of investments for which no market exists is determined on the basis of procedures established in good faith by our
Board of Directors. As a general principle, the current “fair value” of an investment would be the amount we might
reasonably expect to receive for it upon its current sale, in an orderly manner. Appraisal valuations are necessarily subjective
and the estimated values arrived at by the Fund may differ materially from amounts actually received upon the disposition of portfolio
securities.



Thinly Traded and Over-the-Counter
Securities—Generally, we value securities that are traded in the over-the-counter market or on a stock exchange at the
average of the prevailing bid and ask prices on the date of the relevant period end. However, we may apply a discount to the market
value of restricted or thinly traded public securities to reflect the impact that these restrictions have on the value of these
securities. We review factors, including the trading volume, total securities outstanding and our percentage ownership of securities
to determine whether the trading levels are active (Level 1) or inactive (Level 2) or unobservable (Level 3). As of March 31, 2015,
these securities, consisting of our holding of MVC shares, represented 10.9% of our investments in portfolio securities. We utilized
independent pricing services with certain of our fair value estimates. To corroborate “bid/ask” quotes from independent
pricing services, we perform a market-yield approach to validate prices obtained or obtain other evidence.



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 12 month period which would indicate a material effect on the portfolio company (such as results of operations
or changes in general market conditions). After the 12 month period, or if material events have occurred within the twelve month
period, we consider a two-step process when appraising investments of privately held companies. The first step involves determining
the enterprise value of the portfolio company. During this step, we consider three different valuation approaches: a market approach,
an income approach, and an asset approach. The particular facts and circumstances of each portfolio company determine which approach,
or combination of approaches, will be utilized. The second step when appraising equity investments of privately held companies
involves allocating value to the various debt and equity securities of the company. We allocate value to these securities based
on their relative priorities. For equity securities such as warrants, we may also incorporate alternative methodologies including
the Black-Scholes Option Pricing Model.



Market approach – The market
approach typically employed by Management calculates the enterprise value of a company as a multiple of earnings before interest,
taxes, depreciation and amortization (“EBITDA”) generated by the company for the trailing twelve month period. Adjustments
to the company’s EBITDA, including those for non-recurring items, may be considered. Multiples are estimated based on current
market conditions and past experience in the private company marketplace and are subjective in nature. We will apply liquidity
and other discounts we deem appropriate to equity valuations where applicable. We may also use, when available, third-party transactions
in a portfolio company’s securities as the basis of valuation (the “private market method”). The private market
method will be used only with respect to completed transactions or firm offers made by sophisticated, independent investors.



Income approach – The income
approach typically utilized by Management calculates the enterprise value of a company utilizing a discounted cash flow model incorporating
projected future cash flows of the company. Projected future cash flows consider the historical performance of the company as well
as current and projected market participant performance. Discount rates are estimated based on current market conditions and past
experience in the private company marketplace and are subjective in nature. We will apply liquidity and other discounts we deem
appropriate to equity valuations where applicable.



Asset approach – We consider
the asset approach to determine the fair value of significantly deteriorated investments demonstrating circumstances indicative
of a liquidation analysis. This situation may arise when a portfolio company: 1) cannot generate adequate cash flow to meet the
principal and interest payments on its indebtedness; 2) is not successful in refinancing its debt upon maturity; 3) we believe
the credit quality of a loan has deteriorated due to changes in the business and underlying asset or market conditions may result
in the company’s inability to meet future obligations; or 4) the portfolio company’s reorganization or bankruptcy.
Consideration is also given as to whether a liquidation event would be orderly or forced.



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 to determine if a debt security has been impaired.

Table of Contents27







Certificates of deposit purchased by
the Fund generally will be valued at their face value, plus interest accrued to the date of valuation.



The Audit Committee of the Board of
Directors may engage independent, third-party valuation firms to conduct independent appraisals and review Management’s preliminary
valuations of each privately-held investment that the Fund (a) has held for more than one year and (b) holds on its books at a
fair value of at least $2.0 million in order to make their own independent assessment. Any third-party valuation data would be
considered as one of many factors in a fair value determination. The Audit Committee then would recommend the fair values for all
privately-held securities based on all relevant factors to the Board of Directors for final approval.



Because of the inherent uncertainty
of the valuation of portfolio securities which do not have readily ascertainable market values, amounting to $12.3 million and
$15.7 million as of March 31, 2015 and December 31, 2014, respectively, our fair value determinations may materially differ from
the values that would have been used had a ready market existed for the securities. As of March 31, 2015, one of our portfolio
investments, 410,360 common shares of MVC was publicly listed on the NYSE. As of December 31, 2014, one of our portfolio investments,
404,968 common shares of MVC, was publicly listed on the NYSE and our holding of €1,200,790 [$1.5 million] in OPG notes was
publicly listed on the Luxembourg Stock Exchange.



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’sand The Wall Street Journal.



Federal Income Taxes



We intend to comply with the requirements
of the Code necessary for us to qualify as a RIC. So long as we comply with these requirements, we generally will not be subject
to corporate-level federal income taxes on otherwise taxable income (including net realized capital gains) distributed to stockholders.
Therefore, we did not record a provision for federal income taxes in our financial statements. As of December 31, 2014, we had
a capital loss carry forward of $31.9 million which may be used to offset future capital
gains. We may borrow money from time to time to maintain our status as a RIC under the Code. See “—Overview –
Financing Activities” above.



Interest 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 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 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.



Payment in Kind Interest



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 the Fund’s status as a RIC, we must pay out to our 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.



Recent Accounting Pronouncements



In June 2013, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-08, Financial Services—Investment
Companies. ASU 2013-08 provides clarifying guidance to determine if an entity qualifies as an investment company. ASU 2013-08
also requires an investment company to measure non-controlling interests in other investment companies at fair value. The following
disclosures will are required as a result of the adoption of ASU 2013-08: (i) whether an entity is an investment company and is
applying the accounting and reporting guidance for investment companies; (ii) information about changes, if any, in an entity’s
status as an investment company; and (iii) information about financial support provided or contractually required to be provided
by an investment company to any of its investees. The requirements of ASU 2013-08 were effective for the Fund beginning in the
first quarter of 2014. Our adoption of ASU 2013-08 did not affect our financial position or results of operations.

Table of Contents28







Current Market Conditions



Overall economic conditions in the United
States have improved, albeit slowly, since the market downturn of 2008-09. The U.S. economy grew at 2.43% in 2014 but slowed to
an annualized rate of 0.2% in the first quarter of 2015. Nevertheless, the International Monetary Fund is forecasting higher growth
in 2015 (3.5%). Global growth for 2015 is also predicted at 3.5%, largely driven by growth in the U.S. and Asia, with the Euro
zone predicted to grow at only 1.2%. (Sources: Forbes, Reuters, and Newsweek)



Market conditions for business transactions
including mergers and acquisitions and private equity investments improved to their highest level since prior to the 2008 financial
crisis, as corporations have been deleveraging and are holding significant amounts of cash and many have focused on acquisitions
as part of future growth plans. Private equity activity increased 47% from 2013 to 2014, as private equity firms as a group enjoyed
more success during the year in monetizing their investments through sales and public listings, and mergers and acquisition activity
hit an 8-year high in the first quarter of 2015. (Sources: USA Today and Fortune)



During the three months ended March
31, 2015, our net asset value decreased from $2.86 per share to $2.79 per share, a decrease of 2.4%. As of March 31, 2015, our
common stock is trading at a 30.1% discount to our net asset value as compared to 26.5% as of December 31, 2014.



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, 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 the Fund is unable to borrow funds to make qualifying investments, it may 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.



The Fund reserves 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. 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. 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.





Table of Contents29







Results of Operations



Investment Income and Expense



Net investment loss was $1.1 million
and $0.5 million for the three months ended March 31, 2015 and March 31, 2014, respectively. The decrease in net investment loss
generated at March 31, 2015 compared to March 31, 2014 is due primarily to a decrease in total investment income and an increase
in operating expense.



Investment income was $0.04 million
for the three months ended March 31, 2015 compared to $0.3 million for the three months ended March 31, 2014. The decrease was
primarily due to the decrease in income producing investments due to the sale of our interests in SMH, Spectrum, and OPG during
the three months ended March 31, 2015.



Total expenses increased $0.4 million
for the three months ended March 31, 2015 compared to March 31, 2014, primarily due to officer and employee bonuses earned during
the period.



Realized
Gains and Losses on Sales of Portfolio Securities



During the three months ended March
31, 2015, we realized capital losses of $2.5 million, including the following significant transactions:





|Portfolio Company         |  | Industry                        |  | Type |               | Transaction Type |  | Realized Gain (Loss)
|------------------------- |  | ------------------------------- |  | ---- | ------------- | ---------------- |  | --------------------
|Spectrum Management, LLC  |  | Business products  and services |  |      | Control       |                  |  | Disposition         
|Orco Property Group S. A. |  | Real Estate                     |  |      | Non-affiliate |                  |  | Disposition         
|Various others            |  | Disposition                     |  |      |               |                  |  |                     
|                          |  |                                 |  |      |               |                  |  |                     





During the three months ended March
31, 2014, we realized a loss of $0.1 million from the sale of temporary cash investments.



Changes in Unrealized Appreciation/Depreciation
of Portfolio Securities







During the three months ended March
31, 2015, we recorded a net change in unrealized depreciation of $2.7 million, to a net unrealized depreciation of $0.8 million.
Such change in unrealized depreciation resulted primarily from the following changes:



| | (i) | Decrease in the fair value of our holdings in Equus Energy, LLC of $0.8 million, principally due to a combination of decreased production and declining oil and prices;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Decrease in the fair value of our shareholding in MVC of $0.1 million due to a decrease in the MVC share price during the quarter;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Increase in fair value of our shareholding in PalletOne, Inc. of $1.2 million due to an overall improvement in the industry sector for packaging companies, as well as continued revenue and earnings growth;
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Transfer of unrealized depreciation to realized gain on our holding of OPG Notes of $0.4 million in connection with the sale of our interest in the OPG Notes; and,
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Transfer of unrealized depreciation to realized loss on our holdings in Spectrum of $2.9 million in connection with the sale of our interest in Spectrum.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



During the three months ended March
31, 2014, net unrealized depreciation on investments increased $0.07 million, to a net unrealized depreciation of $4.0 million.
Such increase in unrealized depreciation is largely the result of a decrease in the fair value of our holdings in OPG of $0.1 million,
which was due to a decline in the price of OPG shares.





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.





Table of Contents30













Portfolio Securities





On January 6, 2015, we sold our interests
in Spectrum to 5th Element Tracking, LLC (“5thElement”). The purchase price of $3.9 million paid by 5thElement
consisted of $3.0 million in cash and a 1-year subordinated note in the original principal amount of $0.9 million, bearing interest
at the rate of 14% per annum. We realized a net capital loss of $2.8 million in connection with the sale of our interest in Spectrum.



Also on January 6, 2015, in connection
with the sale of our interest in Spectrum, our $0.5 million loan to Security Monitor Holdings, LLC, together with all accrued interest
amounting to approximately $0.1 million, was repaid.



On January 30, 2015, we received a partial
redemption payment in respect of our holding of OPG Notes in the amount of €36,587 [$41,478].



On February 20, 2015, we sold our OPG
Notes at a discount of 23% to their par value, receiving $1.0 million in cash and a realized gain of $0.4 million.



During the three
months ended March 31, 2015, we received dividends in the form of additional shares of $0.05 million relating to our shareholding
in MVC. As a result of the sale of our interests in Spectrum to 5th Element Tracking, LLC, we received $3.0 million in cash and
a 1-year subordinated note in the original principal amount of $0.9 million, bearing interest at the rate of 14% per annum.



During the three months ended March 31,
2014, we capitalized legal and consulting expenses of $0.7 million relating to our holdings in Spectrum. We also received a semi-annual
interest payment of $0.04 million in respect of our holding of €1.2 million [$1.5 million] in OPG notes.



Subsequent Events



Management performed an evaluation of
the Fund’s activity through the date the financial statements were issued, noting that there were no subsequent events.



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, in addition to our investment in the OPG notes, 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.



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 user. The value of one segment called “Energy” includes one portfolio company, Equus Energy,
LLC, and was 25.4% of the net asset value and 55.5% of our investments in portfolio company securities (at fair value) as of March
31, 2015. 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.



Table of Contents31







Item 4. Controls
and Procedures



The Fund maintains disclosure controls
and other procedures that are designed to ensure that information required to be disclosed by the Fund in the reports that it files
or submits 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 the Fund’s management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.



The Fund’s management, with the
participation of the 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 March 31, 2015. Based on their evaluation, the Fund’s 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 the Fund’s internal control over financial reporting during the quarter ended
March 31, 2015, that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control
over financial reporting.







Part II. Other Information



Item 1. Legal Proceedings



Champion Window Arbitration Settlement—In
January 2006, we sold our 31.5% ownership interest in Champion Window, Inc. (“Champion”), a portfolio company of the
Fund, to Atrium Companies Inc. (“Atrium”) pursuant to a Stock Purchase Agreement (“SPA”) dated December
22, 2005. The SPA contained certain limited rights of indemnification for Atrium in connection with its purchase of such ownership
interest.



More than five years after the closing
of the sale of our Champion interest, Atrium filed suit in Texas state court, which was subsequently consolidated into an Arbitration
Action, against two former officers of Champion, Equus, and another former Champion shareholder. The suit alleged breaches of fiduciary
duty against Champion’s former officers for hiring undocumented workers that were discovered as a result of an investigation
by the U.S. Immigration and Customs Enforcement agency (“ICE”) into Atrium’s hiring practices. The suit also
sought indemnification under the SPA from these officers, Equus, and another former Champion shareholder, for a payment of $2.0
million made to ICE in settlement of the investigation and associated legal costs, as well as for claimed lost profits as a result
of the investigation.



On February 4, 2015, without admitting
to any liability on the part of Equus, we entered into a settlement agreement with Atrium and its associated companies. Pursuant
to the settlement agreement and in view of the estimated costs of protracted litigation and the associated disruption to the operations
of the Fund, we agreed to pay $500,000, in complete settlement of the lawsuit, as being in the best interests of the Fund and its
shareholders. The settlement payment was made on February 6, 2015. Atrium filed a motion to dismiss the lawsuit with prejudice
on February 4, 2015.



Indemnification Settlement—Effective
June 13, 2013, the Fund entered into a settlement agreement with Sam Douglass, a former director and executive officer of the Fund,
in respect of a claim for indemnification pursuant to the General Corporation Law of Delaware and an indemnification agreement
entered into by the Fund with Mr. Douglass on May 3, 2001. The settlement agreement provides for the reimbursement to Mr. Douglass
of actual expenses incurred, excluding any fines or penalties, in connection with an enforcement action initiated by the Securities
and Exchange Commission against Mr. Douglass in 2009. The settlement payment of $125,000 was made on June 24, 2013.



Lawsuit Settlement—On August
12, 2012, Paula Douglass filed a lawsuit against the Fund and members of the Board of Directors in the District Court of Harris
County, Texas. Ms. Douglass’ complaint alleged various causes of action, including minority shareholder oppression, dilution,
and breach of fiduciary duty, and sought unspecified damages and attorney’s fees. Effective June 13, 2013, the Fund entered
into a settlement agreement with Ms. Douglass, Sam Douglass, as well as certain trusts controlled by them. Pursuant to the settlement
agreement and in view of the estimated costs of protracted litigation and the associated disruption to the operations of the Fund,
the Board of Directors approved a payment of $402,254, in complete settlement of the lawsuit, as being in the best interests of
the Fund and its shareholders. The settlement payment was made on July 30, 2013. Ms. Douglass filed a motion to dismiss the lawsuit
with prejudice on August 8, 2013.



From time to time, the Fund is also
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.



Table of Contents32







Item 1A. Risk Factors



There have been no material changes
in the Fund’s risk factors from the disclosure set forth in the Annual Report on Form 10-K for the year ended December 31,
2014.



Readers should carefully consider these
risks and all other information contained in the annual report on Form 10-K, including the Fund’s financial statements and
the related notes thereto. The risks and uncertainties described below are not the only ones facing the Fund.



Additional risks and uncertainties not
presently known to the Fund, or not presently deemed material by the Fund, may also impair its operations and performance.





Table of Contents33







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(c) 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(b) 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) | Share Exchange Agreement between the Fund and MVC Capital, Inc., dated May 14, 2014. [Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed on May 15, 2014.]
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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
| | -- | ----------------------------------------







Table of Contents34







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.



Date: May 14, 2015

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





















































































Table of Contents35