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, 2019



or



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

For the transition period to

Commission File Number 814-00098

EQUUS TOTAL RETURN, INC.

(Exact name of registrant as specified
in its charter)



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



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



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



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



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



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days. Yes☒No☐



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



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



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



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



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



There were 13,518,146 shares of the
registrant’s common stock, $.001 par value, outstanding, as of May 14, 2019








Table of Contents








EQUUS TOTAL RETURN, INC.

(A Delaware Corporation)



INDEX





|                                                                                              | PAGE
|--------------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL INFORMATION                                                                 |     
|Item 1. Unaudited Condensed Financial Statements                                              | 3   
|Condensed Balance Sheets                                                                      | 3   
|Condensed Statements of Operations                                                            | 4   
|Condensed Statements of Changes in Net Assets                                                 | 5   
|Condensed Statements of Cash Flows                                                            | 6   
|Supplemental Information—Selected Per Share Data and Ratios                                   | 7   
|Schedules of Investments                                                                      | 8   
|Notes to Condensed Financial Statements                                                       | 12  
|Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28  
|Item 3. Quantitative and Qualitative Disclosure about Market Risk                             | 33  
|Item 4. Controls and Procedures                                                               | 33  
|PART II. OTHER INFORMATION                                                                    |     
|Item 1. Legal Proceedings                                                                     | 34  
|Item 1A. Risk Factors                                                                         | 34  
|Item 6. Exhibits                                                                              | 35  
|SIGNATURE                                                                                     | 36  
|                                                                                              |     







































2


Table of Contents




EQUUS TOTAL RETURN, INC.

CONDENSED BALANCE SHEETS

(Unaudited)



Part I. Financial Information

Item 1. Unaudited Condensed Financial Statements



|                                                                                                                     |  | March 31,
                                                                                2019 |         | December 31,
                                                                                2018
|-------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | ------- | -------------------------------------------------------------------------------------------------
|(in thousands, except per share amounts)                                                                             |  |                                                                                                |         |                                                                                                  
|Assets                                                                                                               |  |                                                                                                |         |                                                                                                  
|Investments in portfolio securities at fair value:                                                                   |  |                                                                                                |         |                                                                                                  
|Control investments (cost at $10,050)                                                                                |  | $                                                                                              | 10,711  |                                                                                                  
|Affiliate investments (cost at $350)                                                                                 |  |                                                                                                | 22,500  |                                                                                                  
|Non-affiliate investments - related party (cost at $6,657 and $6,579,
                                 respectively) |  |                                                                                                | 4,862   |                                                                                                  
|Non-affiliate investments (cost at $977)                                                                             |  |                                                                                                | 977     |                                                                                                  
|Total investments in portfolio securities at fair value                                                              |  |                                                                                                | 39,050  |                                                                                                  
|Temporary cash investments                                                                                           |  |                                                                                                | 26,977  |                                                                                                  
|Cash and cash equivalents                                                                                            |  |                                                                                                | 6,318   |                                                                                                  
|Restricted cash                                                                                                      |  |                                                                                                | 270     |                                                                                                  
|Accounts receivable from affiliates                                                                                  |  |                                                                                                | 561     |                                                                                                  
|Accrued interest and dividend receivable                                                                             |  |                                                                                                | 489     |                                                                                                  
|Other assets                                                                                                         |  |                                                                                                | 69      |                                                                                                  
|Total assets                                                                                                         |  |                                                                                                | 73,734  |                                                                                                  
|Liabilities and net assets                                                                                           |  |                                                                                                |         |                                                                                                  
|Accounts payable                                                                                                     |  |                                                                                                | 153     |                                                                                                  
|Accounts payable to related parties                                                                                  |  |                                                                                                | 52      |                                                                                                  
|Borrowing under margin account                                                                                       |  |                                                                                                | 26,977  |                                                                                                  
|Total liabilities                                                                                                    |  |                                                                                                | 27,182  |                                                                                                  
|                                                                                                                     |  |                                                                                                |         |                                                                                                  
|Commitments and contingencies (see Note 2)                                                                           |  |                                                                                                |         |                                                                                                  
|                                                                                                                     |  |                                                                                                |         |                                                                                                  
|Net assets                                                                                                           |  | $                                                                                              | 46,552  |                                                                                                  
|                                                                                                                     |  |                                                                                                |         |                                                                                                  
|Net assets consist of:                                                                                               |  |                                                                                                |         |                                                                                                  
|Common stock, par value                                                                                              |  | $                                                                                              | 13      |                                                                                                  
|Capital in excess of par value                                                                                       |  |                                                                                                | 55,821  |                                                                                                  
|Undistributed net investment losses                                                                                  |  |                                                                                                | (30,317 | )                                                                                                
|Undistributed net capital gains                                                                                      |  |                                                                                                | 19      |                                                                                                  
|Unrealized appreciation of portfolio securities, net                                                                 |  |                                                                                                | 22,811  |                                                                                                  
|Unrealized depreciation of portfolio securities, net - related party                                                 |  |                                                                                                | (1,795  | )                                                                                                
|Total net assets                                                                                                     |  | $                                                                                              | 46,552  |                                                                                                  
|Shares of common stock issued and outstanding, $.001 par value, 50,000 shares authorized                             |  |                                                                                                | 13,518  |                                                                                                  
|Shares of preferred stock issued and outstanding, $.001 par value, 5,000 shares authorized                           |  |                                                                                                | —       |                                                                                                  
|Net asset value per share                                                                                            |  | $                                                                                              | 3.44    |                                                                                                  



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



3


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EQUUS TOTAL RETURN, INC.

CONDENSED STATEMENTS OF
OPERATIONS

(Unaudited)





|                                                                                  |  | Three Months Ended March 31,
|--------------------------------------------------------------------------------- |  | ----------------------------
|(in thousands, except per share amounts)                                          |  | 2019                        
|Investment income:                                                                |  |                             
|Interest and dividend income:                                                     |  |                             
|Non-affiliate investments - related party                                         |  | $                           
|Non-affiliate investments                                                         |  |                             
|Total interest and dividend income                                                |  |                             
|Interest from temporary cash investments                                          |  |                             
|Total investment income                                                           |  |                             
|                                                                                  |  |                             
|Expenses:                                                                         |  |                             
|Compensation expense                                                              |  |                             
|Professional fees                                                                 |  |                             
|Director fees and expenses                                                        |  |                             
|General and administrative expenses                                               |  |                             
|Mailing, printing and other expenses                                              |  |                             
|Taxes                                                                             |  |                             
|Interest expense                                                                  |  |                             
|Total expenses                                                                    |  |                             
|                                                                                  |  |                             
|                                                                                  |  |                             
|Net investment loss                                                               |  |                             
|                                                                                  |  |                             
|Net realized gain:                                                                |  |                             
|Temporary cash investments                                                        |  |                             
|Net realized gain                                                                 |  |                             
|                                                                                  |  |                             
|Net unrealized appreciation (depreciation) of portfolio securities:               |  |                             
|End of period                                                                     |  |                             
|Beginning of period                                                               |  |                             
|Net change in net unrealized appreciation of portfolio securities                 |  |                             
|                                                                                  |  |                             
|Net unrealized depreciation of portfolio securities - related party:              |  |                             
|End of period                                                                     |  |                             
|Beginning of period                                                               |  |                             
|Net change in net unrealized depreciation of portfolio securities - related party |  |                             
|                                                                                  |  |                             
|Net increase in net assets resulting from operations                              |  | $                           
|                                                                                  |  |                             
|Net increase 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.



4


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EQUUS TOTAL RETURN, INC.

CONDENSED STATEMENTS OF CHANGES
IN NET ASSETS

(Unaudited)





|                                                                |  | Common Stock     |  |   |           |  |   |                                |  |   |                                     |   |   |                                 |  |   |                                                      |  |   |                                                                
|--------------------------------------------------------------- |  | ---------------- |  | - | --------- |  | - | ------------------------------ |  | - | ----------------------------------- | - | - | ------------------------------- |  | - | ---------------------------------------------------- |  | - | ---------------------------------------------------------------
|(in thousands)                                                  |  | Number of Shares |  |   | Par Value |  |   | Capital in Excess of Par Value |  |   | Undistributed Net Investment Losses |   |   | Undistributed Net Capital Gains |  |   | Unrealized Appreciation of Portfolio Securities, net |  |   | Unrealized Depreciation of Portfolio Securities - Related Party
|Balances at December 31, 2018                                   |  | 13,518           |  | $ | 13        |  | $ | 55,741                         |  | $ | (29,327                             | ) | $ | 9                               |  | $ | 19,310                                               |  | $ | (2,251                                                         
|                                                                |  |                  |  |   |           |  |   |                                |  |   |                                     |   |   |                                 |  |   |                                                      |  |   |                                                                
|Share-based incentive compensation                              |  | —                |  |   | —         |  |   | 80                             |  |   | —                                   |   |   | —                               |  |   | —                                                    |  |   | —                                                              
|                                                                |  |                  |  |   |           |  |   |                                |  |   |                                     |   |   |                                 |  |   |                                                      |  |   |                                                                
|Net (decrease) increase in net assets resulting from operations |  | —                |  |   | —         |  |   | —                              |  |   | (990                                | ) |   | 10                              |  |   | 3,501                                                |  |   | 456                                                            
|                                                                |  |                  |  |   |           |  |   |                                |  |   |                                     |   |   |                                 |  |   |                                                      |  |   |                                                                
|Balances at March 31, 2019                                      |  | 13,518           |  | $ | 13        |  | $ | 55,821                         |  | $ | (30,317                             | ) | $ | 19                              |  | $ | 22,811                                               |  | $ | (1,795                                                         





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







5


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EQUUS TOTAL RETURN, INC.

CONDENSED STATEMENTS OF CASH
FLOWS

(Unaudited)





|                                                                                                                        |  | Three Months Ended March 31,
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------------------
|(in thousands)                                                                                                          |  | 2019                        
|Reconciliation of increase in net assets resulting from operations to net cash                                          |  |                             
|used in operating activities:                                                                                           |  |                             
|Net increase in net assets resulting from operations                                                                    |  | $                           
|Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: |  |                             
|Net realized gain                                                                                                       |  |                             
|Net change in unrealized appreciation of portfolio securities                                                           |  |                             
|Net change in unrealized depreciation of portfolio securities - related party                                           |  |                             
|Share-based incentive compensation                                                                                      |  |                             
|Changes in operating assets and liabilities:                                                                            |  |                             
|Purchases of (proceeds from) temporary cash investments, net                                                            |  |                             
|Accounts receivable from affiliates                                                                                     |  |                             
|Accrued interest and dividend receivable                                                                                |  |                             
|Other assets                                                                                                            |  |                             
|Accounts payable and accrued liabilities                                                                                |  |                             
|Accounts payable to related parties                                                                                     |  |                             
|Net cash used in operating activities                                                                                   |  |                             
|Cash flows from financing activities:                                                                                   |  |                             
|Borrowings under margin account                                                                                         |  |                             
|Repayments under margin account                                                                                         |  |                             
|Net cash (used in) provided by financing activities                                                                     |  |                             
|Net decrease in cash and cash equivalents                                                                               |  |                             
|Cash and cash equivalents and restricted cash at beginning of period                                                    |  |                             
|                                                                                                                        |  |                             
|Cash and cash equivalents and restricted cash at end of period                                                          |  | $                           
|Non-cash operating and financing activities:                                                                            |  |                             
|Accrued interest or dividends exchanged for portfolio securities - related party                                        |  | $                           
|                                                                                                                        |  |                             
|Supplemental disclosure of cash flow information:                                                                       |  |                             
|Interest paid                                                                                                           |  | $                           
|Income taxes paid                                                                                                       |  | $                           





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









6


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EQUUS TOTAL RETURN, INC.

SUPPLEMENTAL INFORMATION—SELECTED
PER SHARE DATA AND RATIOS

(Unaudited)

|                                                                                    |  | Three Months Ended March 31,
|----------------------------------------------------------------------------------- |  | ----------------------------
|                                                                                    |  | 2019                        
|                                                                                    |  |                             
|Investment income                                                                   |  | $                           
|Expenses                                                                            |  |                             
|                                                                                    |  |                             
|Net investment loss                                                                 |  |                             
|                                                                                    |  |                             
|Net change in unrealized appreciation                                               |  |                             
|Net change in unrealized depreciation - related party                               |  |                             
|Net increase in net assets                                                          |  |                             
|Capital transactions:                                                               |  |                             
|Share-based incentive compensation                                                  |  |                             
|Dilutive effect of shares issued                                                    |  |                             
|Increase in net assets resulting from capital transactions                          |  |                             
|Net increase in net assets                                                          |  |                             
|Net assets at beginning of period                                                   |  |                             
|Net assets at end of period, basic and diluted                                      |  | $                           
|Weighted average number of shares outstanding during period,                        |  |                             
|in thousands                                                                        |  |                             
|Market price per share:                                                             |  |                             
|Beginning of period                                                                 |  | $                           
|End of period                                                                       |  | $                           
|Selected information and ratios:                                                    |  |                             
|Dividends declared                                                                  |  | $                           
|Ratio of expenses to average net assets                                             |  |                             
|Ratio of net investment loss to average net assets                                  |  |                             
|Ratio of net increase in net assets resulting from operations to average net assets |  |                             
|Total return on market price (1)                                                    |  |                             
|                                                                                    |  |                             





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



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





7


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EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS

MARCH 31, 2019

(Unaudited)

(in thousands, except share data)





|                                                                                                      |                                | 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      | $ | 10,500  
|Equus Media Development Company, LLC
                                 Houston, TX                     | Media                          | January 2007    | Member interest (100%)                 |        |           |        | 3,000      |   | 211     
|Total Control Investments: Majority-owned (represents 16.2% of total investments at fair value)       |                                |                 | $                                      | 10,050 | $         | 10,711
|Affiliate Investments (4):                                                                            |                                |                 |                                        |        |           |        |            |   |         
|PalletOne, Inc.
                                                                 Bartow, FL           | Shipping products and services | October 2001    | 350,000 shares of common stock (18.7%) |        |           | $      | 350        | $ | 22,500  
|Total Affiliate Investments (represents 34.1% of total investments at fair value)                     |                                |                 | $                                      | 350    | $         | 22,500
|Non-Affiliate Investments - Related Party (less than 5% owned):                                       |                                |                 |                                        |        |           |       
|MVC Capital, Inc.
                                    Purchase, NY                                    | Financial services             | May 2014        | 536,007 shares of common stock (1.7%)  |        |           | $      | 6,657      | $ | 4,862   
|Total Non-Affiliate Investments - Related Party (represents 7.4% of total investments at fair value)  |                                |                 | $                                      | 6,657  |           | 4,862 
|Non-Affiliate Investments (less than 5% owned):                                                       |                                |                 |                                        |        |           |       
|5TH Element Tracking, LLC
                                                                 Boston, MA | Business products and services | January 2015    | 14% promissory note due 5/18 (2)       | $      | 977       | $      | 977        | $ | 977     
|Total Non-Affiliate Investments (represents 1.4% of total investments at fair value)                  |                                |                 | $                                      | 977    | $         | 977   
|Total Investment in Portfolio Securities                                                              |                                |                 |                                        |        |           | $      | 18,034     | $ | 39,050  
|Temporary Cash Investments                                                                            |                                |                 |                                        |        |           |        |            |   |         
|U.S. Treasury Bill                                                                                    | Government                     | March 2019      | UST 0% 4/19                            | $      | 26,977    | $      | 26,977     | $ | 26,977  
|Total Temporary Cash Investments (represents 40.9% of total investments at fair value)                |                                |                 | $                                      | 26,977 | $         | 26,977
|Total Investments                                                                                     |                                |                 |                                        |        |           | $      | 45,011     | $ | 66,027  





|(1) | See Note 3 to the financial statements, Valuation of Investments.                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Non-income-producing.  See notes 5 and 9 to the financial statements.                                                                                          
|(3) | Majority owned investments are generally defined under the 1940 Act as companies in which we own more than 50% of the voting securities of the company.        
|(4) | Affiliate investments are generally defined under the 1940 Act as companies in which we own at least 5% but not more than 25% voting securities of the company.







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







8


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EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS – (Continued)

MARCH 31, 2019

(Unaudited)



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



As a business development company (“BDC”)
regulated pursuant to the Investment Company Act of 1940 (“1940 Act”), we may invest up to 30% of our assets in non-qualifying
portfolio investments, as permitted by the 1940 Act. Specifically, we may invest up to 30% of our assets in entities that are not
considered “eligible portfolio companies” (as defined in the 1940 Act), including companies located outside of the
United States, entities that are operating pursuant to certain exceptions under the 1940 Act, and publicly-traded entities with
a market capitalization exceeding $250 million. As of March 31, 2019, we held 83.9% of our assets at fair value in securities of
portfolio companies that constituted qualifying investments under the 1940 Act. As of March 31, 2019, except for our shares of
MVC, all of our investments are in enterprises that are considered eligible portfolio companies under the 1940 Act. We provide
significant managerial assistance to portfolio companies that comprise 85.0% of the total value of the investments in portfolio
securities as of March 31, 2019.



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 “Shipping products and services” includes one portfolio
company and was 48.3% of our net asset value, 30.5% of our total assets and 57.6% of our investments in portfolio company securities
(at fair value) as of March 31, 2019. The value of one segment called “Energy” includes one portfolio company and was
22.6% of our net asset value, 14.2% of our total assets and 26.9% of our investments in portfolio company securities (at fair value)
as of March 31, 2019. Changes in business or industry trends or in the financial condition, results of operations, or the market’s
assessment of any single portfolio company will affect the net asset value and the market price of our common stock to a greater
extent than would be the case if we were a “diversified” company holding numerous investments.



Our investments in portfolio securities
consist of the following types of securities as of March 31, 2019 (in thousands):



|Type of Securities                    |  | Cost |        | Fair Value |  | Fair Value as Percentage of
                                                                                Net Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | ----------------------------------------------------------------------------------------------------------------------
|Common stock                          |  | $    | 7,007  |            |  | $                                                                                                                     
|Limited liability company investments |  |      | 10,050 |            |  |                                                                                                                       
|Secured and subordinated debt         |  |      | 977    |            |  |                                                                                                                       
|Preferred stock                       |  |      | —      |            |  |                                                                                                                       
|Options and warrants                  |  |      | —      |            |  |                                                                                                                       
|Total                                 |  | $    | 18,034 |            |  | $                                                                                                                     





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



|Industry                       |  | Fair Value |        | Fair Value as Percentage of
                                                                                Net Assets
|------------------------------ |  | ---------- | ------ | ----------------------------------------------------------------------------------------------------------------------
|Shipping products and services |  |            | 22,500 |                                                                                                                       
|Energy                         |  |            | 10,500 |                                                                                                                       
|Financial services             |  |            | 4,862  |                                                                                                                       
|Business products and services |  |            | 977    |                                                                                                                       
|Media                          |  |            | 211    |                                                                                                                       
|Total                          |  | $          | 39,050 |                                                                                                                       





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



9


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EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2018

(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      |   | 210     
|Total Control Investments: Majority-owned (represents 14.9% of total investments at fair value)       |                                |                 | $                                      | 10,050 | $         | 9,210 
|Affiliate Investments (4):                                                                            |                                |                 |                                        |        |           |        |            |   |         
|PalletOne, Inc.
                                                                 Bartow, FL           | Shipping products and services | October 2001    | 350,000 shares of common stock (18.7%) |        |           | $      | 350        | $ | 20,500  
|Total Affiliate Investments (represents 33.1% of total investments at fair value)                     |                                |                 | $                                      | 350    | $         | 20,500
|Non-Affiliate Investments - Related Party (less than 5% owned):                                       |                                |                 |                                        |        |           |       
|MVC Capital, Inc.
                                    Purchase, NY                                    | Financial services             | May 2014        | 527,138 shares of common stock (1.7%)  |        |           | $      | 6,579      | $ | 4,328   
|Total Non-Affiliate Investments - Related Party (represents 7.0% of total investments at fair value)  |                                |                 | $                                      | 6,579  | $         | 4,328 
|Non-Affiliate Investments (less than 5% owned):                                                       |                                |                 |                                        |        |           |       
|5TH Element Tracking, LLC
                                                                 Boston, MA | Business products and services | January 2015    | 14% promissory note due 5/18 (2)       | $      | 977       | $      | 977        | $ | 977     
|Total Non-Affiliate Investments (represents 1.5% of total investments at fair value)                  |                                |                 | $                                      | 977    | $         | 977   
|Total Investment in Portfolio Securities                                                              |                                |                 |                                        |        |           | $      | 17,956     | $ | 35,015  
|Temporary Cash Investments                                                                            |                                |                 |                                        |        |           |        |            |   |         
|U.S. Treasury Bill                                                                                    | Government                     | December 2018   | UST 0% 1/19                            |        | 26,981    | $      | 26,981     | $ | 26,981  
|Total Temporary Cash Investments (represents 43.5% of total investments at fair value)                |                                |                 | $                                      | 26,981 | $         | 26,981
|Total Investments                                                                                     |                                |                 |                                        |        |           | $      | 44,937     | $ | 61,996  













|(1) | See Note 3 to the financial statements, Valuation of Investments.                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Non-income producing.                                                                                                                                          
|(3) | Majority owned investments are generally defined under the 1940 Act as companies in which we own more than 50% of the voting securities of the company.        
|(4) | Affiliate investments are generally defined under the 1940 Act as companies in which we own at least 5% but not more than 25% voting securities of the company.









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



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EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS – (Continued)

DECEMBER 31, 2018

(in thousands, except share data)



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



As a BDC, we may invest up to 30% of
our assets in non-qualifying portfolio investments, as permitted by the 1940 Act. Specifically, we may invest up to 30% of our
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 December 31, 2018, we had invested 87.5% of our assets in securities
of portfolio companies that constituted qualifying investments under the 1940 Act. As of December 31, 2018, except for our shares
of MVC, all of our investments are in enterprises that are considered eligible portfolio companies under the 1940 Act. We provide
significant managerial assistance to portfolio companies that comprise 84.6% of the total value of the investments in portfolio
securities as of December 31, 2018.



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 “Shipping products and services” includes one portfolio
company and was 47.1% of our net asset value, 28.9% of our total assets and 58.5% of our investments in portfolio company securities
(at fair value) as of December 31, 2018. The value of one segment called “Energy” includes one portfolio company and
was 20.7% of our net asset value, 12.7% of our total assets and 25.7% of our investments in portfolio company securities (at fair
value) as of December 31, 2018. Changes in business or industry trends or in the financial condition, results of operations, or
the market’s assessment of any single portfolio company will affect the net asset value and the market price of our common
stock to a greater extent than would be the case if we were a “diversified” company holding numerous investments.



Our investments in portfolio securities
consist of the following types of securities as of December 31, 2018 (in thousands):





|Type of Securities                    |  | Cost |        | Fair Value |  | Fair Value as Percentage of
                                                                                Net Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | ----------------------------------------------------------------------------------------------------------------------
|Common stock                          |  | $    | 6,929  |            |  | $                                                                                                                     
|Limited liability company investments |  |      | 10,050 |            |  |                                                                                                                       
|Secured and subordinated debt         |  |      | 977    |            |  |                                                                                                                       
|Total                                 |  | $    | 17,956 |            |  | $                                                                                                                     











The following is a summary by industry
of the Fund’s investments in portfolio securities as of December 31, 2018 (in thousands):





|Industry                       |  | Fair Value |        | Fair Value as Percentage of
                                                                                Net Assets
|------------------------------ |  | ---------- | ------ | ----------------------------------------------------------------------------------------------------------------------
|Shipping products and services |  |            | 20,500 |                                                                                                                       
|Energy                         |  |            | 9,000  |                                                                                                                       
|Financial services             |  |            | 4,328  |                                                                                                                       
|Business products and services |  |            | 977    |                                                                                                                       
|Media                          |  |            | 210    |                                                                                                                       
|Total                          |  | $          | 35,015 |                                                                                                                       











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

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EQUUS TOTAL RETURN, INC.

NOTES TO CONDENSED FINANCIAL
STATEMENTS

MARCH 31, 2019

(Unaudited)



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



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



So long as we remain an investment company
and not an operating company as contemplated in our Plan of Reorganization described in Note 6 below, we will attempt to
maximize the return to stockholders in the form of current investment income and long-term capital gains by investing in the debt
and equity securities of companies with a total enterprise value of between $5.0 million and $75.0 million, although we may engage
in transactions with smaller or larger investee companies from time to time. We seek to invest primarily in companies pursuing
growth either through acquisition or organically, leveraged buyouts, management buyouts and recapitalizations of existing businesses
or special situations. Our income-producing investments may include debt securities including subordinate debt, debt convertible
into common or preferred stock, or debt combined with warrants and common and preferred stock. Debt and preferred equity financing
may also be used to create long-term capital appreciation through the exercise and sale of warrants received in connection with
the financing. We seek to achieve capital appreciation by making investments in equity and equity-oriented securities issued by
privately-owned companies (or smaller public companies) in transactions negotiated directly with such companies. Given market conditions
over the past several years and the performance of our portfolio, our Management and Board of Directors believe it prudent to continue
to review alternatives to refine and further clarify the current strategies.



We elected to be treated as a BDC under
the 1940 Act. We currently qualify as a regulated investment company (“RIC”) for federal income tax purposes and, therefore,
are not required to pay corporate income taxes on any income or gains that we distribute to our stockholders. We have 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 and the Securities Exchange Act of 1934, as amended (“Exchange
Act”), we do not consolidate portfolio company investments, including those in which we have a controlling interest. Our
interim unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”), for interim financial information and in accordance with the requirements of reporting
on Form 10-Q and Article 10 of Regulation S-X, under the Exchange Act. Accordingly, they are unaudited and exclude some disclosures
required for annual financial statements. We believe that we have made all adjustments, consisting solely of normal recurring accruals,
necessary for the fair presentation of these interim financial statements.



The results of operations for the three
months ended March 31, 2019 are not necessarily indicative of results that ultimately may be achieved for the remainder of the
year. The interim unaudited financial statements and notes thereto should be read in conjunction with the financial statements
and notes thereto included in the Fund’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, 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 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
the extent we remain a BDC, to finance routine follow-on investments, if any, through the next twelve months.



Cash and Cash Equivalents—As
of March 31, 2019, we had cash and cash equivalents of $6.3 million. We had $39.1 million of our net assets of $46.6 million invested
in portfolio securities. We also had $27.2 million of restricted cash and temporary cash investments, including primarily the proceeds
of a quarter-end margin loan that we incurred to maintain the diversification requirements applicable to a RIC to maintain our
pass-through tax treatment. Of this amount, $27.0 million was invested in U.S. Treasury bills and $0.2 million represented a required
1% brokerage margin deposit. These securities were held by a securities brokerage firm and pledged along with other assets to secure
repayment of the margin loan. The U.S. Treasury bills matured on April 3, 2019 and we subsequently repaid this margin loan, plus
interest. The margin interest was paid on April 5, 2019.



As of December 31, 2018, we had cash
and cash equivalents of $7.4 million. We had $35.0 million of our net assets of $43.5 million invested in portfolio securities.
We also had $27.3 million of temporary cash investments and restricted cash, including primarily the proceeds of a quarter-end
margin loan that we incurred to maintain the diversification requirements applicable to a RIC. Of this amount, $27.0 million was
invested in U.S. Treasury bills and $0.3 million represented a required 1% brokerage margin deposit. These securities were held
by a securities brokerage firm and pledged along with other assets to secure repayment of the margin loan. The U.S. Treasury bills
were sold on January 2, 2019 and we subsequently repaid this margin loan. The margin interest was paid on February 5, 2019.



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



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



As of March 31, 2019, we had no outstanding
commitments to our portfolio company investments.



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



As of March 31, 2019, we borrowed $27.0
million to maintain our RIC status by utilizing a margin account with a securities brokerage firm. We collateralized such borrowings
with restricted cash and temporary cash investments in U.S. Treasury bills of $27.2 million.



As of December 31, 2018, we borrowed
$27.0 million to maintain our RIC status by utilizing a margin account with a securities brokerage firm. We collateralized such
borrowings with restricted cash and temporary cash investments in U.S. Treasury bills of $27.3 million.



Certain Risks and Uncertainties—Market
and economic volatility which has become endemic in the past few years has resulted in a relatively limited amount of available
debt financing for small and medium-sized companies such as Equus and its portfolio companies. Such debt financing generally has
shorter maturities, higher interest rates and fees, and more restrictive terms than debt facilities available in the past. In addition,
during these years and continuing into the first three months of 2019, the price of our common stock remained well below our net
asset value, thereby making it undesirable to issue additional shares of our common stock below net asset value. Because of these
challenges, our near-term strategies shifted from originating debt and equity investments to preserving liquidity necessary to
meet our operational needs. Key

13


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initiatives that we
have previously undertaken to provide necessary liquidity include monetizations, the suspension of dividends and
the internalization of management. We are also evaluating potential opportunities that could enable us to effect a change to
our business and become an operating company as described in Note 6 – Plan of Reorganization below. We believe
we have sufficient liquidity to meet our operating requirements for the remainder of 2019 and the first three months of
2020.



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



| | 1. | Each portfolio company or investment is reviewed by our investment
        professionals;                                                                                                                                                                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | With respect to investments with a fair value exceeding $2.5
        million that have been held for more than one year, we engage independent valuation firms to assist our investment professionals.
        These independent valuation firms conduct independent valuations and make their own independent assessments;                                                     
| | 3. | Our Management produces a report that summarized each of
        our portfolio investments and recommends a fair value of each such investment as of the date of the report;                                                                                                                                                                                                    
| | 4. | The Audit Committee of our Board reviews and discusses the
        preliminary valuation of our portfolio investments as recommended by Management in their report and any reports or recommendations
        of the independent valuation firms, and then approves and recommends the fair values of our investments so determined to our Board
        for final approval; and
| | 5. | The Board discusses valuations and determines the fair value of each portfolio investment in good faith based on the input of our Management, the respective independent valuation firm, as applicable, and the Audit Committee.                                                                                                                                                



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



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

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In applying these methodologies, additional
factors that we consider in fair value pricing our investments may include, as we deem relevant: security covenants, call protection
provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to
make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer
companies; the principal market; and enterprise values, among other factors. Also, any failure by a portfolio company to achieve
its business plan or obtain and maintain its financing arrangements could result in increased volatility and result in a significant
and rapid change in its value.



Our general intent is to hold our loans
to maturity when appraising our privately held debt investments. As such, we believe that the fair value will not exceed the cost
of the investment. However, in addition to the previously described analysis involving allocation of value to the debt instrument,
we perform a yield analysis assuming a hypothetical current sale of the security to determine if a debt security has been impaired. The
yield analysis considers changes in interest rates and changes in leverage levels of the portfolio company as compared to the market
interest rates and leverage levels. Assuming the credit quality of the portfolio company remains stable, the Fund will use the
value determined by the yield analysis as the fair value for that security if less than the cost of the investment.



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



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



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



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



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



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



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

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



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



We assess the levels of the investments
at each measurement date, and transfers between levels are recognized on the subsequent measurement date closest in time to the
actual date of the event or change in circumstances that caused the transfer. There were no transfers among Level 1, 2 and 3 for
the three months ended March 31, 2019 and the year ended December 31, 2018.



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



|                                                 |  |       |        | Fair Value Measurements as of March 31, 2019                                                                                                  
|------------------------------------------------ |  | ----- | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------
|(in thousands)                                   |  | Total |        | Quoted Prices in Active Markets for Identical Assets
                                                                                (Level 1)
|Assets                                           |  |       |        |                                                                                                                                               
|Investments:                                     |  |       |        |                                                                                                                                               
|Control investments                              |  | $     | 10,711 |                                                                                                                                               
|Affiliate investments                            |  |       | 22,500 |                                                                                                                                               
|Non-affiliate investments - related party        |  |       | 4,862  |                                                                                                                                               
|Non-affiliate investments                        |  |       | 977    |                                                                                                                                               
|Total investments                                |  |       | 39,050 |                                                                                                                                               
|Temporary cash investments                       |  |       | 26,977 |                                                                                                                                               
|Total investments and temporary cash investments |  | $     | 66,027 |                                                                                                                                               
|                                                 |  |       |        |                                                                                                                                               





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As of December 31, 2018, 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, 2018                                                                                               
|------------------------------------------------ |  | ----- | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------
|(in thousands)                                   |  | Total |        | Quoted Prices in Active Markets for Identical Assets
                                                                                (Level 1)
|Assets                                           |  |       |        |                                                                                                                                               
|Investments:                                     |  |       |        |                                                                                                                                               
|Control investments                              |  | $     | 9,210  |                                                                                                                                               
|Affiliate investments                            |  |       | 20,500 |                                                                                                                                               
|Non-affiliate investments - related party        |  |       | 4,328  |                                                                                                                                               
|Non-affiliate investments                        |  |       | 977    |                                                                                                                                               
|Total investments                                |  |       | 35,015 |                                                                                                                                               
|Temporary cash investments                       |  |       | 26,981 |                                                                                                                                               
|Total investments and temporary cash investments |  | $     | 61,996 |                                                                                                                                               







The following table provides a reconciliation
of fair value changes during the three months ended March 31, 2019 for all investments for which we determine fair value using
unobservable (Level 3) factors:





|                                   |  | Fair value measurements using significant unobservable inputs (Level 3)
|---------------------------------- |  | -----------------------------------------------------------------------
|(in thousands)                     |  | Control Investments                                                    
|Fair value as of December 31, 2018 |  | $                                                                      
|Change in unrealized appreciation  |  |                                                                        
|Fair value as of March 31, 2019    |  | $                                                                      





The following table provides a reconciliation
of fair value changes during the three months ended March 31, 2018 for all investments for which we determine fair value using
unobservable (Level 3) factors:



|                                   |  | Fair value measurements using significant unobservable inputs (Level 3)
|---------------------------------- |  | -----------------------------------------------------------------------
|(in thousands)                     |  | Control Investments                                                    
|Fair value as of December 31, 2017 |  | $                                                                      
|Change in unrealized appreciation  |  |                                                                        
|Fair value as of March 31, 2018    |  | $                                                                      











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.



17


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The following table summarizes the significant
non-observable inputs in the fair value measurements of our Level 3 investments by category of investment and valuation technique
as of March 31, 2019:



|                                      |  |            |        |                      |  |                                                                                                                                                                                                                                           |  | Range                                                                                                                                                                                                                           
|------------------------------------- |  | ---------- | ------ | -------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(in thousands)                        |  | Fair Value |        | Valuation Techniques |  | Unobservable Inputs                                                                                                                                                                                                                       |  | Minimum                                                                                                                                                                                                                         
|Secured and subordinated debt         |  | $          | 977    |                      |  | Yield analysis                                                                                                                                                                                                                            |  | Discount for lack of
                                               marketability                                                                                                                                               
|Common stock                          |  |            | 22,500 |                      |  | Income/Market
                                   approach                                                                                                                                                                                 |  | EBITDA
                                   Multiple/Discount for
                                   lack of
                                   marketability/Control
                                   premium                  
|Limited liability company investments |  |            | 10,711 |                      |  | Asset approach
                                                        Discounted cash flow;
                                                        Guideline transaction
                                                        method |  | Recovery rate
                                                        Reserve
                                                        adjustment factors
                                                        Market approach
|                                      |  | $          | 34,188 |                      |  |                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                 





Because of the inherent uncertainty
of the valuation of portfolio securities which do not have readily ascertainable market values, amounting to $34.2 million and $30.7
million as of March 31, 2019 and December 31, 2018, respectively, our fair value determinations may materially differ from the
values that would have been used had a ready market existed for these securities. As of March 31, 2019 and December 31, 2018, one
of our portfolio investments consisting of 536,007 and 527,138 common shares of MVC, respectively, was publicly listed on the NYSE.



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





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



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



As of March 31, 2019, 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 their debt.

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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.



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



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



Share-Based
Compensation—We account for our share-based compensation using the fair value method, as prescribed by ASC 718,
Compensation—Stock Compensation. Accordingly, for restricted stock awards, we measure the grant date fair value based
upon the market price of our common stock on the date of the grant and amortize the fair value of the awards as share-based
compensation expense over the requisite service period, which is generally the vesting term and account for forfeitures as
they occur.



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



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—So long as we remain
a BDC, 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 organized in the State
of Delaware are required to file an Annual Report and to pay a franchise tax. As a result, we paid Delaware Franchise tax in the
amount of $0.02 million for the year ended December 31, 2018.



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Texas margin tax applies to legal
entities conducting business in Texas. The margin tax is based on our Texas sourced taxable margin. The tax is calculated by applying
a tax rate to a base that considers both revenue and expenses and therefore has the characteristics of an income tax. As a result,
we have no provision for margin tax expense for the three months ended March 31, 2019, respectively, and we paid $3 thousand in
state income tax for the year ended December 31, 2018.



Accounting
Standards Recently Adopted— In February 2016, the FASB issued ASU 2016-02, Leases,which requires lessees to
recognize on the balance sheet a right of use asset, representing its right to use the underlying asset for the lease term,
and a lease liability for all leases with terms greater than 12 months and the use of practical expedient for leases less
than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing,
and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition
approach, which includes a number of optional practical expedients that entities may elect to apply. The new guidance is
effective for annual periods beginning after December 15, 2018, and interim periods therein. Early application is permitted.
The adoption of ASU 2016-02 will not have an impact on our financial statements as we currently have no operating leases as
our principal offices are under a month-to-month lease arrangement for annual periods beginning after December 15, 2018,
and interim periods therein. Early application is permitted. There was no impact on the financial position or financial
statement disclosures.





Accounting Standards Not Yet Adopted—In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)—Measurement of Credit
Losses on Financial Instruments, which amends the financial instruments impairment guidance so that an entity is required to
measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable
forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance
in FASB ASC Subtopic 325-40,Investments -Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent
measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets
under the effective yield method. ASU 2016-13 effective for public business entities that meet the U.S. GAAP definition of an SEC
filer, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption
is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We
are currently evaluating the impact of ASU 2016-13 on our financial statements.



On August 28, 2018, the FASB issued ASU 2018-13,
which changes the fair value measurement disclosure requirements of ASC 820. The amendments remove certain disclosure requirements
and modify certain others. The amendments remove the requirement to disclose (1) the amount of and reasons for transfers between
Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, (3) the valuation processes
for Level 3 fair value measurements and (4) the changes in unrealized gains and losses for the period included in earnings for
recurring Level 3 fair value measurements held at the end of the reporting period. Also, (1) in lieu of a rollforward for Level
3 fair value measurements, an entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and
purchases and issues of Level 3 assets and liabilities, (2) for investments in certain entities that calculate net asset value,
an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption
might lapse only if the investee has communicated the timing to the entity or announced the timing publicly, and (3) the amendments
clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the
reporting date. Early adoption is permitted. We are currently evaluating the impact of ASU 2018-13 on our financial statements.



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



Share Exchange with MVC Capital,
Inc.— On May 14, 2014, we announced that the Fund intended to effect a reorganization pursuant to Section 2(a)(33) of
the 1940 Act (“Plan of Reorganization”). As a first step to consummating the Plan of 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 BDC 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. Since the date of the Share Exchange, we have received 140,168 additional shares of MVC shares in the form of dividend
payments, inclusive of a payment of 8,869 MVC shares received during the first quarter of 2019. As of March 31, 2019, we valued
our 536,007 MVC shares at $4.9 million, an increase from $4.3 million at December 31, 2018. The value of our MVC shares was based
on MVC’s closing trading price on the NYSE as of such dates. Due to the ownership relationship between the Company and MVC,
the investment and amounts due to and from MVC have been identified and disclosed as “related party(ies)” in our
financial statements.

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



We may also pay other one-time or recurring
fees to members of our Board of Directors in special circumstances. In respect of services
provided to the Fund by members of the Board not in connection with their roles and duties as directors, the Fund pays a rate of
$300 per hour for services.During the three months ended March 31, 2019 and March 31, 2018, we paid Kenneth I. Denos,
P.C., a professional corporation owned by Kenneth I. Denos, a director of the Fund, $0.1 million and $0.1 million, respectively,
for services provided to the Fund.



| | (5) | Portfolio Securities
| | --- | --------------------



During the three months ended March
31, 2019, we received dividends in the form of additional shares of $0.08 million relating to our shareholding in MVC.



During the three months ended March
31, 2019, we recorded a net change in unrealized appreciation of $4.0 million, to a net unrealized appreciation of $21.0 million.
Such change in unrealized appreciation resulted primarily from the following changes:



| | (i)   | Increase in the fair value of our shareholding in MVC of $0.6 million due to an increase in the share price of MVC and the receipt of dividend payments in the form of additional shares of MVC during the period;                                                                       
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                          
| | (ii)  | Increase in fair value of our shareholding in PalletOne, Inc. of $2.0 million due to improved operating performance and overall improvement in comparable industry sectors; and                                                                                                          
| |       |                                                                                                                                                                                                                                                                                          
| | (iii) | Increase in the fair value of our holdings in Equus Energy, LLC of $1.5 million, principally due to increases in mineral acreage prices proximate to the company’s leasehold interests and an increase in the short- and long-term prices for crude oil during the first quarter of 2019.



During the three months ended March
31, 2018, we received dividends in the form of additional shares of $0.07 million relating to our shareholding in MVC.



During the three months ended March
31, 2018, we recorded a net change in unrealized appreciation of $1.1 million, to a net unrealized appreciation of $14.5 million.
Such change in unrealized appreciation resulted primarily from the following changes:



| | (i)   | Decrease in the fair value of our shareholding in MVC of
        $0.2 million due to a decrease in the share price of MVC, offset by the receipt of a dividend payment in the form of additional
        shares of MVC during the quarter;                                                      
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | Increase in fair value of our shareholding in PalletOne, Inc. of $1.1 million due to increases in revenue and EBITDA, as well as promising acquisition and growth prospects; and                                                                                                                
| | (iii) | Increase in the fair value of our holdings in Equus Energy,
        LLC of $0.2 million, principally due to increases in mineral acreage prices proximate to the company’s leasehold interests
        and a moderate increase in the short- and long-term prices for crude oil and natural gas.



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| | (6) | Plan of Reorganization
| | --- | ----------------------



Plan of Reorganization and 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 (hereinafter, the “Plan of Reorganization”). As a first step to consummating the Plan
of Reorganization, we sold to MVC Capital, Inc. (“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 NYSE 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 Plan of Reorganization by pursuing a merger or consolidation with MVC or an operating
company, which operating company may be a subsidiary or portfolio company of MVC (such transaction is hereinafter referred to
as a “Consolidation”). Absent Equus merging or consolidating with/into MVC or a subsidiary thereof, our current
intention is for Equus to (i) terminate its election to be classified as a BDC under the 1940 Act, and (ii) be restructured
as a publicly-traded operating company focused on the energy, natural resources, technology, and/or financial services
sector.



Intention to Continue to Pursue Consolidation—We
intend to continue to pursue a “Consolidation” and the completion of our Plan of Reorganization with another operating company and
withdraw our BDC election if so authorized by our stockholders. While we are presently evaluating various opportunities that could
enable us to accomplish a “Consolidation,” we cannot assure you that we will be able to do so within any particular time period or
at all. Moreover, we cannot assure you that the terms of any such transaction that would embody a “Consolidation” would be acceptable
to us.



Authorization to Withdraw BDC Election—On
January 21, 2019, holders of a majority of the outstanding common stock of the Fund approved our cessation as a BDC under the 1940
Act and authorized our Board to cause the Fund’s withdrawal of its election to be classified as a BDC, effective as of a
date designated by the Board and our Chief Executive Officer, but in no event later than July 31, 2019. This authorization was
given as a consequence of our Plan of Reorganization described above. Notwithstanding any such authorization to withdraw our BDC
election, we will not submit any such withdrawal unless and until Equus has entered into a definitive agreement to effect a “Consolidation”.
Further, even if we are again authorized to withdraw our election as a BDC, we will require a subsequent affirmative vote from
holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our
business.



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



Share-Based
Incentive Compensation—On June 13, 2016, our shareholders approved the adoption of our 2016 Equity Incentive Plan (“Incentive
Plan”). On January 10, 2017, the SEC issued an order approving the Incentive Plan and certain awards intended to be made
thereunder. The Incentive Plan is intended to promote the interests of the Fund by encouraging officers, employees, and directors
of the Fund and its affiliates to acquire or increase their equity interest in the Fund and to provide a means whereby they may
develop a proprietary interest in the development and financial success of the Fund, to encourage them to remain with and devote
their best efforts to the business of the Fund, thereby advancing the interests of the Fund and its stockholders. The Incentive
Plan is also intended to enhance the ability of the Fund and its affiliates to attract and retain the services of individuals
who are essential for the growth and profitability of the Fund. The Incentive Plan permits the award of restricted stock as well
as common stock purchase options. The maximum number of shares of common stock that are subject to awards granted under the Incentive
Plan is 2,434,728 shares. The term of the Incentive Plan will expire on June 13, 2026. On March 17, 2017, we granted awards of
restricted stock under the Incentive Plan to certain of our directors and executive officers in the aggregate amount of 844,500
shares. The awards are each subject to a vesting requirement over a 3-year period unless the recipient thereof is terminated or
removed from their position as a director or executive officer without “cause”, or as a result of constructive termination,
as such terms are defined in the respective award agreements entered into by each of the recipients and the Fund. As of March
31, 2019, 280,000 shares of restricted stock which were granted pursuant to the Incentive Plan, remained unvested. We account
for share-based compensation using the fair value method, as prescribed by ASC 718. Accordingly, for restricted stock awards,
we measure the grant date fair value based upon the market price of our common stock on the date of the grant and amortize the
fair value of the awards as share-based compensation expense over the requisite service period, which is generally the vesting
term. For the three months ended March 31, 2019 and 2018, we recorded compensation expense of $0.08 million and $0.2 million,
respectively, in connection with these awards.



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



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



The wells are operated by a number of
experienced operators, including Chevron USA, Inc., which has operating responsibility for all of Equus Energy’s 40 well
interests located in the Conger Field, 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 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, 2019, Equus Energy’s revenue, operating revenue less direct operating expenses, and net
loss were $0.1 million, ($0.05) million, and ($0.2) million, respectively, as compared to revenue, operating revenue less direct
operating expenses, and net loss which $0.3 million, $0.1 million, and ($0.04) million, respectively, for the three months ended
March 31, 2018.



Capital Expenditures—During
the three months ended March 31, 2019 and March 31, 2018, Equus Energy’s investment, respectively, in capital expenditures
for small repairs and improvements was not significant. The operators of the various working interest communicated their intent
to wait until 2019, commensurate with an anticipated 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 balance sheets.
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 determined by our Management (See Schedule
of Investments).



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Below is summarized consolidated
financial information for Equus Energy as of March 31, 2019 and December 31, 2018 and for the three months March 31, 2019 and 2018,
respectively, (in thousands):





EQUUS ENERGY, LLC

Unaudited Condensed Consolidated Balance
Sheets







|                                                           |  | March 31, |        | December 31,
|---------------------------------------------------------- |  | --------- | ------ | ------------
|                                                           |  | 2019      |        | 2018        
|Assets                                                     |  |           |        |             
|Current assets:                                            |  |           |        |             
|Cash and cash equivalents                                  |  | $         | 888    |             
|Accounts receivable                                        |  |           | 91     |             
|Other current assets                                       |  |           | 34     |             
|Total current assets                                       |  |           | 1,013  |             
|Oil and gas properties                                     |  |           | 8,008  |             
|Less: accumulated depletion, depreciation and amortization |  |           | (7,825 | )           
|Net oil and gas properties                                 |  |           | 183    |             
|Total assets                                               |  | $         | 1,196  |             
|                                                           |  |           |        |             
|Liabilities and member's equity                            |  |           |        |             
|Current liabilities:                                       |  |           |        |             
|Accounts payable and other                                 |  | $         | 151    |             
|Due to affiliate                                           |  |           | 561    |             
|Total current liabilities                                  |  |           | 712    |             
|Asset retirement obligations                               |  |           | 196    |             
|Total liabilities                                          |  |           | 908    |             
|                                                           |  |           |        |             
|Total member's equity                                      |  |           | 288    |             
|                                                           |  |           |        |             
|Total liabilities and member's equity                      |  | $         | 1,196  |             





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



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EQUUS ENERGY, LLC

Unaudited Condensed Consolidated Statements
of Operations





|                                                    |  | Three Months Ended March 31, 2018
|--------------------------------------------------- |  | ---------------------------------
|                                                    |  | 2019                             
|Operating revenue                                   |  | $                                
|Operating expenses                                  |  |                                  
|Direct operating expenses                           |  |                                  
|General and administrative                          |  |                                  
|Depletion, depreciation, amortization and accretion |  |                                  
|Total operating expenses                            |  |                                  
|Operating loss before income tax expense            |  |                                  
|Income tax benefit (expense)                        |  |                                  
|Net loss                                            |  | $                                





EQUUS ENERGY, LLC

Unaudited Condensed Consolidated Statements
of Cash Flows





|                                                     |  | Three Months Ended March 31,
|---------------------------------------------------- |  | ----------------------------
|                                                     |  | 2019                        
|                                                     |  |                             
|Cash flows from operating activities:                |  |                             
|Net loss                                             |  | $                           
|Adjustments to reconcile net loss to                 |  |                             
|net cash (used in) provided by operating activities: |  |                             
|Depletion, depreciation, amortization and accretion  |  |                             
|Changes in operating assets and liabilites:          |  |                             
|Accounts receivable                                  |  |                             
|Accounts payable and other                           |  |                             
|Due to affiliate                                     |  |                             
|Net cash (used in) provided by operating activities  |  |                             
|                                                     |  |                             
|Cash flows from investing activities:                |  |                             
|Investment in oil & gas properties                   |  |                             
|Net cash used in investing activities                |  |                             
|Net (decrease) increase in cash                      |  |                             
|Cash and cash equivalents at beginning of period     |  |                             
|Cash and cash equivalents at end of period           |  | $                           





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



The capitalized costs of oil and gas
properties, plus estimated future development costs relating to proved reserves and estimated cost of dismantlement and abandonment,
net of salvage value, are amortized on a unit-of-production method over the estimated productive life of the proved oil and gas
reserves. Unevaluated oil and gas properties are excluded from this calculation.  Depletion, depreciation, amortization and
accretion expense for the Company’s oil and gas properties totaled $0.1 million and $0.1 million for the three months ended
March 31, 2019 and  2018, respectively.



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



| | (a) | As of March 31, 2019, the present value of estimated future net revenue from the projected production of proved oil and gas reserves, calculated at the simple arithmetic average, first-day-of-the-month prices during the twelve-month period before the balance sheet date (with consideration of price changes only to the extent provided by contractual arrangements) and a discount factor of 10%;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | The cost of investments in unproved and unevaluated properties excluded from the costs being amortized; and                                                                                                                                                                                                                                                                                              
| | (c) | The lower of cost or estimated fair value of unproved properties included in the costs being amortized.                                                                                                                                                                                                                                                                                                  



When it is determined that oil and gas
property costs exceed the ceiling limitation, an impairment charge is recorded to reduce its carrying value to the ceiling limitation. 
The Company did not recognize an impairment loss on its oil and gas properties during the three months ended March 31, 2019 and
2018, respectively.



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













Revenue Recognition—Revenue
recognized for oil and natural gas sales under the sales method of accounting. Under this method, revenue is 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, 2019 and  2018, the Company had no federal income
tax expense.



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



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



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



On April 11, 2019, the U.S. Treasury
Bills in the amount of $27.0 million matured and repaid our margin loan.



On April 30, 2019, Equus Media Development
Company, Inc., a wholly-owned subsidiary of the Fund (“EMDC”), was dissolved and its assets, consisting of approximately
$210,000 in cash and certain creative properties of EMDC, were distributed to the Fund as EMDC’s sole member.





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



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



The information contained in this section
should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Quarterly Report and
in conjunction with the financial statements and notes thereto in the Fund’s Form 10-K for the year ended December 31, 2018,
as filed with the SEC. In addition, some of the statements in this report constitute forward-looking statements. The matters discussed
in this Quarterly Report, as well as in future oral and written statements by management of Equus, that are forward-looking statements
are based on current management expectations that involve substantial risks and uncertainties which could cause actual results
to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements
relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such
as “may,” “will,” “should,” “expects,” “plans,” “anticipates,”
“could,” “intends,” “target,” “projects,” “believes,” “estimates,”
“predicts,” “potential” or “continue” or the negative of these terms or other similar words.
Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, and
the availability of additional capital. In light of these and other uncertainties, the inclusion of a forward-looking statement
in this Quarterly Report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking
statements contained in this Quarterly Report include statements as to:



| | • | our future operating results;                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | our business prospects and the prospects of our existing and prospective portfolio companies;                                                                                        
| | • | the return or impact of current and future investments;                                                                                                                              
| | • | our contractual arrangements and other relationships with third parties;                                                                                                             
| | • | the dependence of our future success on the general economy and its impact on the industries in which we invest;                                                                     
| | • | the financial condition and ability of our existing and prospective portfolio companies to achieve their objectives;                                                                 
| | • | our expected financings and investments;                                                                                                                                             
| | • | our regulatory structure and tax treatment;                                                                                                                                          
| | • | our ability to qualify and operate as a BDC and a RIC, including the impact of changes in laws or regulations governing our operations, or the operations of our portfolio companies;
| | • | the adequacy of our cash resources and working capital;                                                                                                                              
| | • | the timing of cash flows, if any, from the operations of our portfolio companies;                                                                                                    
| | • | the impact of fluctuations in interest rates on our business;                                                                                                                        
| | • | the valuation of our investments in portfolio companies, particularly those having no liquid trading market;                                                                         
| | • | our ability to recover unrealized losses; and                                                                                                                                        
| | • | market conditions and our ability to access additional capital, if deemed necessary.                                                                                                 



There are a number of important risks
and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements.
For a discussion of factors that could cause our actual results to differ from forward-looking statements contained in this Quarterly
Report, please see the discussion in Part II, “Item 1A. Risk Factors”, and in Part I, “Item 1A. Risk Factors”
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. You should not place undue reliance on these forward-looking
statements. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements
are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after
the date this Quarterly Report is filed with the SEC.



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We attempt to maximize the return to
stockholders in the form of current investment income and long-term capital gains by investing in the debt and equity securities
of companies with a total enterprise value of between $5.0 million and $75.0 million, although we may engage in transactions with
smaller or larger investee companies from time to time. We seek to invest primarily in companies pursuing growth either through
acquisition or organically, leveraged buyouts, management buyouts and recapitalizations of existing businesses or special situations.
Our income-producing investments consist principally of debt securities including subordinate debt, debt convertible into common
or preferred stock, or debt combined with warrants and common and preferred stock. Debt and preferred equity financing may also
be used to create long-term capital appreciation through the exercise and sale of warrants received in connection with the financing.
We seek to achieve capital appreciation by making investments in equity and equity-oriented securities issued by privately-owned
companies (and smaller public companies) in transactions negotiated directly with such companies. Given market conditions over
the past several years and the performance of our portfolio, our management and Board of Directors believe it is prudent to continue
to review alternatives to refine and further clarify the current strategies.



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



Plan of Reorganization and 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 (hereinafter, the “Plan of Reorganization”). As a first step to consummating the Plan
of Reorganization, we sold to MVC Capital, Inc. (“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 NYSE 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 Plan of Reorganization by pursuing a merger or consolidation with MVC or an operating
company, which operating company may be a subsidiary or portfolio company of MVC (such transaction is hereinafter referred to
as a “Consolidation”). Absent Equus merging or consolidating with/into MVC or a subsidiary thereof, our current
intention is for Equus to (i) terminate its election to be classified as a BDC under the 1940 Act, and (ii) be restructured
as a publicly-traded operating company focused on the energy, natural resources, technology, and/or financial services
sector.





Intention to Continue to Pursue Consolidation—We
intend to continue to pursue a “Consolidation” and the completion of our Plan of Reorganization with another operating company and
withdraw our BDC election if so authorized by our stockholders. While we are presently evaluating various opportunities that could
enable us to accomplish a “Consolidation,” we cannot assure you that we will be able to do so within any particular time period or
at all. Moreover, we cannot assure you that the terms of any such transaction that would embody a “Consolidation” would be acceptable
to us.



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Authorization to Withdraw BDC Election—On
January 21, 2019, holders of a majority of the outstanding common stock of the Fund approved our cessation as a BDC under the 1940
Act and authorized our Board to cause the Fund’s withdrawal of its election to be classified as a BDC, effective as of a
date designated by the Board and our Chief Executive Officer, but in no event later than July 31, 2019. This authorization was
given as a consequence of our Plan of Reorganization described above. Notwithstanding any such authorization to withdraw our BDC
election, we will not submit any such withdrawal unless and until Equus has entered into a definitive agreement to effect a “Consolidation.”
Further, even if we are again authorized to withdraw our election as a BDC, we will require a subsequent affirmative vote from
holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our
business.



2016 Equity Incentive Plan



On June 13, 2016, our shareholders approved
the adoption of our 2016 Equity Incentive Plan (“Incentive Plan”). On January 10, 2017, the SEC issued an order approving
the Incentive Plan and certain awards intended to be made thereunder. The Incentive Plan is intended to promote the interests of
the Fund by encouraging officers, employees, and directors of the Fund and its affiliates to acquire or increase their equity interest
in the Fund and to provide a means whereby they may develop a proprietary interest in the development and financial success of
the Fund, to encourage them to remain with and devote their best efforts to the business of the Fund, thereby advancing the interests
of the Fund and its stockholders. The Incentive Plan is also intended to enhance the ability of the Fund and its affiliates to
attract and retain the services of individuals who are essential for the growth and profitability of the Fund. The Incentive Plan
permits the award of restricted stock as well as common stock purchase options. The maximum number of shares of common stock that
are subject to awards granted under the Incentive Plan is 2,434,728 shares. The term of the Incentive Plan will expire on June
13, 2026. On March 17, 2017, we granted awards of restricted stock under the Plan to certain of our directors and executive officers
in the aggregate amount of 844,500 shares. The awards are each subject to a vesting requirement over a 3-year period unless the
recipient thereof is terminated or removed from their position as a director or executive officer without “cause”,
or as a result of constructive termination, as such terms are defined in the respective award agreements entered into by each of
the recipients and the Fund. For the three months ended March 31, 2019 and 2018, we recorded compensation expense of $0.08 million
and $0.2 million, respectively, in connection with these awards.



Critical Accounting Policies



See the Fund’s Critical Accounting
Policies from the disclosure set forth in the Fund’s Annual Report on Form 10-K for the year ended December 31, 2018.



Current Market Conditions



The U.S. economy expanded at an annualized
rate of 3.2% during the first quarter of 2019, following growth of 2.2% during the fourth quarter of 2018 and an overall increase
of 2.9% for all of 2018. The first quarter 2019 increase was largely due to increased consumer spending, exports, business investment,
and government spending. Despite rising trade tensions, the Conference Board Economic Forecast projects overall GDP growth in 2019
to be 2.4%, decreasing to 2.2% for 2020. The U.S. unemployment rate is now at a 50-year low, continuing to present a tight labor
market for employers. Meanwhile, housing starts and building permits slowed during 2018 and have continued
to trend downward during the first quarter of 2019, which has contrasted with strong growth in existing home sales during the same
period. Business investment has continued to be a strong contributor to GDP growth and is expected to remain largely stable during
the remainder of 2019. (Sources: U.S. Dept. of Commerce Bureau of Economic Analysis, Bureau of Labor Statistics, Conference
Board Leading Economic Index).



Merger and acquisition activity was
strong in 2018, with $3.5 trillion in worldwide transactions consummated during the year. Global political tension and slowing
economies abroad have caused first quarter 2019 global M&A activity to decrease 17% from the comparable period in 2018, although
North America saw an increase of approximately 2%. Technology-based enterprises and healthcare mergers constituted the majority
of larger business combinations during the first quarter of 2019, as large tech companies have sought to increase market share
and push into new industries. Market conditions for business transactions during the first quarter of 2019 have nevertheless continued
to steadily improve, continuing a multi-year trend, as larger corporations have had increased access to credit markets and are
still holding significant amounts of cash and have focused on acquisitions as part of future growth plans. Private equity funds
raised almost $46 billion during the first quarter of 2019, but did so in an increasingly smaller number of vehicles, resulting
in larger fund sizes overall. Total investments during the quarter were approximately $202 billion, an increase of 3.6% from the
first quarter of 2018. (Sources: The Wall Street Journal, PitchBook).



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During the three months ended March
31, 2019, our net asset value increased from $3.22 per share to $3.44 per share, an increase of 6.8%. As of March 31, 2019, our
common stock is trading at a 44.5% discount to our net asset value as compared to 39.1% as of December 31, 2018.



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



Liquidity and Capital Resources



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



Because of the nature and size of the
portfolio investments, we may periodically borrow funds to make qualifying investments to maintain our tax status as a RIC. We
often borrow such funds by utilizing a margin account with a securities brokerage firm. There is no assurance that such arrangement
will be available in the future. If 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 believe we have followed
valuation techniques in a reasonably consistent manner; however, we are cognizant of current market conditions that might affect
future valuations of portfolio securities. In view of our present status as a BDC and our anticipated transformation into an operating
company, we believe that our operating cash flow and cash on hand will be sufficient to meet operating requirements and to finance
routine capital expenditures through the next twelve months.



Results of Operations



Investment Income and Expense



Net investment loss was $1.0 million for the
three months ended March 31, 2019 and  2018, respectively.



Investment income was $0.01 million and $0.1 million for the three
months ended March 31, 2019 and  2018, respectively. The decrease is due to the decline of interest-bearing investments.
Total expense was $1.0 million and $1.1 million for the three months ended March 31, 2019 and  2018, respectively. This decrease was
mainly due to the decline in compensation expense.



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Realized
Gains and Losses on Sales of Portfolio Securities



During the three months ended March
31, 2019, we realized a gain of $10.0 thousand from the sale of temporary cash investments.



During the three months ended March
31, 2018, we realized a gain of $1.8 thousand from the sale of temporary cash investments.



Changes in Unrealized Appreciation/Depreciation
of Portfolio Securities



During the three months ended March
31, 2019, we recorded a net change in unrealized appreciation of $4.0 million, to a net unrealized appreciation of $21.0 million.
Such change in unrealized appreciation resulted primarily from the following changes:



| | (i)   | Increase in the fair value of our shareholding in MVC of $0.6 million due to an increase in the share price of MVC and the receipt of dividend payments in the form of additional shares of MVC during the period;                                                                       
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                          
| | (ii)  | Increase in fair value of our shareholding in PalletOne, Inc. of $2.0 million due to improved operating performance and overall improvement in comparable industry sectors; and                                                                                                          
| |       |                                                                                                                                                                                                                                                                                          
| | (iii) | Increase in the fair value of our holdings in Equus Energy, LLC of $1.5 million, principally due to increases in mineral acreage prices proximate to the company’s leasehold interests and an increase in the short- and long-term prices for crude oil during the first quarter of 2019.



During the three months ended March
31, 2018, we received dividends in the form of additional shares of $0.07 million relating to our shareholding in MVC.



During the three months ended March
31, 2018, we recorded a net change in unrealized appreciation of $1.1 million, to a net unrealized appreciation of $14.5 million.
Such change in unrealized appreciation resulted primarily from the following changes:



| | (i)   | Decrease in the fair value of our shareholding in MVC of
        $0.2 million due to a decrease in the share price of MVC, offset by the receipt of a dividend payment in the form of additional
        shares of MVC during the quarter;                                                      
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | Increase in fair value of our shareholding in PalletOne, Inc. of $1.1 million due to increases in revenue and EBITDA, as well as promising acquisition and growth prospects; and                                                                                                                
| | (iii) | Increase in the fair value of our holdings in Equus Energy,
        LLC of $0.2 million, principally due to increases in mineral acreage prices proximate to the company’s leasehold interests
        and a moderate increase in the short- and long-term prices for crude oil and natural gas.

Dividends



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



Portfolio Securities



During the three months ended March
31, 2019, we received dividends in the form of additional shares of $0.08 million relating to our shareholding in MVC.



During the nine months ended March 31,
2018, we received dividends in the form of additional shares of $0.07 million relating to our shareholding in MVC.



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Subsequent Events



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



On April 11, 2019, the U.S. Treasury
Bills in the amount of $27.0 million matured and we repaid our margin loan.



On April 30, 2019, Equus Media Development
Company, Inc., a wholly-owned subsidiary of the Fund (“EMDC”), was dissolved and its assets, consisting of approximately
$210,000 in cash and certain creative properties of EMDC, were distributed to the Fund as EMDC’s sole member.



Item 3. Quantitative and Qualitative Disclosure about
Market Risk



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



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



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



Item 4. Controls and
Procedures



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



Our management, with the participation
of our Fund’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operations
of the Fund’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934) as of March 31, 2019. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that the Fund’s disclosure controls and procedures were effective at a reasonable assurance level. There has been no change
in our internal control over financial reporting during the quarter ended March 31, 2019, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.



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Part II. Other Information



Item
1. Legal Proceedings



Shareholder Complaint—On
November 16, 2016, Samuel Zalmanoff filed a lawsuit against the Fund and members of the Board of Directors in the Court of Chancery
in the State of Delaware. The lawsuit was filed in connection with the Fund’s 2016 Equity Incentive Plan (“Incentive
Plan”) which was adopted by the Board of Directors on April 15, 2016, approved by the Equus shareholders on June 13, 2016,
and approved, with certain standard exceptions, by the Securities and Exchange Commission on January 10, 2017. Mr. Zalmanoff’s
complaint, which purports to be on behalf of all non-affiliate Equus shareholders entitled to vote for the Incentive Plan, purports
to allege a breach by the Board of Directors of its fiduciary duties of disclosure in connection with the Incentive Plan, and seeks
an order from the court: (i) enjoining implementation of the Incentive Plan, (ii) requiring the Fund to revise its disclosures
relating to the Incentive Plan, and (iii) for an award of costs, attorneys’ fees, and expenses. We believe that this lawsuit,
and the allegations included therein, are without merit and intend to continue a vigorous defense against the same. On September
22, 2017, we filed a motion for summary judgment regarding this action, which was granted by the Chancery Court on November 13,
2018. Mr. Zalmanoff appealed the Chancery Court ruling to the Delaware Supreme Court. Oral argument concerning the appeal is scheduled
for May 15, 2019.



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.



Item 1A. Risk Factors



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



Readers
should carefully consider these risks and all other information contained in our annual report on Form 10-K for the year
ended December 31, 2018, including the Fund’s financial statements and the related notes thereto. Although there have
been no changes to the risk factors facing the Fund since the filing of our Form 10-K, the risks and uncertainties described
therein are not the only ones facing the Fund.



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





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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.]                                    
| | (f) | 2016 Equity Incentive Plan, adopted June 13, 2016 [Incorporated by reference to Exhibit 1 to Registrant’s Definitive Proxy Statement filed on May 5, 2016.]                                                               
| |     |                                                                                                                                                                                                                           
| | 31. | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                                                                                   
| | 1.  | Certification by Chief Executive Officer                                                                                                                                                                                  
| | 2.  | Certification by Chief Financial Officer                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                           
| | 32. | Section 1350 Certifications                                                                                                                                                                                               
| | 1.  | Certification by Chief Executive Officer                                                                                                                                                                                  
| | 2.  | Certification by Chief Financial Officer                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                           







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SIGNATURE



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



Date: May 14, 2019



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



















36