UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-Q

____________________

(Mark One)

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

For the quarterly period ended March 31,
2012

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.)
|                                                                       |                                             
|Eight Greenway Plaza, Suite 930 Houston, Texas                         | 77046                                       
|(Address of principal executive offices)                               | (Zip Code)                                  

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

_______________________

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

Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).    Yes   ̈    No  
 ̈

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



|                          |                     |                         |                            
|------------------------- | ------------------- | ----------------------- | ---------------------------
|Large accelerated filer  ̈ | Accelerated filer  ̈ | Non-accelerated filer x | Smaller Reporting Company  ̈

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

There were 10,561,646 shares of the registrant’s
common stock, $.001 par value, outstanding, as of May 15, 2012.










Table of Contents


EQUUS TOTAL RETURN, INC.

(A Delaware Corporation)

INDEX



|                                                                                              |     
|--------------------------------------------------------------------------------------------- | ----
|                                                                                              | PAGE
|PART I. FINANCIAL INFORMATION                                                                 |     
|Item 1. Financial Statements                                                                  |     
|Balance Sheets                                                                                | 3   
|Statements of Operations                                                                      | 4   
|Statements of Changes in Net Assets                                                           | 5   
|Statements of Cash Flows                                                                      | 6   
|Supplemental Information—Selected Per Share Data and Ratios                                   | 7   
|Schedule of Investments                                                                       | 8   
|Notes to Financial Statements                                                                 | 14  
|Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22  
|Item 3. Quantitative and Qualitative Disclosure about Market Risk                             | 27  
|Item 4. Controls and Procedures                                                               | 28  
|PART II. OTHER INFORMATION                                                                    |     
|Item 1. Legal Proceedings                                                                     | 28  
|Item 1A. Risk Factors                                                                         | 29  
|Item 6. Exhibits                                                                              | 30  
|SIGNATURE                                                                                     | 31  

2


Table of Contents


EQUUS TOTAL RETURN, INC.

BALANCE SHEETS





Part I. Financial Information





Item 1.	Financial Statements



|                                                                                           |  | March
    31,
    2012 |         | December
    31,
    2011
|------------------------------------------------------------------------------------------ |  | ---------------------- | ------- | -------------------------
|                                                                                           |  | (Unaudited)            |         |                          
|(in thousands, except per share amounts)                                                   |  |                        |         |                          
|Assets                                                                                     |  |                        |         |                          
|Investments in portfolio securities at fair value:                                         |  |                        |         |                          
|Control investments (cost at $23,283 and $23,353 respectively)                             |  | $                      | 13,215  |                          
|Affiliate investments (cost at $350 and $350 respectively)                                 |  |                        | 150     |                          
|Non-affiliate investments (cost at $12,878 and $12,878 respectively)                       |  |                        | 5,748   |                          
|Total investments in portfolio securities at fair value                                    |  |                        | 19,113  |                          
|Cash and cash equivalents                                                                  |  |                        | 16,296  |                          
|Restricted cash and temporary cash investments                                             |  |                        | 8,080   |                          
|Accounts receivable and other                                                              |  |                        | 144     |                          
|Accrued interest receivable                                                                |  |                        | 2,382   |                          
|Total assets                                                                               |  | $                      | 46,015  |                          
|Liabilities and net assets                                                                 |  |                        |         |                          
|Accounts payable and accrued liabilities                                                   |  | $                      | 277     |                          
|Accounts payable to related parties                                                        |  |                        | 87      |                          
|Borrowing under margin account                                                             |  |                        | 8,000   |                          
|Total liabilities                                                                          |  |                        | 8,364   |                          
|Commitments and contingencies                                                              |  |                        |         |                          
|Net assets                                                                                 |  | $                      | 37,651  |                          
|Net assets consist of:                                                                     |  |                        |         |                          
|Common stock, par value                                                                    |  | $                      | 10      |                          
|Capital in excess of par value                                                             |  |                        | 64,292  |                          
|Undistributed net investment losses                                                        |  |                        | (9,253  | )                        
|Unrealized depreciation of portfolio securities, net                                       |  |                        | (17,398 | )                        
|Total net assets                                                                           |  | $                      | 37,651  |                          
|Shares of common stock issued and outstanding, $.001 par value, 50,000 shares authorized   |  |                        | 10,562  |                          
|Shares of preferred stock issued and outstanding, $.001 par value, 5,000 shares authorized |  |                        | —       |                          
|Net asset value per share                                                                  |  | $                      | 3.56    |                          



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



3


Table of Contents


EQUUS TOTAL RETURN, INC.

STATEMENTS OF OPERATIONS

(Unaudited)





|                                                                  |  | Three
    Months Ended March 31,
|----------------------------------------------------------------- |  | --------------------------------
|(in thousands, except per share amounts)                          |  | 2012                            
|Investment income:                                                |  |                                 
|Interest income:                                                  |  |                                 
|Control investments                                               |  | $                               
|Affiliate investments                                             |  |                                 
|Non-affiliate investments                                         |  |                                 
|Total
    interest income                                         |  |                                 
|Interest from temporary
    cash investments                      |  |                                 
|Total investment
    income                                       |  |                                 
|Expenses:                                                         |  |                                 
|Compensation expense                                              |  |                                 
|Professional fees                                                 |  |                                 
|Director fees and expenses                                        |  |                                 
|Settlement expense                                                |  |                                 
|General and administrative expense                                |  |                                 
|Mailing, printing and other expenses                              |  |                                 
|Taxes                                                             |  |                                 
|Interest expense                                                  |  |                                 
|Total
    expenses                                                |  |                                 
|Net investment loss                                               |  |                                 
|Net realized gain (loss):                                         |  |                                 
|Control investments                                               |  |                                 
|Affiliate investments                                             |  |                                 
|Temporary cash investments                                        |  |                                 
|Net realized gain (loss)                                          |  |                                 
|Net unrealized depreciation of portfolio securities:              |  |                                 
|End of period                                                     |  |                                 
|Beginning of period                                               |  |                                 
|Net change in unrealized depreciation of portfolio
    securities |  |                                 
|Net decrease in net assets resulting from operations              |  | $                               
|Net decrease in net assets resulting from operations per share:   |  |                                 
|Basic and diluted                                                 |  | $                               
|Weighted average shares outstanding:                              |  |                                 
|Basic and diluted                                                 |  |                                 



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



4


Table of Contents


EQUUS TOTAL RETURN, INC.

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)





|                                                     |  | Three Months Ended March 31,
|---------------------------------------------------- |  | ----------------------------
|(in thousands)                                       |  | 2012                        
|                                                     |  |                             
|Net decrease in net assets resulting from operations |  | $                           
|Net assets at beginning of period                    |  |                             
|Net assets at end of period                          |  | $                           



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

































5


Table of Contents


EQUUS TOTAL RETURN, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)





|                                                                                                        |  | Three
    Months Ended March 31,
|------------------------------------------------------------------------------------------------------- |  | --------------------------------
|(in thousands)                                                                                          |  | 2012                            
|Reconciliation of decrease in net assets resulting from operations
    to net cash (used in)            |  |                                 
|provided by operating activities:                                                                       |  |                                 
|Net decrease in net assets resulting from operations                                                    |  | $                               
|Adjustments to reconcile net decrease in net assets resulting from
    operations to net cash (used in) |  |                                 
|provided by operating activities:                                                                       |  |                                 
|Net realized loss                                                                                       |  |                                 
|Net change in unrealized depreciation of
    portfolio securities                                       |  |                                 
|Changes in operating assets and liabilities:                                                            |  |                                 
|Purchase of portfolio securities                                                                        |  |                                 
|Net proceeds from dispositions of portfolio
    securities                                              |  |                                 
|Principal payments received from portfolio
    securities                                               |  |                                 
|Sales of temporary cash investments, net                                                                |  |                                 
|(Increase) decrease in accounts receivable
    and other                                                |  |                                 
|(Increase) decrease  in accrued interest
    receivable                                                 |  |                                 
|Increase in accounts payable and accrued
    liabilities                                                |  |                                 
|Increase (decrease)
    in accounts payable-related parties                                             |  |                                 
|Net cash (used in) provided by operating activities                                                     |  |                                 
|Cash flows from financing activities:                                                                   |  |                                 
|Borrowings under margin account                                                                         |  |                                 
|Repayments under margin account                                                                         |  |                                 
|Deferred offering costs                                                                                 |  |                                 
|Net
    cash provided by (used in) financing activities                                                 |  |                                 
|Net (decrease) increase in cash and cash equivalents                                                    |  |                                 
|Cash and cash equivalents at beginning of period                                                        |  |                                 
|Cash and cash equivalents at end of period                                                              |  | $                               
|Supplemental disclosure of cash flow information:                                                       |  |                                 
|Interest paid                                                                                           |  | $                               



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

















6


Table of Contents


EQUUS TOTAL RETURN, INC.

SUPPLEMENTAL INFORMATION—SELECTED PER
SHARE DATA AND RATIOS

(Unaudited)





|                                                                                    |  | Three months ended March 31,
|----------------------------------------------------------------------------------- |  | ----------------------------
|                                                                                    |  | 2012                        
|Investment income                                                                   |  | $                           
|Expenses                                                                            |  |                             
|Net investment loss                                                                 |  |                             
|Net realized loss                                                                   |  |                             
|Net change in unrealized depreciation                                               |  |                             
|Net decrease in net assets                                                          |  |                             
|Net assets at beginning of period                                                   |  |                             
|Net assets at end of period, basic and diluted                                      |  | $                           
|Weighted average number of shares outstanding during period, in thousands           |  |                             
|Market price per share:                                                             |  |                             
|Beginning of period                                                                 |  | $                           
|End of period                                                                       |  | $                           
|Selected information and ratios:                                                    |  |                             
|Ratio of expenses to average net assets                                             |  |                             
|Ratio of net investment loss to average net assets                                  |  |                             
|Ratio of net decrease in net assets resulting from operations to average net assets |  |                             
|Total return on market price (1)                                                    |  |                             



(1)Total
return = [(ending market price per share+ year-to-date dividends paid - beginning price per share) / beginning market price per
share].



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



7


Table of Contents


EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS

March 31, 2012

(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 (5):                                                       |                                |                 |                                                                      |        |           |        |            |  
|Equus Energy, LLC 
Houston, TX                                                                      | Energy                         | December 2011   | Member interest (100%)                                               |        |           | $      | 250        | $ | 162      
|                                                                                                    |                                |                 |                                                                      |        |           |        |            |   |          
|Equus Media Development Company, LLC 
Houston, TX                                                   | Media                          | January 2007    | Member interest (100%)                                               |        |           |        | 3,000      |   | 147      
|Sovereign Business Forms, Inc. 
Houston, TX                                                         | Business products and services | August 1996     | 1,214,630 shares of common stock (64.67% / 55.00% fully diluted)     |        |           |        | 5,080      |   | 4,451    
|                                                                                                    |                                |                 | 12% subordinated promissory notes due 5/13(2)                        | $      | 2,293     |        | 2,293      |   | 2,293    
|                                                                                                    |                                |                 |                                                                      |        |           |        | 7,373      |   | 6,744    
|Spectrum Management, LLC 
Carrolton, TX                                                             | Business products and services | December 1999   | 285,000 units of Class A member interest (92.1%/82.5% fully diluted) |        |           |        | 2,850      |   | -        
|                                                                                                    |                                |                 | 16% subordinated promissory notes due 11/11(3)(4)                    |        | 2,440     |        | 2,440      |   | 167      
|                                                                                                    |                                |                 |                                                                      |        |           |        | 5,290      |   | 167      
|Total Control investments: Majority-owned (represents 26.7% of total investments at fair value)     |                                |                 | $                                                                    | 15,913 | $         | 7,220 
|Control
    Investments: Non-majority owned(6):                                                     |                                |                 |                                                                      |        |           |       
|ConGlobal Industries Holding, Inc. 
San Ramon, CA                                                   | Shipping products and services | February 1997   | 24,397,303 shares of common stock (34.2%)                            |        |           | $      | 1,370      | $ | -        
|                                                                                                    |                                |                 | 7% subordinated promissory note
 due 12/12(3)                        | $      | 6,000     |        | 6,000      |   | 5,995    
|                                                                                                    |                                |                 |                                                                      |        |           |        | 7,370      |   | 5,995    
|Total Control Investments: Non-majority owned (represents 22.1% of total investments at fair value) |                                |                 | $                                                                    | 7,370  | $         | 5,995 
|Total Control Investments: (represents 48.8% of total investments at fair value)                    |                                |                 | $                                                                    | 23,283 | $         | 13,215
|Affiliate Investments (7):                                                                          |                                |                 |                                                                      |        |           |        |            |   |          
|PalletOne, Inc. 
Bartow, FL                                                                         | Shipping products and services | October 2001    | 350,000 shares of common stock (18.70%)                              |        |           | $      | 350        | $ | 150      
|Total Affiliate Investments (represents 0.5% of total investments at fair value)                    |                                |                 | $                                                                    | 350    | $         | 150   





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



8


Table of Contents


EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS – (Continued)

March 31, 2012

(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)
|                                                                                       |                                |                 |                                                                                           |        |          
|Non-Affiliate Investments (less than 5% owned):                                        |                                |                 |                                                                                           |        |           |      
|The Bradshaw Group 
Richardson, TX                                                     | Business products and services | May 2000        | 576,828 Class B shares (12.25%) preferred stock                                           |        |           | $     | 1,795      | $ | -        
|                                                                                       |                                |                 | 38,750 Class C shares preferred stock                                                     |        |           |       | -          |   | -        
|                                                                                       |                                |                 | 788,649 Class D shares 15% preferred stock                                                |        |           |       | -          |   | -        
|                                                                                       |                                |                 | 2,218,109 Class E shares 8% preferred stock                                               |        |           |       | -          |   | -        
|                                                                                       |                                |                 | Warrant to buy 2,229,450 shares of common stock through 5/16                              |        |           |       | -          |   | -        
|                                                                                       |                                |                 |                                                                                           |        |           |       | 1,795      |   | -        
|Infinia Corporation 
Kennewick, WA                                                     | Alternative energy             | June 2007       | 115,180 shares common stock (0.13%)                                                       |        |           |       | 8,000      |   | -        
|                                                                                       |                                |                 |                                                                                           |        |           |       |            |   |          
|                                                                                       |                                |                 | Option to purchase 16,000 shares of common stock at $6.50 per share through 12/12         |        |           |       | -          |   | -        
|                                                                                       |                                |                 |                                                                                           |        |           |       | 8,000      |   | -        
|Orco Germany S.A. 
Berlin, Germany                                                     | Real estate                    | April 2011      | 8,890 4% Corporate Bonds due 5/12                                                         | $      | 8,113     |       | 3,083      |   | 5,748    
|Trulite, Inc. 
Columbia, SC                                                            | Alternative energy             | August 2008     | Warrants to buy 8,934,211 shares of common stock at $0.01 - $0.38 per share through 11/15 |        |           |       | -          |   | -        
|Total Non-Affiliate Investments (represents 21.2% of total investments at fair value)  |                                |                 | $                                                                                         | 12,878 | $         | 5,748
|Total Investment in Portfolio Securities                                               |                                |                 |                                                                                           |        |           | $     | 36,511     | $ | 19,113   
|Temporary Cash Investments                                                             |                                |                 |                                                                                           |        |           |       |            |   |          
|U.S. Treasury Bill (8)                                                                 | Government                     | March 2012      | UST 0% due 4/12                                                                           | $      | 8,000     |       | 8,000      |   | 8,000    
|Total Temporary Cash Investments (represents 29.5% of total investments at fair value) |                                |                 | $                                                                                         | 8,000  | $         | 8,000
|Total Investments                                                                      |                                |                 |                                                                                           |        |           | $     | 44,511     | $ | 27,113   













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



| | (2) | Income-producing.
| | --- | -----------------

| | (3) | Income on these securities is accrued to maturity.
| | --- | --------------------------------------------------

| | (4) | Non-income producing.
| | --- | ---------------------

| | (5) | Majority owned investments are generally defined under the Investment Company Act of 1940 as companies in which we own more
than 50% of the voting securities of the company.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Non-majority owned control investments are generally defined under the Investment Company Act of 1940 as companies in which
we own more than 25% but not more than 50% of the voting securities of the company.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which we own at least
5% but not more than 25% voting securities of the company.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | The Fund has included U.S. Treasury Bills in “Restricted Cash and Temporary Cash Investments” on the balance sheet.
| | --- | -------------------------------------------------------------------------------------------------------------------



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



9


Table of Contents


EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS –
(Continued)

March 31, 2012

(Unaudited)

Except for our holding of 8,890 4% bonds
issued by Orco Germany S.A., substantially all of our portfolio securities are restricted from public sale without prior registration
under the Securities Act of 1933. We negotiate certain aspects of the method and timing of the disposition of our investment in
each portfolio company, including registration rights and related costs.

As defined in the
Investment Company Act of 1940, all of our investments, except for our holding of 8,840 Orco Germany bonds, are in eligible
portfolio companies. We provide significant managerial assistance to portfolio companies that comprise 70% of the total value
of the investments in portfolio securities as of March 31, 2012

Our investments in portfolio securities
consist of the following types of securities as of March 31, 2012 (in thousands):



|Type of Securities                    |  | Cost |        | Fair Value |  | Fair
    Value as Percentage of Net
    Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | ----------------------------------------------
|Secured and subordinated debt         |  | $    | 13,816 |            |  | $                                             
|Common stock                          |  |      | 14,800 |            |  |                                               
|Limited liability company investments |  |      | 6,100  |            |  |                                               
|Preferred stock                       |  |      | 1,795  |            |  |                                               
|Total                                 |  | $    | 36,511 |            |  | $                                             





Cash payments of interest are currently being
received and/or accrued on notes aggregating $14.0 million in fair value, while accrued interest has been impaired on notes receivable
included in secured and subordinated debt with a fair value of $0.2 million.

The following is a summary by industry
of the Fund’s investments in portfolio securities as of March 31, 2012 (in thousands):



|Industry                       |  | Fair Value |        | Fair Value as
    Percentage of Net Assets
|------------------------------ |  | ---------- | ------ | ------------------------------------------
|Business products and services |  | $          | 6,911  |                                           
|Shipping products and services |  |            | 6,145  |                                           
|Real estate                    |  |            | 5,748  |                                           
|Energy                         |  |            | 162    |                                           
|Media                          |  |            | 147    |                                           
|Total                          |  | $          | 19,113 |                                           



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

10


Table of Contents




EQUUS
TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

(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 (5):                                                           |                                |                 |                                                                        |        |           |        |            |  
|Equus Energy, LLC 
Houston, TX                                                                      | Energy                         | December 2011   | Member interest (100%)                                                 |        |           | $      | 250        | $ | 236      
|Equus Media Development Company, LLC
Houston, TX                                                    | Media                          | January 2007    | Member interest (100%)                                                 |        |           |        | 3,000      |   | 163      
|Sovereign Business Forms, Inc. 
Houston, TX                                                         | Business products and services | August 1996     | 1,214,630 shares of common stock (64.67% / 55.00% fully diluted)       |        |           |        | 5,080      |   | 4,488    
|                                                                                                    |                                |                 | 12% subordinated promissory notes due 5/13(2)                          | $      | 2,363     |        | 2,363      |   | 2,363    
|                                                                                                    |                                |                 |                                                                        |        |           |        | 7,443      |   | 6,851    
|Spectrum Management, LLC
Carrolton, TX                                                              | Business products and services | December 1999   | 285,000 units of Class A member interest (92.1% / 82.5% fully diluted) |        |           |        | 2,850      |   | -        
|                                                                                                    |                                |                 |                                                                        |        |           |        |            |   |          
|                                                                                                    |                                |                 | 16% subordinated promissory notes due 11/11(3)(4)                      |        | 2,440     |        | 2,440      |   | 319      
|                                                                                                    |                                |                 |                                                                        |        |           |        | 5,290      |   | 319      
|Total Control investments: Majority-owned (represents 30.1% of total investments at fair value)     |                                |                 | $                                                                      | 15,983 | $         | 7,569 
|Control Investments: Non-majority owned(6):                                                         |                                |                 |                                                                        |        |           |       
|ConGlobal Industries Holding, Inc.
San Ramon, CA                                                    | Shipping products and services | February 1997   | 24,397,303 shares of common stock (34.2%)                              |        |           | $      | 1,370      | $ | -        
|                                                                                                    |                                |                 | 7% subordinated promissory note
 due 12/12(3)                          | $      | 6,000     |        | 6,000      |   | 5,729    
|                                                                                                    |                                |                 |                                                                        |        |           |        | 7,370      |   | 5,729    
|Total Control Investments: Non-majority owned (represents 22.7% of total investments at fair value) |                                |                 | $                                                                      | 7,370  | $         | 5,729 
|Total Control Investments: (represents 52.8% of total investments at fair value)                    |                                |                 | $                                                                      | 23,353 | $         | 13,298
|Affiliate Investments (7):                                                                          |                                |                 |                                                                        |        |           |        |            |   |          
|PalletOne, Inc. 
Bartow, FL                                                                         | Shipping products and services | October 2001    | 350,000 shares of common stock (18.70%)                                |        |           | $      | 350        | $ | 150      
|                                                                                                    |                                |                 |                                                                        |        |           |        |            |   |          
|Total Affiliate Investments (represents 0.6% of total investments at fair value)                    |                                |                 | $                                                                      | 350    | $         | 150   







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



















11


Table of Contents


EQUUS
TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS—(Continued)

DECEMBER 31, 2011

(in thousands, except share data)



|Name and Location of                                                                   |                                | Date of Initial |                                                                                           |        |           |       | Cost of    |   | Fair    
|-------------------------------------------------------------------------------------- | ------------------------------ | --------------- | ----------------------------------------------------------------------------------------- | ------ | --------- | ----- | ---------- | - | --------
|Portfolio Company                                                                      | Industry                       | Investment      | Investment                                                                                |        | Principal |       | Investment |   | Value(1)
|                                                                                       |                                |                 |                                                                                           |        |          
|Non-Affiliate Investments (less than 5% owned):                                        |                                |                 |                                                                                           |        |           |      
|The Bradshaw Group Richardson, TX                                                      | Business products and services | May 2000        | 576,828 Class B shares (12.25%) preferred stock                                           |        |           | $     | 1,795      | $ | -       
|                                                                                       |                                |                 | 38,750 Class C shares preferred stock                                                     |        |           |       | -          |   | -       
|                                                                                       |                                |                 | 788,649 Class D shares 15% preferred stock                                                |        |           |       | -          |   | -       
|                                                                                       |                                |                 | 2,218,109 Class E shares 8% preferred stock                                               |        |           |       | -          |   | -       
|                                                                                       |                                |                 | Warrant to buy 2,229,450 shares of common stock through 5/16                              |        |           |       | -          |   | -       
|                                                                                       |                                |                 |                                                                                           |        |           |       | 1,795      |   | -       
|Infinia Corporation
Kennewick, WA                                                      | Alternative energy             | June 2007       | 115,180 shares common stock (0.13%)                                                       |        |           |       | 8,000      |   | -       
|                                                                                       |                                |                 | Option to purchase 16,000 shares of common stock at $6.50 per share through 12/12         |        |           |       | -          |   | -       
|                                                                                       |                                |                 |                                                                                           |        |           |       | 8,000      |   | -       
|Orco Germany S.A. 
Berlin, Germany                                                     | Real estate                    | April 2011      | 8,890 4% Corporate Bonds due 5/12                                                         | $      | 8,113     |       | 3,083      |   | 5,734   
|Trulite, Inc. 
Columbia, SC                                                            | Alternative energy             | August 2008     | Warrants to buy 8,934,211 shares of common stock at $0.01 - $0.38 per share through 11/15 |        |           |       | -          |   | -       
|Total Non-Affiliate Investments (represents 22.8% of total investments at fair value)  |                                |                 | $                                                                                         | 12,878 | $         | 5,734
|Total Investment in Portfolio Securities                                               |                                |                 |                                                                                           |        |           | $     | 36,581     | $ | 19,182  
|Temporary Cash Investments                                                             |                                |                 |                                                                                           |        |           |       |            |   |         
|U.S. Treasury Bill (8)                                                                 | Government                     | December 2011   | UST 0% due 3/12                                                                           | $      | 6,000     |       | 6,000      |   | 6,000   
|Total Temporary Cash Investments (represents 23.8% of total investments at fair value) |                                |                 | $                                                                                         | 6,000  | $         | 6,000
|Total Investments                                                                      |                                |                 |                                                                                           |        |           | $     | 42,581     | $ | 25,182  











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



| | (2) | Income-producing.
| | --- | -----------------

| | (3) | Income on these securities is accrued to maturity.
| | --- | --------------------------------------------------

| | (4) | Non-income producing.
| | --- | ---------------------

| | (5) | Majority owned investments are generally defined under the Investment Company Act of 1940 as companies in which we own more
than 50% of the voting securities of the company.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Non-majority owned control investments are generally defined under the Investment Company Act of 1940 as companies in which
we own more than 25% but not more than 50% of the voting securities of the company.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Affiliate investments are generally defined under the Investment Company Act of 1940 as companies in which we own at least
5% but not more than 25% voting securities of the company.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | The Fund has included U.S. Treasury Bills in “Restricted Cash and Temporary Cash Investments” on the balance sheet.
| | --- | -------------------------------------------------------------------------------------------------------------------

















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, 2011

(in thousands, except
share data)



Except for our holding of 8,890 4% bonds issued
by Orco Germany S.A., substantially all of our portfolio securities are restricted from public sale without prior registration
under the Securities Act of 1933. We negotiate certain aspects of the method and timing of the disposition of our investment in
each portfolio company, including registration rights and related costs.



As defined in the Investment Company Act
of 1940, all of our investments, except for our holding of 8,840 Orco Germany bonds, are in eligible portfolio companies. We
provide significant managerial assistance to portfolio companies that comprise 70.1% of the total value of the investments in
portfolio securities as of December 31, 2011.



Our investments in portfolio securities consist
of the following types of securities as of December 31, 2011 (in thousands):



|Type of Securities                    |  | Cost |        | Fair Value |  | Fair Value as Percentage of 
Net Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | ---------------------------------------
|Secured and subordinated debt         |  | $    | 13,886 |            |  | $                                      
|Common stock                          |  |      | 14,800 |            |  |                                        
|Limited liability company investments |  |      | 6,100  |            |  |                                        
|Preferred stock                       |  |      | 1,795  |            |  |                                        
|Total                                 |  | $    | 36,581 |            |  | $                                      



Cash payments of interest are currently being
received and/or accrued on notes aggregating $13.8 million in fair value, while accrued interest has been impaired on notes receivable
included in secured and subordinated debt with a fair value of $0.3 million.



The following is a summary by industry of our
investments in portfolio securities as of December 31, 2011 (in thousands):



|Industry                       |  | Fair Value |        | Fair Value as
    Percentage of Net Assets
|------------------------------ |  | ---------- | ------ | ------------------------------------------
|Business products and services |  | $          | 7,170  |                                           
|Shipping products and services |  |            | 5,879  |                                           
|Real estate                    |  |            | 5,734  |                                           
|Energy                         |  |            | 236    |                                           
|Media                          |  |            | 163    |                                           
|Total                          |  | $          | 19,182 |                                           









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

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EQUUS TOTAL RETURN, INC.

NOTES TO FINANCIAL STATEMENTS

March 31, 2012

(Unaudited)

(1) Description of Business and Basis of Presentation

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



We attempt to maximize the return to stockholders
in the form of current investment income and long-term capital gains by investing in the debt and equity securities of companies
with a total enterprise value of between $15.0 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 bonds, subordinate debt, debt convertible into common or preferred
stock, or debt combined with warrants and common and preferred stock. Debt and preferred equity financing
may also be used to create long-term capital appreciation through the exercise and sale of warrants received in connection with
the financing.We seek to achieve capital appreciation by making investments in equity and equity-oriented
securities issued by privately-owned companies in transactions negotiated directly with such companies.Given market conditions over the past several years and the performance of our portfolio, our Management and board of directors
believe it prudent to continue to review alternatives to refine and further clarify the current strategies.



We elected to be treated as a business development
company under the Investment Company Act of 1940 (“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 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 any LLC (or other pass-through entity)
portfolio investment would flow through directly to us for the 90% test. To the extent that such income did not consist of investment
income, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur significant federal income taxes.
The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiaries is taxed to the Taxable Subsidiaries and
does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages. We do not consolidate the
Taxable Subsidiaries for income tax purposes and they may generate income tax expense because of the Taxable Subsidiaries’
ownership of the portfolio companies. We reflect any such income tax expense on our Statements of Operations.



Basis of Presentation—In accordance
with Article 6 of Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, we do not consolidate portfolio
company investments, including those in which we have a controlling interest. Our interim consolidated financial statements were
prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial
information and in accordance with the requirements of reporting on Form 10-Q and Article 10 of Regulation S-X, under the Securities
Exchange Act of 1934, as amended. Accordingly, they are unaudited and exclude some disclosures required for annual financial statements.
Management believes it has made all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation
of these interim financial statements.

The results of operations for the three
months ended March 31, 2012 are not necessarily indicative of results that ultimately may be achieved for the year. The interim
unaudited financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto
included in the Fund’s Form 10-K for the fiscal year ended December 31, 2011, as filed with the Security and Exchange
Commission (“SEC”).

(2) Liquidity and Financing Arrangements

Liquidity—There are several
factors that may materially affect the Fund’s liquidity during the reasonably foreseeable future. The Fund views this period
as the twelve month period from the date of the financial statements in this Form 10-Q, i.e., the period through March 31,
2013.



14


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We are evaluating
the impact of current market conditions on our portfolio company valuations and their ability to provide current income. We have
followed valuation techniques in a consistent manner; however, we are cognizant of current market conditions that might affect
future valuations of portfolio securities. We believe that our operating cash flow and cash on hand will be sufficient to meet
operating requirements and to finance routine capital expenditures through the next twelve months.

Cash and Temporary Cash Investments—As
of March 31, 2012, we had cash and cash equivalents of $16.3 million. We had $19.1 million of our net assets of $37.7 million
invested in portfolio securities. We also had $8.1 million of restricted cash and temporary cash investments, including primarily
the proceeds of a quarter-end margin loan that we incurred to maintain the diversification requirements applicable to a RIC to
maintain our pass-through tax treatment. Of this amount, $8.0 million was invested in U.S. Treasury bills and $0.1 million represented
a required 1% brokerage margin deposit. These securities are held by a securities brokerage firm and are pledged along with cash
to secure the payment of the margin loan. The U.S. Treasury bills were sold and the margin loan was repaid to the brokerage firm
on April 2, 2012.

As of December 31, 2011, we had
cash and cash equivalents of $16.8 million. We had $19.2 million of our net assets of $38.1 million invested in portfolio securities.
We also had $6.1 million of restricted cash and temporary cash investments, including primarily the proceeds of a quarter-end margin
loan that we incurred to maintain the diversification requirements applicable to a RIC to maintain our pass-through tax treatment.
Of this amount, $6.0 million was invested in U.S. Treasury bills and $0.1 million represented a required 1% brokerage margin deposit.
These securities were held by a securities brokerage firm and pledged along with other assets to secure repayment of the margin
loan. The U.S. Treasury bills were sold and the margin loan was repaid to the brokerage firm on January 3, 2012.

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.

Investment Commitments—As of March 31,
2012, we had no outstanding commitments to our portfolio company investments.

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

RIC Borrowings, Restricted Cash and Temporary
Cash Investments—As of March 31, 2012 and December 31, 2011, we borrowed sufficient funds to maintain the Fund’s
RIC status by utilizing a margin account with a securities brokerage firm. There is no assurance that such arrangement will be
available in the future. If we are unable to borrow funds to make qualifying investments, we may no longer qualify as a RIC. We
would then be subject to corporate income tax on the Fund’s net investment income and realized capital gains, and distributions
to stockholders would be subject to income tax as ordinary dividends. Failure to continue to qualify as a RIC could be material
to us and our stockholders.

As of March 31, 2012, we borrowed
$8.0 million to make qualifying investments 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 $8.1 million.
The U.S. Treasury bills were sold and the margin loan was repaid on April 2, 2012.

As of December 31, 2011, we borrowed $6.0 million
to make qualifying investments 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 $6.1 million. The U.S. Treasury bills
were sold on January 3, 2012 and the margin loan was repaid at that time.



Certain Risks and Uncertainties—
Economic conditions during the previous three years and resulting market dislocations have resulted in the availability of debt
and equity capital declining significantly. Generally, the limited amount of available debt financing 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 quarter of 2012, the price of our common stock continued to fall well below our net asset value,
thereby making it undesirable to issue additional shares of our common stock. Because of these challenges, our near-term strategies
shifted from originating debt and equity investments to preserving liquidity necessary to meet our operational needs. Key initiatives
that we have previously undertaken to provide necessary liquidity include monetizations, the suspension of dividends and the internalization
of management. Although we cannot assure you that such initiatives will be sufficient, we believe we have sufficient liquidity
to meet our 2012 operating requirements.



15


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(3) Significant Accounting Policies

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





Use of Estimates—The preparation
of financial statements in accordance with accounting principles generally accepted in the United States of America (“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—Portfolio
investments are carried at fair value with the net change in unrealized appreciation or depreciation included in the determination
of net assets. Valuations of portfolio securities are performed in accordance with accounting principles generally accepted in
the United States of America and the financial reporting policies of the Securities and Exchange Commission (“SEC”).
The applicable methods prescribed by such principles and policies are described below:



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



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



During the first twelve months after an investment
is made, the original investment value is utilized 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). After the twelve month period, or if material events have occurred within the twelve month period,
Fund management considers a two step process when appraising investments of privately held companies. The first step involves determining
the enterprise value of the portfolio company. During this step, Fund management considers three different valuation approaches:
a market approach, an income approach, and an asset approach. The particular facts and circumstances of each portfolio company
determine which approach, or combination of approaches, will be utilized. The second step when appraising equity investments of
privately held companies involves allocating value to the various debt and equity securities of the company. Fund management allocates
value to these securities based on their relative priorities. For equity securities such as warrants, the Fund may also incorporate
alternative methodologies including the Black-Scholes Option Pricing Model.



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



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



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





16


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



Fund management considers that the Fund’s
general intent is to hold its loans to maturity when appraising its privately held debt investments. As such, Fund management believes
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, the Fund performs a yield analysis to determine if a debt security has been impaired.



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



The Audit Committee of the Board of Directors
may engage independent, third-party valuation firms to conduct independent appraisals and review management’s preliminary
valuations of each privately-held investment in order to make their own independent assessment. Any third-party valuation data
would be considered as one of many factors in a fair value determination. The Audit Committee then would recommend the fair values
for all privately-held securities based on all relevant factors to the Board of Directors for final approval.



Because of the inherent uncertainty of the
valuation of portfolio securities which do not have readily ascertainable market values, amounting to $19.1 million and $19.2 million
as of March 31, 2012 and December 31, 2011, respectively, our fair value determinations may materially differ from the values that
would have been used had a ready market existed for the securities. One of the Fund’s portfolio investments, 8,890 Orco Germany
S.A. 4% bonds due May 2012, is publicly listed on the Euro MTF Market of the Luxembourg Stock Exchange. However, there has been
no recent trading activity.



On a daily basis, 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 reports those amounts to Lipper Analytical Services,
Inc. Weekly and daily net asset values appear in various publications, including Barron’sand The Wall Street Journal.



Deferred Offering Costs—Accumulation
of costs related to the offering whereby we will sell additional shares or rights to acquire shares at a market price that may
have been below net asset value. The main components of the costs are legal fees and consultant’s fees specifically related
to the offering.





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



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



We classify our investments in accordance with
the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies
in which EQS 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 EQS owns 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.



Interest Income Recognition—We
record interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis to the extent that
we expect to collect such amounts. We stop accruing interest on investments when we determine that interest is no longer collectible.
We may also impair the accrued interest when we determine that all or a portion of the current accrual is uncollectible. If we
receive any cash after determining that interest is no longer collectible, we treat such cash as payment on the principal balance
until the entire principal balance has been repaid, before we recognize any additional interest income. We accrete or amortize
discounts and premiums on securities purchased over the life of the respective security using the effective yield method. The amortized
cost of investments represents the original cost adjusted for the accretion of discount and/or amortization of premium on debt
securities.







17


Table of Contents




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 record it 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.



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 & Temporary Cash Investments” used for purposes of complying with RIC requirements from cash equivalents. See
Note 2 to the financial statements for further discussion of the Fund’s RIC borrowings.



Income Taxes—We intend to
comply with the requirements of the Code necessary for us to qualify as a RIC. So long as we comply with these requirements,
we generally will not be subject to corporate-level federal income taxes on otherwise taxable income (including net realized
capital gains) distributed to stockholders. Therefore, we did not record a provision for federal income taxes in our
financial statements. We borrow money from time to time to maintain our tax status under the Internal Revenue Code as a RIC.
See Note 2 to the financial statements for further discussion of the Fund’s RIC borrowings.



Texas margin tax applies to legal entities
conducting business in Texas. The margin tax is based on our Texas sourced taxable margin. The tax is calculated by applying a
tax rate to a base that considers both revenue and expenses and therefore has the characteristics of an income tax. As a result,
we did not owe state income tax for the year ended December 31, 2011.



Fair Value Measurement—Fair value
is defined as 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. We have categorized all investments recorded at fair value based upon the level of
judgment associated with the inputs used to measure their fair value. Hierarchical levels, directly related to the amount of subjectivity
associated with the inputs to fair valuation of these assets and liabilities, are as follows:



Level 1—Inputs are unadjusted, quoted prices in active markets
for identical assets at the measurement date. The types of assets carried at Level 1 fair value generally are equities listed in
active markets.



Level 2—Inputs (other than quoted prices included in Level
1) are either directly or indirectly observable for the asset in connection with market data at the measurement date and for the
extent of the instrument’s anticipated life. Fair valued assets that are generally included in this category are warrants
held in a public company.



Level 3—Inputs reflect management’s best estimate of
what market participants would use in pricing the asset at the measurement date. It includes prices or valuations that require
inputs that are both significant to the fair value measurement and unobservable. Generally, assets carried at fair value and included
in this category are debt, warrants and/or other equity investments held in a private company. As previously described, Fund management
considers a two step process when appraising investments of privately held companies. The first step involves determining the enterprise
value of the portfolio company. During this step, Fund management considers three different valuation approaches: a market approach,
an income approach, and a cost approach. The particular facts and circumstances of each portfolio company determine which approach,
or combination of approaches, will be utilized. The second step when appraising equity investments of privately held companies
involves allocating value to the various debt and equity securities of the company. Fund management allocates value to these securities
based on their relative priorities. For equity securities such as warrants, the Fund may also incorporate alternative methodologies
including the Black-Scholes Option Pricing Model. Yield analysis is also employed to determine if a debt security has been impaired.



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



18


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As of March 31, 2012, 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, 2012                  
|------------------------------------------------ |  | ----- | ------ | --------------------------------------------------------------
|(in thousands)                                   |  | Total |        | Quoted Prices in Active Markets for Identical Assets (Level 1)
|Assets                                           |  |       |        |                                                               
|Investments:                                     |  |       |        |                                                               
|Control investments                              |  | $     | 13,215 |                                                               
|Affiliate investments                            |  |       | 150    |                                                               
|Non-affiliate investments                        |  |       | 5,748  |                                                               
|Total investments                                |  |       | 19,113 |                                                               
|Temporary cash investments                       |  |       | 8,000  |                                                               
|Total investments and temporary cash investments |  | $     | 27,113 |                                                               



As of December 31, 2011, 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, 2011               
|------------------------------------------------ |  | ----- | ------ | --------------------------------------------------------------
|(in thousands)                                   |  | Total |        | Quoted Prices in Active Markets for Identical Assets (Level 1)
|Assets                                           |  |       |        |                                                               
|Investments:                                     |  |       |        |                                                               
|Control investments                              |  | $     | 13,298 |                                                               
|Affiliate investments                            |  |       | 150    |                                                               
|Non-affiliate investments                        |  |       | 5,734  |                                                               
|Total investments                                |  |       | 19,182 |                                                               
|Temporary cash investments                       |  |       | 6,000  |                                                               
|Total investments and temporary cash investments |  | $     | 25,182 |                                                               





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The following table provides a reconciliation
of fair value changes during the three months ended March 31, 2012 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, 2011               |  | $                                                                      
|Change in unrealized appreciation (depreciation) |  |                                                                        
|Settlements                                      |  |                                                                        
|Fair value as of March 31, 2012                  |  | $                                                                      





The following table provides a reconciliation
of fair value changes during the three months ended March 31, 2011 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, 2010               |  | $                                                                      
|Change in unrealized appreciation
    (depreciation) |  |                                                                        
|Purchase of portfolio securities                     |  |                                                                        
|Proceeds from sales/dispositions                     |  |                                                                        
|Realized gains
    (losses)                          |  |                                                                        
|Settlements                                          |  |                                                                        
|Fair value as of March
    31, 2011                  |  | $                                                                      





(4) Related Party Transactions and Agreements

We entered into an investment advisory
agreement dated June 30, 2005 with Moore Clayton Capital Advisors, Inc., pursuant to which Moore Clayton Capital Advisors,
Inc. (“MCCA”), provided investment advisory services in exchange for an advisory fee. We also entered into an administration
agreement dated June 30, 2005 with Equus Capital Administration Company, Inc. (“ECAC”), pursuant to which ECAC
provided administrative services in exchange for an administrative fee. The Fund’s Board of Directors terminated the advisory
agreement and the administrative agreement effective June 30, 2009. Since that date, the Fund has been “internally”
managed, which means that the Fund directly employs its management team and incurs the costs and expenses associated with Fund
operations.

Except as noted below, as compensation
for services to the Fund, each Independent Director receives an annual fee of $20,000 paid quarterly in arrears, a fee of $2,000
for each meeting of the Board of Directors attended in person, a fee of $1,000 for participation in each telephonic meeting of
the Board and a fee of $1,000 for each committee meeting attended, and reimbursement of all out-of-pocket expenses relating to
attendance at such meetings. A quarterly fee of $15,000 is paid to the Chairman of the Audit Committee
and a quarterly fee of $3,750 is paid to the Chairman of the Independent Directors. We may also pay other one-time or recurring
fees to members of our Board of Directors in special circumstances. During 2011 and the three months ended March 31, 2012,
we paid Fraser Atkinson a fee of $60,000 and $15,000, respectively, in lieu of his standard compensation as Chairman of the Audit
Committee for additional duties undertaken in connection with the Fund’s review and analysis of its portfolio holdings for
the year. Neither Mr. Bertrand des Pallieres, an Independent Director, nor any of our interested directors, receive annual fees
for their service on the Board of Directors. The Fund incurred $0.1 million and $0.08 million in fees to our directors for the
three months ended March 31, 2012 and 2011 respectively.



In June, 2010, the Fund ratified and approved
the use of A+ Filings, LLC (“A+ Filings”) to file its reports with the Securities and Exchange Commission. Mr. Kenneth
I. Denos, Secretary of the Fund, holds a majority of the voting shares of A+ Filings. The

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Fund incurred $2,000 and $7,000 in services rendered by A+ Filings
for the three months ended March 31, 2012 and 2011, respectively.



On December 20, 2010, our board of directors
approved a consulting agreement ("Consulting Agreement") with John A. Hardy, the Fund's Chief Executive Officer. 
The Consulting Agreement provides for base compensation to Mr. Hardy of $200,000 per annum and an annual bonus based upon achievement
of certain criteria.  The bonus is subject to an annual payout cap of $150,000, and any bonus earned that exceeds the payout
cap will be carried over into subsequent fiscal years.  If the Consulting Agreement is terminated without cause, as defined
therein, Mr. Hardy will be entitled to receive one year's base consulting fee, together with all bonuses earned and unpaid up to
the date of termination.  Mr. Hardy is not entitled to participate in any employee-related benefits, including health, life
and disability plans, of the Fund.  For the three months ended March 31, 2012, the Fund incurred compensation expense of $50,000,
relating to Mr. Hardy’s Consulting Agreement. Mr. Hardy has further permanently waived his right to $4,897 of earned but
unpaid bonus in connection with activities of the Fund during the first quarter of 2012. For the three months ended March 31, 2011,
the Fund incurred compensation expense of $200,000, relating to Mr. Hardy’s Consulting Agreement which included a $150,000
cash bonus for fiscal 2011 in connection with the disposal of certain investments in January 2011 where the Fund received $10.0
million in cash. Mr. Hardy has also permanently waived his right to $620,604 of earned but unpaid bonus in connection with activities
of the Fund during the first quarter of 2011.



In November, 2011, Equus Energy, LLC, a wholly-owned
subsidiary of the Fund, entered into a consulting agreement with Global Energy Associates, LLC (“Global Energy”) to
provide consulting services for energy related investments. Henry W. Hankinson, Director, is a managing partner and co-founder
of Global Energy. Payments to Global Energy totaled $18,750 for the three months ended March 31, 2012.



In respect of services provided to the Fund
by members of the Board not in connection with their roles and duties as directors, the Fund pays a rate of $250 per hour for services
rendered. In connection with services rendered by Kenneth I. Denos, Secretary and Chief Compliance Officer of the Fund, the Fund
incurred $0.06 which is included in compensation expense for the three months ended March 31, 2012 and $0.05 million which is included
in compensation expense for the three months ended March 31, 2011 in the statement of operations and $0.03 million which is included
in deferred offering costs on the balance sheet as of March 31, 2011.



(5) 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.

(6) Portfolio Securities

During the three months ended March
31, 2012, we made no follow-on investments, nor realized any significant gains or losses on sales of portfolio securities.

Net unrealized depreciation on investments
remained relatively unchanged during the three months ended March 31, 2012, at a net unrealized depreciation of $17.4 million. 
Such decrease in depreciation is largely due to the following changes:

| | (i) | Increase in fair market value of ConGlobal Industries Holding, Inc. (“ConGlobal”)
of $0.3 million due to improved productivity.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (ii) | Decrease in the fair market value of Spectrum, LLC (“Spectrum”) of $0.2 million due
to the continued decline in operating performance and liquidity issues.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



During the three months ended March
31, 2011, we made a follow-on investment of $0.03 million in Spectrum.

During the three months ended March
31, 2011, we realized net capital losses of $0.9 million, including the following significant transactions (in thousands):



|Portfolio Company                        | Industry                  | Type          |   | Realized Gain (Loss)
|---------------------------------------- | ------------------------- | ------------- | - | --------------------
|London Bridge Entertainment Partners Ltd | Entertainment and leisure | Non-affiliate | $ | (992)               
|RP&C International Investments LLC       | Healthcare                | Affiliate     |   | 138                 
|Various others                           |                           |               |   | (1)                 
|                                         |                           |               | $ | (855)               



During the three months ended March
31, 2011, we sold our promissory notes in 1848 Capital Partners, LLC (“1848”), Big Apple Entertainment Partners, LLC
(“Big Apple”), and London Bridge Entertainment Partners, Ltd (“London Bridge”) and certain

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assets of Riptide Entertainment Partners, LLC (“Riptide”)
in which we hold a 64.67% membership interest.  All of these assets were sold to Capital Markets Acquisition Partners, LLC
for a combined price of $10 million, with $9.8 million allocated to the promissory notes held by the Fund and $0.2 million to Riptide. 
The Fund allocated the proceeds to the promissory notes resulting in a realized loss of approximately $0.9 million at London Bridge. 
In addition, the monies provided to Riptide were sufficient to satisfy its outstanding liabilities, resulting in a value of $0. We
also received $0.8 million in connection with the sale and redemption of our membership interest in RP&C International Investments
LLC.

Net unrealized depreciation on investments
increased by $0.2 million during the three months ended March 31, 2011, to a net unrealized depreciation of $27.5 million. 
Such increase in depreciation resulted from the following changes:

| | (iii) | Decline in fair market value of ConGlobal of $1.3 million due to lower storage revenues for containers.
| | ----- | -------------------------------------------------------------------------------------------------------

| | (iv) | Transfer of unrealized depreciation to realized depreciation for London Bridge Entertainment
Partners, Ltd. (“London Bridge”) of $0.8 million due to the sale of the promissory note.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (v) | Transfer of unrealized appreciation to realized appreciation for RP&C International Investments,
LLC (“RP&C”) of $0.1 million due to the maturity of the investment.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (vi) | Increase in fair market value of Spectrum of $0.4 million due to the extension of the maturity
of outstanding debt and the increase in market comparables.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

(9) Recent Accounting Pronouncements



In May 2011, the
FASB issued changes to disclosure requirements for fair value measurements which resulted in a consistent definition of fair value
and common requirements for measurement of and disclosure about fair value between GAAP and International Financial Reporting Standards
(“IFRS”). These changes become effective for interim and annual periods beginning after December 15, 2011.We
adopted this standard beginning on January 1, 2012. Our implementation of this standard did not have a material impact
on our process for measuring fair values, our financial position or our results of operations.

(10) Subsequent Events

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



According to press releases issued
by Orco Germany, on May 7, 2012, holders of 72.5% of all Orco Germany bondholders approved a joint restructuring of certain
bond debt of Orco Germany and its parent company, Orco Property Group S.A. (“OPG”). Pursuant to such
restructuring, approximately 84.5% of the Orco Germany bonds held by each bondholder were converted into Obligations
Convertibles en Actions (“OCA”) on May 9, 2012. The OCA are expected to be converted into an aggregate of
26.2 million OPG shares. The OPG shares may not be traded until a prospectus is filed with and approved by the Commission de
Surveillance du Secteur Financier (Luxembourg). The remaining 15.5% of the Orco Germany bonds held by each bondholder will be
converted into newly-issued 6-year OPG notes with a face value of €20.0 million bearing cash and PIK interest each at 5%
per annum, which interest percentages may be reduced over time upon timely repayments of principal tranches during a
four-year period commencing in 2015. Certain terms of the restructuring require approval of the Paris Commercial Court, which
is overseeing safeguard proceedings (procédure de sauvegarde) with respect to OPG and its assets. As of March
31, 2012, Equus held 8,890 Orco Germany bonds, or approximately 6% of all Orco Germany bonds outstanding. If the terms and
conditions of the joint restructuring were fulfilled, Equus would expect to receive 1,573,712 OPG Shares, and OPG notes in
the face amount of €1,199,927 which, according to the EUR-USD exchange rate on May 11, 2012, is equal to $1,550,426.

On April 2, 2012, the Fund sold
U.S. Treasury bills for $8.0 million and repaid the margin loan.

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

Overview

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





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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 $15.0 million and $75.0 million, although we may engage in transactions with smaller or larger
investee companies from time to time. We seek to invest primarily in companies pursuing growth either through acquisition or
organically, leveraged buyouts, management buyouts and recapitalizations of existing businesses or special situations. Our
income-producing investments consist principally of debt securities including subordinate debt, debt convertible into common
or preferred stock, or debt combined with warrants and common and preferred stock. Debt and
preferred equity financing may also be used to create long-term capital appreciation through the exercise and sale of
warrants received in connection with the financing.We seek to achieve capital appreciation by making investments in
equity and equity-oriented securities issued by privately-owned companies in transactions negotiated directly with such
companies.Given market conditions over the past several years and the performance of our
portfolio, our Management and board of directors believe it prudent to continue to review alternatives to refine and further
clarify the current strategies.



We elected to be treated as a business development
company under the Investment Company Act of 1940 (“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 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 any LLC (or other pass-through entity)
portfolio investment 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.



Critical Accounting Policies



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



Valuation of Investments— Portfolio
investments are carried at fair value with the net change in unrealized appreciation or depreciation included in the determination
of net assets. Valuations of portfolio securities are performed in accordance with accounting principles generally accepted in
the United States of America and the financial reporting policies of the SEC. The applicable methods prescribed by such principles
and policies are described below:



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



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



During the first twelve months after an investment
is made, the original investment amount is utilized 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). After the twelve month period, or if material events have occurred within the twelve month period,
Fund management considers a two step process when appraising investments of privately held companies. The first step involves determining
the enterprise value of the portfolio company. During this step, Fund management considers three different valuation approaches:
a market approach, an income approach, and an asset approach. The particular facts and circumstances of each portfolio company
determine which approach, or combination of approaches, will be utilized. The second step when appraising equity investments of
privately held companies involves allocating value to the various debt and equity securities of the company. Fund management allocates
value to these securities based on their relative priorities. For equity securities such as warrants, the Fund may also incorporate
alternative methodologies including the Black-Scholes Option Pricing Model.





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



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



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



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



Fund management considers that the Fund’s
general intent is to hold its loans to maturity when appraising its privately held debt investments. As such, Fund management believes
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, the Fund performs a yield analysis to determine if a debt security has been impaired.



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



The Audit Committee of the Board of Directors
may engage independent, third-party valuation firms to conduct independent appraisals and review management’s preliminary
valuations of each privately-held investment in order to make their own independent assessment. Any third-party valuation data
would be considered as one of many factors in a fair value determination. The Audit Committee then would recommend the fair values
for all privately-held securities based on all relevant factors to the Board of Directors for final approval.



Because of the inherent uncertainty of the
valuation of portfolio securities which do not have readily ascertainable market values, amounting to $19.1 million and $19.2 million
as of March 31, 2012 and December 31, 2011, respectively, our fair value determinations may materially differ from the values that
would have been used had a ready market existed for the securities. One of the Fund’s portfolio investments, 8,890 Orco Germany
S.A. 4% bonds due May 2012, is publicly listed on the Euro MTF Market of the Luxembourg Stock Exchange. However, there has been
no recent trading activity.



On a daily basis, 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 reports those amounts to Lipper Analytical Services,
Inc. Weekly and daily net asset values appear in various publications, including Barron’s and The Wall Street Journal.



Federal Income Taxes

We intend to comply with the requirements
of the Internal Revenue Code necessary for us to qualify as a RIC. So long as we comply with these requirements, we generally
will not be subject to corporate-level federal income taxes on otherwise taxable income

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(including net realized capital
gains) distributed to stockholders. Therefore, we did not record a provision for federal income taxes in our financial
statements. As of December 31, 2011, we had a capital loss carry forward of $26.5 million which may be used to offset
future capital gains. We may borrow money from time to time to maintain our status as a RIC under the Internal Revenue Code.
See Note 2 to the financial statements for further discussion of the Fund’s RIC borrowings.



Interest Income Recognition



We record interest income, adjusted
for amortization of premium and accretion of discount, on an accrual basis to the extent that we expect to collect such amounts.
We stop accruing interest on investments when we determine that interest is no longer collectible. We may also impair the accrued
interest when we determine that all or a portion of the current accrual is uncollectible. If we receive any cash after determining
that interest is no longer collectible, we treat such cash as payment on the principal balance until the entire principal balance
has been repaid, before we recognize any additional interest income. We accrete or amortize discounts and premiums on securities
purchased over the life of the respective security using the effective yield method. The amortized cost of investments represents
the original cost adjusted for the accretion of discount and/or amortization of premium on debt securities.



Payment in Kind Interest



We have loans in our portfolio that may pay
PIK interest. We add PIK interest, if any, computed at the contractual rate specified in each loan agreement, to the principal
balance of the loan and record it as interest income. To maintain the Fund’s status as a RIC, we must pay out to our stockholders
this non-cash source of income in the form of dividends even if we have not yet collected any cash in respect of such investments.



Current Market Conditions



Overall economic conditions in the United States
continued to improve, albeit marginally, during the first quarter of 2012.  However, the economic recovery has been hampered
by slower growth, persistent high unemployment levels and lingering softness in certain housing markets.  Further, the banking
industry continues to experience additional bank failures as regulators continue to impose strict capital requirements.  Additionally,
future economic expansion and business investment is threatened by perceptions of higher taxes and healthcare costs, as well as
the high levels of government deficit spending.



Although market conditions for business transactions
including mergers and acquisitions and private equity investments improved throughout 2010 and 2011 to their highest levels since
2008, such activity declined sharply in the first quarter of 2012, falling to its lowest levels in two years.  Notwithstanding
the drop in private equity investment and business combinations during the first quarter, corporations have been deleveraging and
are holding significant amounts of cash and many have begun to focus on acquisitions as part of future growth plans.  Private
equity firms have access to historically large amounts of committed capital as private equity activity has been lower than anticipated
for nearly two years and fund raising was robust heading into the economic downturn.



Consistent with
other companies in the financial services sector, our performance has been adversely affected. Between December 31,
2009 and March 31, 2012 our net asset value declined from $5.74 per share to $3.56 per share.  This further impacted the closing
price of our common stock, as it declined approximately 21.9% during 2010 and further declined 10.4% during 2011. As of March 31,
2012, our common stock is trading at a 36.3% discount to our net asset value.



During 2010 and 2011, we 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 underperforming investment holdings.  We believe these actions continue to be necessary to protect capital and liquidity
during this turbulent economic period in order to preserve and enhance shareholder value. We also expect that, because of management
internalization, certain expenses of the Fund will not increase commensurate with an increase in the size of the Fund and, therefore,
we can 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 its tax status as a RIC. During
the three months ended March 31, 2012 and 2011, we borrowed such funds by utilizing a

25


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margin account with a securities
brokerage firm. There is no assurance that such arrangement will be available in the future. If the Fund is unable to borrow
funds to make qualifying investments, it may no longer qualify as a RIC. The Fund would then be subject to corporate income
tax on its net investment income and realized capital gains, and distributions to stockholders would be subject to income tax
as ordinary dividends.

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

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

We are
evaluating the impact of current market conditions on our portfolio company valuations and their ability to provide current income.
We have followed valuation techniques in a consistent manner; however, we are cognizant of current market conditions that might
affect future valuations of portfolio securities. We believe that our operating cash flow and cash on hand will be sufficient to
meet operating requirements and to finance routine capital expenditures through the next twelve months.

Results of Operations

Investment Income and Expense

Net investment loss was $0.5 million and $0.7 million for the three months ended March 31, 2012 and March 31, 2011, respectively. The
decrease in net investment loss generated at March 31, 2012 compared to March 31, 2011 is due primarily to the decrease
in total investment income along with a decrease in compensation expense and settlement expense.

Total income from portfolio securities
was $0.2 million and $0.4 million for the three months ended March 31, 2012 and 2011, respectively. The $0.2 million decrease
was primarily due to the decline in income producing investments and the impairment of accrued interest receivable of Spectrum Management, LLC.

Compensation expense was $0.2 million
and $0.5 million for the three months ended March 31, 2012 and 2011, respectively. The $0.3 million decrease was primarily due
to the decline in bonus expense in accordance with the agreements with Mr. Hardy and Mr. Brown.

Settlement expense was $0.1
million for the three months ended March 31, 2011 in connection with the settlement of a lease agreement dispute with
American General Insurance Company.

Realized Gains and Losses on Sales of Portfolio Securities

During the three months ended March 31,
2012, we did not realize any material net capital gains or losses.

During the three months ended March
31, 2011, we realized net capital losses of $0.9 million, including the following significant transactions (in thousands):



|Portfolio Company                        | Industry                  | Type          |   | Realized Gain (Loss)
|---------------------------------------- | ------------------------- | ------------- | - | --------------------
|London Bridge Entertainment Partners Ltd | Entertainment and leisure | Non-affiliate | $ | (992)               
|RP&C International Investments LLC       | Healthcare                | Affiliate     |   | 138                 
|Various others                           |                           |               |   | (1)                 
|                                         |                           |               | $ | (855)               



Changes in Unrealized Appreciation/Depreciation of Portfolio
Securities

Net unrealized depreciation on investments
remained relatively unchanged during the three months ended March 31, 2012, at $17.4 million largely due to the following changes:



|(i) |  | Increase in fair market value of ConGlobal of $0.3 million
due to improved productivity.
|--- |  | ----------------------------------------------------------------------------------------

|(ii) |  | Decrease in the fair market value of Spectrum of $0.2
million due to the continued decline in operating performance and liquidity issues.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------





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Net unrealized depreciation on investments
increased by $0.2 million during the three months ended March 31, 2011, to a net unrealized depreciation of $27.5 million. Such
increase in depreciation resulted from the following changes:



|(i) |  | Decline in fair market value of ConGlobal of $1.3 million
due to lower storage revenues for containers.
|--- |  | -------------------------------------------------------------------------------------------------------





|(ii) |  | Transfer of unrealized depreciation to realized depreciation
for London Bridge of $0.8 million due to the sale of the promissory note.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------

|(iii) |  | Transfer of unrealized appreciation to realized appreciation
for RP&C of $0.1 million due to the maturity of the investment.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------

|(iv) |  | Increase in fair market value of Spectrum of $0.4 million
due to the extension of the maturity of outstanding debt and the increase in market comparables.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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 Investments

During the three months ended March
31, 2012, we made no follow-on investments.

During the three months ended March
31, 2011, we made a follow-on investment of $0.03 million in Spectrum.

Subsequent Events

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

According to press releases issued
by Orco Germany, on May 7, 2012, holders of 72.5% of all Orco Germany bondholders approved a joint restructuring of certain
bond debt of Orco Germany and its parent company, Orco Property Group S.A. (“OPG”). Pursuant to such
restructuring, approximately 84.5% of the Orco Germany bonds held by each bondholder were converted into Obligations
Convertibles en Actions (“OCA”) on May 9, 2012. The OCA are expected to be converted into an aggregate of
26.2 million OPG shares. The OPG shares may not be traded until a prospectus is filed with and approved by the Commission de
Surveillance du Secteur Financier (Luxembourg). The remaining 15.5% of the Orco Germany bonds held by each bondholder will be
converted into newly-issued 6-year OPG notes with a face value of €20.0 million bearing cash and PIK interest each at 5%
per annum, which interest percentages may be reduced over time upon timely repayments of principal tranches during a
four-year period commencing in 2015. Certain terms of the restructuring require approval of the Paris Commercial Court, which
is overseeing safeguard proceedings (procédure de sauvegarde) with respect to OPG and its assets. As of March
31, 2012, Equus held 8,890 Orco Germany bonds, or approximately 6% of all Orco Germany bonds outstanding. If the terms and
conditions of the joint restructuring were fulfilled, Equus would expect to receive 1,573,712 OPG Shares, and OPG notes in
the face amount of €1,199,927 which, according to the EUR-USD exchange rate on May 11, 2012, is equal to $1,550,426.

On April 2, 2012, the Fund sold U.S. Treasury bills
for $8.0 million and repaid the margin loan.

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. The Fund has invested in a company outside of the United States which has given
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, volatility in bond markets, particularly as such fluctuations may
affect Orco Germany S.A. and other European corporate bond issuers, may affect the quoted price for such bonds and may therefore
impact their estimated fair value. In addition, 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.



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We are classified as a
“non-diversified” investment company under the Investment Company 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 Business
Products and Services include two portfolio companies and was 18.4% of the net asset value and 36.2% of our investments in
portfolio company securities (at fair value) as of March 31, 2012. 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.

Item  4.	Controls
and Procedures

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

The Fund’s management, with the
participation of the Fund’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the
design and operations of the Fund’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934) as of March 31, 2012. Based on their evaluation, the Fund’s Chief Executive Officer
and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective at a reasonable assurance
level. There has been no change in the Fund’s internal control over financial reporting during the quarter ended March 31,
2012, that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial
reporting.







Part II. Other Information

Item  1.	Legal
Proceedings

On June 30, 2009, the Fund received
a “Wells” notice from the staff of the Securities and Exchange Commission (“SEC”). Based on discussions
with the SEC staff, the Fund believes that the issues the staff intends to pursue relate to a one-time administrative fee that
the Fund paid in 2005 and the compensation of a certain Fund officer during approximately the same time period. The Wells notice
notified the Fund that the staff intends to recommend that the SEC bring a civil action against the Fund for possible violations
of the securities laws. The Fund has been cooperating with the SEC in this inquiry. In accordance with SEC procedures, the Fund
has presented its perspective on these issues to the staff. The SEC has not made a formal decision regarding an enforcement proceeding.
The Fund also understands that three persons (two of whom were formerly associated with the Fund and the Fund’s former investment
adviser) received similar Wells notices relating to the 2005 activity. The Fund understands that these individuals also will have
an opportunity to present their perspectives on these issues before any formal decision is made on enforcement proceedings.

On April 26, 2010, the SEC also
subpoenaed records of the Fund in connection with certain trades in the Fund’s shares by SPQR Capital LLP, SAE Capital Ltd.,
Versatile Systems Inc., Mobiquity Investments Limited, and anyone associated with those entities. The Fund has fully cooperated
with the SEC’s request.



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



Atrium filed suit in the District Court of Harris County, Texas against two former officers of Atrium’s subsidiary,
Champion, alleging, amongst other matters, that the former officers breached their fiduciary duties to Champion by hiring undocumented
workers. This action was commenced primarily as a result of an investigation by the U.S. Immigration and Customs Enforcement agency
(“ICE”) into Atrium’s hiring practices. On March 12, 2012, to protect its interests, Equus filed a Petition in
Intervention in the State Court Action seeking a declaration from the Court that Equus did not owe any obligation to indemnify
Atrium or Champion for any penalties, costs or fees associated with the investigation by ICE.



On March 16, 2012, Atrium
and Champion filed a claim with the American Arbitration Association in Dallas, Texas, against Equus and a number of the other
sellers under the SPA.



In the Arbitration Action,
Atrium and Champion seek damages arising from Equus’ and the other sellers’ indemnity obligations set forth in the
SPA. Atrium claims it is entitled to indemnification under the SPA for costs it has incurred in responding to an ongoing investigation
by ICE. Atrium entered into a Non-Prosecution Agreement with ICE. One condition of the Non-Prosecution Agreement required Atrium
to pay ICE $2,000,000. Atrium and Champion asserted two counts of breach of contract against Equus, both arising

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out of the alleged obligation to indemnify Atrium and Champion
pursuant to certain provisions of the SPA. Atrium and Champion also asserted claims for fraudulent inducement against two
former officers and directors of Champion. Through the arbitration, Atrium and Champion seek to recover an unspecified amount
in the form of alleged “losses, damages, assessments, penalties, interest, reasonable attorneys’ and
accountants’ fees, settlement costs, and other costs and expenses arising directly or indirectly out of or incident
to,” the alleged breach of the indemnity provisions in the SPA. As a consequence of their fraudulent inducement claim
against the two former officers and directors, Atrium and Champion alternatively seek equitable rescission of the SPA and
exemplary damages from the two former officers and directors.



Atrium and Champion have
yet to specify the amount of damages they seek from Equus or the other sellers pursuant to the alleged indemnity obligations under
the SPA. Atrium and Champion have disclosed the payment of $2 million to ICE to resolve the investigation and avoid prosecution
for their hiring practices.



Equus intends
to vigorously contest the claims and denies that it owes any indemnity obligations to Atrium or Champion and further denies
that it is in any way liable to Atrium or Champion. To the extent Atrium and Champion are able to establish a right to
an indemnity, Equus will contest the amount of the claimed indemnity, inasmuch as we believe that the indemnity obligation
can only exit, if at all, with respect to damages arising as a direct and proximate result of employees who were hired prior
to the closing date of the 2006 sale of Champion, and not to any employee who may have been hired in the six years after
the sale.



While the Fund believes
the Atrium claim is without merit and the Fund intends to vigorously dispute the claim, there is a reasonable possibility of an
adverse ruling which may require the Fund to indemnify Atrium. If Equus is required to indemnify Atrium and Champion, we estimate
that such indemnity obligation could vary from $2.0 - $3.0 million. Pursuant to the SPA, the indemnification obligation of Equus
and the other sellers is several and not joint, and any such indemnity, however uncertain, would likely be reduced proportionately
to the Fund’s percentage ownership in Champion at the time of sale, which was 31.5% of Champion’s shares outstanding.

From time to time, the Fund is also
a party to certain legal 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,
the Fund does not expect that these proceedings will have a material effect upon the Fund’s financial condition or results
of operations.



Item 1A.	Risk
Factors

There have been no material changes
in the Fund’s risk factors from the disclosure set forth in the Annual Report on Form 10-K for the year ended December 31,
2011.

Readers should carefully consider these
risks and all other information contained in the annual report on Form 10-K, including the Fund’s financial statements and
the related notes thereto. The risks and uncertainties described below are not the only ones facing the Fund. Additional risks
and uncertainties not presently known to the Fund, or not presently deemed material by the Fund, may also impair its operations
and performance.

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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 December 16, 2010.]
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(c) |  | 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.]
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | 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.]
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) |  | 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.]
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) |  | 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.]
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.



|                   |  |                         
|------------------ |  | ------------------------
|                   |  | EQUUS TOTAL RETURN, INC.
|                   |  |                         
|Date: May 15, 2012 |  | /s/ John A. Hardy       
|                   |  | John A. Hardy           
|                   |  | Chief Executive Officer 



























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