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,
2013

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, 2013.







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                                                                 | 12  
|Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22  
|Item 3. Quantitative and Qualitative Disclosure about Market Risk                             | 26  
|Item 4. Controls and Procedures                                                               | 27  
|PART II. OTHER INFORMATION                                                                    |     
|Item 1. Legal Proceedings                                                                     | 27  
|Item 1A. Risk Factors                                                                         | 28  
|Item 6. Exhibits                                                                              | 29  
|SIGNATURE                                                                                     | 30  







































Table of Contents2





EQUUS TOTAL RETURN, INC.

BALANCE SHEETS



Part
I. Financial Information

Item  1.   Financial Statements





|                                                                                           |  |                                                                                                |         |                                                                                                  
|------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------- | ------- | -------------------------------------------------------------------------------------------------
|                                                                                           |  | March 31,
                                                                                2013 |         | December 31,
                                                                                2012
|(in thousands, except per share amounts)                                                   |  | (Unaudited)                                                                                    |         |                                                                                                  
|Assets                                                                                     |  |                                                                                                |         |                                                                                                  
|Investments in portfolio securities at fair value:                                         |  |                                                                                                |         |                                                                                                  
|Control investments (cost at  $15,569 and $15,479 respectively)                            |  | $                                                                                              | 6,893   |                                                                                                  
|Affiliate investments (cost at $350 and $350 respectively)                                 |  |                                                                                                | 150     |                                                                                                  
|Non-affiliate investments (cost at $10,616 and $10,625 respectively)                       |  |                                                                                                | 1,582   |                                                                                                  
|Total investments in portfolio securities at fair value                                    |  |                                                                                                | 8,625   |                                                                                                  
|Cash and cash equivalents                                                                  |  |                                                                                                | 22,761  |                                                                                                  
|Accounts receivable and other                                                              |  |                                                                                                | 221     |                                                                                                  
|Accrued interest receivable                                                                |  |                                                                                                | 167     |                                                                                                  
|Total assets                                                                               |  |                                                                                                | 31,774  |                                                                                                  
|Liabilities and net assets                                                                 |  |                                                                                                |         |                                                                                                  
|Accounts payable and accrued liabilities                                                   |  |                                                                                                | 321     |                                                                                                  
|Accounts payable to related parties                                                        |  |                                                                                                | 37      |                                                                                                  
|Total liabilities                                                                          |  |                                                                                                | 358     |                                                                                                  
|                                                                                           |  |                                                                                                |         |                                                                                                  
|Commitments and contingencies                                                              |  |                                                                                                |         |                                                                                                  
|                                                                                           |  |                                                                                                |         |                                                                                                  
|Net assets                                                                                 |  | $                                                                                              | 31,416  |                                                                                                  
|                                                                                           |  |                                                                                                |         |                                                                                                  
|Net assets consist of:                                                                     |  |                                                                                                |         |                                                                                                  
|Common stock, par value                                                                    |  | $                                                                                              | 10      |                                                                                                  
|Capital in excess of par value                                                             |  |                                                                                                | 61,495  |                                                                                                  
|Undistributed net investment losses                                                        |  |                                                                                                | (12,179 | )                                                                                                
|Unrealized depreciation of portfolio securities, net                                       |  |                                                                                                | (17,910 | )                                                                                                
|Total net assets                                                                           |  | $                                                                                              | 31,416  |                                                                                                  
|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                                                                  |  | $                                                                                              | 2.97    |                                                                                                  



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







Table of Contents3







EQUUS TOTAL RETURN, INC.

STATEMENTS OF OPERATIONS

(Unaudited)





|                                                                    |  | Three
    months ended March 31,
|------------------------------------------------------------------- |  | --------------------------------
|(in thousands,
    except per share amounts)                        |  | 2013                            
|Investment income (loss), net:                                      |  |                                 
|Interest income (loss), net:                                        |  |                                 
|Control
    investments                                             |  | $                               
|Affiliate investments                                               |  |                                 
|Non-affiliate
    investments                                       |  |                                 
|Total
    interest income (loss), net                               |  |                                 
|Interest from
    temporary cash investments                        |  |                                 
|Total investment
    income (loss), net                             |  |                                 
|                                                                    |  |                                 
|Expenses:                                                           |  |                                 
|Professional fees                                                   |  |                                 
|Compensation expense                                                |  |                                 
|Director fees and expenses                                          |  |                                 
|General and administrative expense                                  |  |                                 
|Mailing, printing and other expenses                                |  |                                 
|Taxes                                                               |  |                                 
|Interest expense                                                    |  |                                 
|Total
    expenses                                                  |  |                                 
|                                                                    |  |                                 
|Net investment loss                                                 |  |                                 
|                                                                    |  |                                 
|Net 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.



















Table of Contents4







EQUUS TOTAL RETURN, INC.

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)





|                                                     |  | Three months ended March 31,
|---------------------------------------------------- |  | ----------------------------
|(in thousands)                                       |  | 2013                        
|Net decrease in net assets resulting from operations |  | $                           
|Net assets at beginning of period                    |  |                             
|Net assets at end of period                          |  | $                           



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







































































































Table of Contents5







EQUUS TOTAL RETURN, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)





|                                                                                          |  | Three months ended March 31,
|----------------------------------------------------------------------------------------- |  | ----------------------------
|(in thousands)                                                                            |  | 2013                        
|Reconciliation of decrease in net assets resulting from operations to net cash            |  |                             
|used in 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 operating activities:                                                             |  |                             
|Net change in unrealized (appreciation) depreciation of portfolio securities              |  |                             
|Changes in operating assets and liabilities:                                              |  |                             
|Purchase of portfolio securities                                                          |  |                             
|Principal payments received from portfolio securities                                     |  |                             
|Sales of temporary cash investments, net                                                  |  |                             
|Increase in accounts receivable and other                                                 |  |                             
|(Increase) decrease in accrued interest receivable                                        |  |                             
|Increase in accounts payable and accrued liabilities                                      |  |                             
|Increase (decrease) in accounts payable to related parties                                |  |                             
|Net cash used in operating activities                                                     |  |                             
|Cash flows from financing activities:                                                     |  |                             
|Borrowings under margin account                                                           |  |                             
|Repayments under margin account                                                           |  |                             
|Net cash provided by financing activities                                                 |  |                             
|Net decrease 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                                                                             |  | $                           
|Income taxes paid                                                                         |  | $                           







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



































Table of Contents6







EQUUS TOTAL RETURN, INC.

SUPPLEMENTAL INFORMATION—SELECTED PER
SHARE DATA AND RATIOS

(Unaudited)





|                                                                                    |  | Three months ended March 31,
|----------------------------------------------------------------------------------- |  | ----------------------------
|                                                                                    |  | 2013                        
|                                                                                    |  |                             
|Investment income (loss), net                                                       |  | $                           
|Expenses                                                                            |  |                             
|                                                                                    |  |                             
|Net investment loss                                                                 |  |                             
|Net realized gain (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 - beginning price per share) / beginning market price per share].



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



















































Table of Contents7







EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS

March 31, 2013

(Unaudited)

(in thousands, except share data)







|                                                                                                    |                                |                 |                                                                                               |        |           |        |            |   |       |         
|--------------------------------------------------------------------------------------------------- | ------------------------------ | --------------- | --------------------------------------------------------------------------------------------- | ------ | --------- | ------ | ---------- | - | ----- | --------
|Name and Location of                                                                                |                                | Date of Initial |                                                                                               |        |           |        | Cost of    |   |       | Fair    
|Portfolio Company                                                                                   | Industry                       | Investment      | Investment                                                                                    |        | Principal |        | Investment |   |       | Value(1)
|                                                                                                    |                                |                 |                                                                                               |        |          
|Control
    Investments:  Majority-owned (3):                                                       |                                |                 |                                                                                               |        |           |        |            |   |      
|Equus Energy, LLC 
    Houston, TX                                                                  | Energy                         | December 2011   | Member interest (100%)                                                                        |        |           | $      | 7,050      |   | $     | 6,623   
|Equus Media Development Company, LLC
    Houston, TX                                                | Media                          | January 2007    | Member interest (100%)                                                                        |        |           |        | 3,000      |   |       | 146     
|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  (5)                                              | $      | 2,669     |        | 2,669      |   |       | 124     
|                                                                                                    |                                |                 |                                                                                               |        |           |        | 5,519      |   |       | 124     
|Total
    Control Investments: Majority-owned (represents 79.9% of total investments at fair value) |                                |                 | $                                                                                             | 15,569 |           | $      | 6,893     
|Affiliate Investments (4):                                                                          |                                |                 |                                                                                               |        |           |        |            |   |       |         
|PalletOne, Inc                      
Bartow, FL                                                     | Shipping products and services | October 2001    | 350,000 shares of common stock (18.70%)                                                       |        |           | $      | 350        |   | $     | 150     
|Total
    Affiliate Investments (represents 1.7% of total investments at fair value)                |                                |                 | $                                                                                             | 350    |           | $      | 150       
|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  
Ogden, UT                                                                     | Alternative energy             | June 2007       | 115,180 shares common stock (0.06%)                                                           |        |           |        | 8,000      |   |       | -       
|                                                                                                    |                                |                 | Option to purchase 16,000 shares of common stock at $6.50 per
    share through 12/12         |        |           |        | -          |   |       | -       
|                                                                                                    |                                |                 |                                                                                               |        |           |        | 8,000      |   |       | -       
|Orco Property Group   
Paris,
    France                                                            | Real estate                    | April 2011      | 73,666 shares common stock                                                                    |        |           |        | 125        |   |       | 202     
|                                                                                                    |                                |                 | 10% Promissory note due 
2/2018 (2)                                                           | $      | 696       |        | 696        |   |       | 1,380   
|                                                                                                    |                                |                 |                                                                                               |        |           |        | 821        |   |       | 1,582   
|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 18.4% of total investments at fair value)           |                                |                 | $                                                                                             | 10,616 |           | $      | 1,582     
|Total Investment in Portfolio Securities                                                            |                                |                 |                                                                                               |        | $         | 26,535 |            | $ | 8,625













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



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

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

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

| | (5) | Non-income producing.
| | --- | ---------------------





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

Table of Contents8







EQUUS TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS – (Continued)

March 31, 2013

(Unaudited)

Except for our holding of ordinary shares
of Orco Property Group S.A. (“OPG”), substantially all of our portfolio securities are restricted from public sale
without prior registration under the Securities Act of 1933 or other relevant foreign regulatory authority. We negotiate certain
aspects of the method and timing of the disposition of our investment in each portfolio company, including registration rights
and related costs.

We may invest up to 30% of our assets
in non-qualifying portfolio investments, as permitted by the Investment Company Act of 1940 (hereafter, the “1940 Act”).
Specifically, we may invest up to 30% of our assets in entities that are not considered “eligible portfolio companies”
(as defined in the 1940 Act), including companies located outside of the United States, entities that are operating pursuant to
certain exceptions under the 1940 Act, and publicly-traded entities with a market capitalization exceeding $250 million. As of
March 31, 2013, except for our holdings in OPG, all of our investments are in enterprises that are considered eligible portfolio
companies under the 1940 Act, and for which we provide significant managerial assistance.

Our investments in portfolio securities
consist of the following types of securities as of March 31, 2013 (in thousands):



|Type of Securities                    |  | Cost |        | Fair Value |  | Fair Value as
 Percentage of
                                                                                Net
                                                                                Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Limited liability company investments |  | $    | 12,900 |            |  | $                                                                                                                                                                                                      
|Secured and subordinated debt         |  |      | 3,365  |            |  |                                                                                                                                                                                                        
|Common stock                          |  |      | 8,475  |            |  |                                                                                                                                                                                                        
|Preferred stock                       |  |      | 1,795  |            |  |                                                                                                                                                                                                        
|Total                                 |  | $    | 26,535 |            |  | $                                                                                                                                                                                                      



Interest payments are being received and/or accrued on notes with
a fair value of $1.4 million, while accrued interest has been impaired on notes receivable included in secured and subordinated
debt with a fair value of $0.1 million.

The following is a summary by industry of
the Fund’s investments in portfolio securities as of March 31, 2013 (in thousands):



|Industry                       |  | Fair Value |       | Fair Value as
    Percentage of Net Assets
|------------------------------ |  | ---------- | ----- | ------------------------------------------
|Energy                         |  | $          | 6,623 |                                           
|Real estate                    |  |            | 1,582 |                                           
|Business products and services |  |            | 124   |                                           
|Shipping products and services |  |            | 150   |                                           
|Media                          |  |            | 146   |                                           
|Total                          |  | $          | 8,625 |                                           









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



Table of Contents9









EQUUS
TOTAL RETURN, INC.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

(in thousands, except share data)



|Name and Location of                                                                            |                                | Date of Initial |                                                                                           |        |           |       | Cost of    |   | Fair    
|----------------------------------------------------------------------------------------------- | ------------------------------ | --------------- | ----------------------------------------------------------------------------------------- | ------ | --------- | ----- | ---------- | - | --------
|Portfolio Company                                                                               | Industry                       | Investment      | Investment                                                                                |        | Principal |       | Investment |   | Value(1)
|                                                                                                |                                |                 |                                                                                           |        |          
|Control Investments: Majority-owned (3):                                                        |                                |                 |                                                                                           |        |           |       |            |  
|Equus Energy, LLC
        Houston, TX                                                           | Energy                         | December 2011   | Member interest (100%)                                                                    |        |           | $     | 7,050      | $ | 6,855   
|Equus Media Development Company, LLC
        Houston, TX                                        | Media                          | January 2007    | Member interest (100%)                                                                    |        |           |       | 3,000      |   | 146     
|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(5)                                            | $      | 2,579     |       | 2,579      |   | 418     
|                                                                                                |                                |                 |                                                                                           |        |           |       | 5,429      |   | 418     
|Total Control Investments: Majority-owned (represents 80.4% of total investments at fair value) |                                |                 | $                                                                                         | 15,479 | $         | 7,419
|Affiliate Investments (4):                                                                      |                                |                 |                                                                                           |        |           |       |            |   |         
|PalletOne, Inc.
        Bartow, FL                                                              | Shipping products and services | October 2001    | 350,000 shares of common stock (18.70%)                                                   |        |           | $     | 350        | $ | 150     
|Total Affiliate Investments (represents 1.6% of total investments at fair value)                |                                |                 | $                                                                                         | 350    | $         | 150  
|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
        Ogden, UT                                                           | Alternative energy             | June 2007       | 115,180 shares common stock (0.06%)                                                       |        |           |       | 8,000      |   | -       
|                                                                                                |                                |                 | Option to purchase 16,000 shares of common stock at $6.50 per share through 12/12         |        |           |       | -          |   | -       
|                                                                                                |                                |                 |                                                                                           |        |           |       | 8,000      |   | -       
|Orco Property Group S.A.
        Paris, France                                                  | Real estate                    | April 2011      | 73,666 shares common stock                                                                |        |           |       | 125        |   | 238     
|                                                                                                |                                |                 | 10% Promissory note due 2/18(2)                                                           | $      | 705       |       | 705        |   | 1,425   
|                                                                                                |                                |                 |                                                                                           |        |           |       | 830        |   | 1,663   
|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 18.0% of total investments at fair value)           |                                |                 | $                                                                                         | 10,625 | $         | 1,663
|Total Investment in Portfolio Securities                                                        |                                |                 |                                                                                           |        |           | $     | 26,454     | $ | 9,232   









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



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

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

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

| | (5) | Non-income producing.
| | --- | ---------------------







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



Table of Contents10







EQUUS TOTAL RETURN,
INC.

SCHEDULE OF INVESTMENTS
– (Continued)

DECEMBER 31, 2012

(in thousands, except
share data)



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.



We may invest up to 30% of our assets in non-qualifying
portfolio investments, as permitted by the 1940 Act. Specifically, we may invest up to 30% of our assets in entities that are not
considered “eligible portfolio companies” (as defined in the 1940 Act), including companies located outside of the
United States, entities that are operating pursuant to certain exceptions under the 1940 Act, and publicly-traded entities with
a market capitalization exceeding $250 million. As of December 31, 2012, except for our holdings in OPG, all of our investments
are in enterprises that are considered eligible portfolio companies under the 1940 Act, and for which we provide significant managerial
assistance.



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



|Type of Securities                    |  | Cost |        | Fair Value |  | Fair Value as Percentage of
        Net Assets
|------------------------------------- |  | ---- | ------ | ---------- |  | ----------------------------------------------
|Limited liability company investments |  | $    | 12,900 |            |  | $                                             
|Secured and subordinated debt         |  |      | 3,284  |            |  |                                               
|Common stock                          |  |      | 8,475  |            |  |                                               
|Preferred stock                       |  |      | 1,795  |            |  |                                               
|Total                                 |  | $    | 26,454 |            |  | $                                             



Interest payments are being received and/or
accrued on notes with a fair value of $1.4 million, while accrued interest has been impaired on notes receivable included in secured
and subordinated debt with a fair value of $0.4 million.



The following is a summary by industry of our
investments in portfolio securities as of December 31, 2012 (in thousands):



|Industry                       |  | Fair Value |       | Fair Value as Percentage of 
Net Assets
|------------------------------ |  | ---------- | ----- | ---------------------------------------
|Energy                         |  | $          | 6,855 |                                        
|Real estate                    |  |            | 1,663 |                                        
|Business products and services |  |            | 418   |                                        
|Shipping products and services |  |            | 150   |                                        
|Media                          |  |            | 146   |                                        
|Alternative energy             |  |            | —     |                                        
|Total                          |  | $          | 9,232 |                                        



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































Table of Contents11







EQUUS TOTAL RETURN, INC.

NOTES TO FINANCIAL STATEMENTS

March 31, 2013

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



We elected to be treated as a Business Development
Company (“BDC”) 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 certain income-producing investments or portfolio companies organized as
limited liability companies, or LLCs, (or other forms of pass-through entities) and still satisfy the RIC tax requirement that
at least 90% of our gross revenue for income tax purposes must consist of investment income. Absent the Taxable Subsidiaries, a
portion of the gross income of these income-producing investments or of any LLC (or other pass-through entity) portfolio investment,
as the case may be, would flow through directly to us for the 90% test. To the extent that such income did not consist of investment
income, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur significant federal income taxes.
The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiaries is taxed to the Taxable Subsidiaries and
does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages. We do not consolidate the
Taxable Subsidiaries for income tax purposes and they may generate income tax expense because of the Taxable Subsidiaries’
ownership of the portfolio investments. We reflect any such income tax expense on our Statements of Operations.



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 unaudited financial statements were prepared
in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information
and in accordance with the requirements of reporting on Form 10-Q and Article 10 of Regulation S-X, under the Securities Exchange
Act of 1934, as amended. Accordingly, they are unaudited and exclude some disclosures required for annual financial statements.
Management believes it has made all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation
of these interim financial statements.



The results of operations for the three months
ended March 31, 2013 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, 2012, as filed with the Securities and Exchange Commission
(“SEC”).

Table of Contents12









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



Liquidity—There are several factors
that may materially affect our liquidity during the reasonably foreseeable future. We view this period as the twelve month period
from the date of the financial statements in this Form 10-Q, i.e., the period through March 31, 2014.



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 Cash Equivalents—As of
March 31, 2013, we had cash and cash equivalents of $22.8 million. We had $8.6 million of our net assets of $31.4 million invested
in portfolio securities.



As of December 31, 2012, we had cash and cash
equivalents of $23.7 million. We had $9.2 million of our net assets of $32.9 million invested in portfolio securities.



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



Investment Commitments—As of March
31, 2013, we had no outstanding commitments to our portfolio company investments.



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



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



We had no RIC borrowings or restricted cash
as of March 31, 2013 and December 31, 2012, respectively.



Certain Risks and Uncertainties—
Economic conditions since 2008 and resulting market dislocations have resulted in a significant decline in the availability of
debt and equity. 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 three months of 2013, 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 2013
operating requirements.



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



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



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



Table of Contents13







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.



Thinly Traded and Over-the-Counter Securities—Generally,
we value securities that are traded in the over-the-counter market or on a stock exchange at the average of the prevailing bid
and ask prices on the date of the relevant period end. However, we may apply a discount to the market value of restricted or thinly
traded public securities to reflect the impact that these restrictions have on the value of these securities. We review factors,
including the trading volume, total securities outstanding and our percentage ownership of securities to determine whether the
trading levels are active (Level 1) or inactive (Level 2) or unobservable (Level 3). These types of securities represented 16.0%
and 15.4% of our investments in portfolio securities as of March 31, 2013 and December 31, 2012, respectively. We utilized independent
pricing services with certain of our fair value estimates. To corroborate “bid/ask” quotes from independent pricing
services, we perform a market-yield approach to validate prices obtained or obtain other evidence.



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



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



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



Asset approach—We consider the
asset approach to determine the fair value of significantly deteriorated investments demonstrating circumstances indicative of
a liquidation analysis. This situation may arise when a portfolio company: 1) cannot generate adequate cash flow to meet the principal
and interest payments on its indebtedness; 2) is not successful in refinancing its debt upon maturity; 3) we believe the credit
quality of a loan has deteriorated due to changes in the business and underlying asset or market conditions which 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.



Table of Contents14







We base adjustments upon such factors as the
portfolio company’s earnings, cash flow and net worth, the market prices for similar securities of comparable companies,
an assessment of the company’s current and future financial prospects and various other factors and assumptions. In the case
of unsuccessful operations, we 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.



Our general intent is to hold our loans to
maturity when appraising our privately held debt investments. As such, we believe that the fair value will not exceed the cost
of the investment. However, in addition to the previously described analysis involving allocation of value to the debt instrument,
we perform a yield analysis to determine if a debt security has been impaired.



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 $8.4 million and $9.0 million
as of March 31, 2013 and December 31, 2012, respectively, our fair value determinations may materially differ from the values that
would have been used had a ready market existed for the securities. As of March 31, 2013 and December 31, 2012 respectively, one
of the Fund’s portfolio investments, the 73,666 ordinary shares of Orco Property Group, S.A. (“OPG”), was publicly
listed on the NYSE Euronext Paris Exchange.



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.



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 we own more than 25% of the voting securities or maintain greater than 50% representation on the portfolio company’s
governing board. Under the 1940 Act, “Affiliate Investments” are defined as those non-control investments in companies
in which we own between 5% and 25% of the voting securities. Under the 1940 Act, “Non-affiliate Investments” are defined
as investments that are neither Control Investments nor Affiliate Investments.



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 (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 for further discussion of the Fund’s RIC borrowings.

Table of Contents15









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 (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 for further
discussion of our RIC borrowings.





All corporations incorporated in the
State of Delaware are required to file an Annual Report and to pay a franchise tax. As a result, we paid Delaware Franchise tax
in the amount of $0.01 million, for the year ended December 31, 2012.





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, 2012.



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



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.



As of March 31, 2013, 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, 2013                     
|------------------------- |  | ----- | ----- | -----------------------------------------------------------------
|(in thousands)            |  | Total |       | Quoted Prices in 
Active Markets for 
Identical Assets
 (Level 1)
|Assets                    |  |       |       |                                                                  
|Investments:              |  |       |       |                                                                  
|Control investments       |  | $     | 6,893 |                                                                  
|Affiliate investments     |  |       | 150   |                                                                  
|Non-affiliate investments |  |       | 1,582 |                                                                  
|Total investments         |  | $     | 8,625 |                                                                  







Table of Contents16







As of December 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 December 31, 2012            
|------------------------- |  | ----- | ----- | ---------------------------------------------------------------
|(in
    thousands)        |  | Total |       | Quoted
    Prices inActive Markets forIdentical Assets(Level 1)
|Assets                    |  |       |       |                                                                
|Investments:              |  |       |       |                                                                
|Control investments       |  | $     | 7,419 |                                                                
|Affiliate investments     |  |       | 150   |                                                                
|Non-affiliate investments |  |       | 1,663 |                                                                
|Total investments         |  | $     | 9,232 |                                                                



The following table provides a reconciliation
of fair value changes during the three months ended March 31, 2013 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, 2012               |  | $                                                                      
|Change in unrealized appreciation (depreciation) |  |                                                                        
|Purchases of portfolio securities                |  |                                                                        
|Proceeds from sales/dispositions                 |  |                                                                        
|Fair value as of March 31, 2013                  |  | $                                                                      





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) |  |                                                                        
|Proceeds from sales/dispositions                 |  |                                                                        
|Fair value as of March 31, 2012                  |  | $                                                                      



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



The following table summarizes the significant
observable inputs in the fair value measurements of our level 3 investments by category of investment and valuation technique as
of March 31, 2013:

Table of Contents17









|                                      |  |            |       |                      |  |                     |  | Range                             
|------------------------------------- |  | ---------- | ----- | -------------------- |  | ------------------- |  | ----------------------------------
|(in thousands)                        |  | Fair Value |       | Valuation Techniques |  | Unobservable Inputs |  | Minimum                           
|Secured and subordinated debt         |  | $          | 1,504 |                      |  | Yield Analysis      |  | Market interest rate              
|                                      |  |            |       |                      |  | Pending Transaction |  | Discount for lack of marketability
|                                      |  |            |       |                      |  | Asset Approach      |  | Recovery rate                     
|                                      |  |            |       |                      |  |                     |  |                                   
|Common stock                          |  |            | 150   |                      |  | Pending Transaction |  | Discount                          
|                                      |  |            |       |                      |  |                     |  |                                   
|Limited liability company investments |  |            | 6,769 |                      |  | Asset Approach      |  | Recovery rate                     
|                                      |  | $          | 8,423 |                      |  |                     |  |                                   





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



Except as noted below, as compensation for
services to the Fund, each Independent Director receives an annual fee of $20,000 paid quarterly in arrears, a fee of $2,000 for
each meeting of the Board of Directors attended in person, a fee of $1,000 for participation in each telephonic meeting of the
Board and a fee of $1,000 for each committee meeting attended, and reimbursement of all out-of-pocket expenses relating to attendance
at such meetings. A quarterly fee of $15,000 is paid to the Chairman of the Audit Committee and a quarterly fee of $3,750 is paid
to the Chairman of the Independent Directors. We may also pay other one-time or recurring fees to members of our Board of Directors
in special circumstances. None of our interested directors receive annual fees for their service on the Board of Directors.



In 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 each of the three months ended March 31, 2013 and 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.



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



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



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



During the three months ended March 31,
2013, we capitalized legal and consulting expenses of $0.1 million relating to Spectrum Management. We also received a
semi-annual interest payment of $0.03 million and a 5.75% partial principal repayment of $9,000 in respect of our €1.2
million [$1.5 million] in OPG notes.



During the three months ended March 31, 2013,
we did not realize any significant gains or losses on sales of portfolio securities.



Net unrealized depreciation on investments
increased $0.7 million during the three months ended March 31, 2013, to a net unrealized depreciation of $17.9 million.  Such
decrease in unrealized depreciation is largely due to the following changes:



| | (i) | Decrease in fair value of Equus Energy LLC of $0.2 million due to operating expenses.
| | --- | -------------------------------------------------------------------------------------



| | (ii) | Decrease in fair value of OPG of $0.1 million due to a decline in stock price and
foreign exchange translation.
| | ---- | ---------------------------------------------------------------------------------------------------------------



| | (iii) | Decrease in fair value of Spectrum Management, Inc. (“Spectrum”) of
$0.4 million due to adecline in operating performance.
| | ----- | --------------------------------------------------------------------------------------------------------------------------



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.



Table of Contents18







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 of $0.2 million due to the continued decline in
operating performance and liquidity issues.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Equus Energy
| | --- | ------------









Equus Energy, LLC (“Equus
Energy”) was formed in November 2011 as a wholly-owned subsidiary of the Fund to make investments in companies in the
energy sector, with particular emphasis on income-producing oil & gas properties. In December 2011, we contributed
$250,000 to the capital of Equus Energy. On December 27, 2012 we invested an additional $6.8
million in Equus Energy for the purpose of additional working capital and to fund the purchase of $6.6 million in working
interests in 150 producing and non-producing oil and gas wells. The working interests include associated development rights of approximately 23,000 acres situated on 15
separate properties in Texas and Oklahoma. The working interests range from a de minimus amount to 50% of the
leasehold that includes these wells.



The wells are operated by a number of experienced
operators, including a major multinational oil and gas conglomerate which has operating responsibility for all of Equus Energy’s
40 producing well interests located in the Conger Field, a productive oil and gas field on the edge of the Permian Basin that
has experienced successful gas and hydrocarbon extraction in multiple formations. Equus Energy, which holds a 50% working interest
in each of these Conger Field wells, has partnered with the operator in an aggressive recompletion program of existing Conger
Field wells to the Wolfcamp formation, a zone containing oil as well as gas and natural gas liquids. One recompletion has been
effected since the closing date of the acquisition, with additional recompletions scheduled for the remainder of 2013 and beyond.
Part of Equus Energy’s acreage rights described above also includes a 50% working interest in possible new drilling to the
base of the Canyon formation (appx. 8,500 feet) on 2,400 acres in the Conger Field. Also included in the interests acquired by
Equus Energy are working interests of 7.5% and 2.5% in the Burnell and North Pettus Units, respectively, which collectively comprise
approximately 13,000 acres are located in the area known as the “Eagle Ford Shale” play.





We do
not consolidate Equus Energy  or its wholly owned subsidiaries and accordingly only the value of our investment in Equus
Energy is included on our statement of assets and liabilities. Our investment in Equus Energy  is valued in accordance with
our normal valuation procedures and is based on the values of the underlying assets held by EQS Energy Holdings, Inc. a
wholly-owned subsidiary of Equus Energy, net of associated liabilities.





Table of Contents19









Below is summarized consolidated
financial information for Equus Energy as of March 31, 2013 and December 31, 2012 and for the three months ended March 31,
2013 (in thousands).





|                                       |  | As of         
|-------------------------------------- |  | --------------
|                                       |  | March 31, 2013
|                                       |  | (unaudited)   
|                                       |  |               
|ASSETS                                 |  |               
|                                       |  |               
|Current assets                         |  | $             
|                                       |  |               
|Oil and gas properties, net            |  |               
|                                       |  |               
|TOTAL ASSETS                           |  | $             
|                                       |  |               
|                                       |  |               
|LIABILITIES AND MEMBERS' CAPITAL       |  |               
|                                       |  |               
|Current liabilities                    |  | $             
|                                       |  |               
|Asset retirement obligations           |  |               
|TOTAL LIABILITIES                      |  |               
|                                       |  |               
|MEMBERS' CAPITAL                       |  | $             
|                                       |  |               
|TOTAL LIABILITIES AND MEMBERS' CAPITAL |  | $             



Revenue and direct operating expenses
     for      the various oil and gas assets included in the accompanying statements represent the net
     collective      working      and revenue      interests acquired by  Equus Energy. The revenue and direct operating
     expenses presented      herein relate      only to the      interests in the producing oil and natural gas properties and do      not represent all of      the oil and      natural gas operations of all of these properties.
     Direct operating expenses      include lease operating      expenses and production      and other related taxes. General and
     administrative expenses,      depreciation, depletion and      amortization      (“DD&A”) of oil and gas
     properties and federal and state      taxes have been excluded from      direct operating      expenses in the accompanying
     statements of revenues and direct      operating expenses because the      allocation of certain expenses      would be
     arbitrary and would not be indicative of      what such costs would have been had Equus Energy been operated as
     a stand alone entity.The      statements of revenues      and direct operating expenses
     presented      are not indicative of the financial condition or      results of operations of       Equus Energy on a
     go forward basis due to      changes in the business and the      omission of various operating      expenses.   Three months endedMarch 31, 2013(unaudited)OPERATING REVENUES:Total operating revenue
    $605OPERATING EXPENSES:Direct operating expenses
    328OPERATING PROFIT
    277Depletion, depreciation and amortization
    322General and administrative
    187NET INCOME (LOSS)
    $(232)




Table of Contents20







Critical
Accounting Policies for Equus Energy—Equus Energy and its wholly-owned subsidiary EQS Energy Holdings, Inc.
(collectively “the Company”) follow the Full Cost Method of Accounting for oil and gas properties. Under
the full cost method, all costs associated with property acquisition, exploration, and development activities are
capitalized. Capitalized costs include lease acquisitions, geological and geophysical work, delay rentals, costs of drilling,
completing and equipping successful and unsuccessful oil and gas wells and directly related costs. Gains or losses are
normally not recognized on the sale or other disposition of oil and gas properties. Gains or losses are normally reflected
as an adjustment to the full cost pool.  The
capitalized costs of oil and gas properties, plus estimated future development costs relating to proved reserves and
estimated cost of dismantlement and abandonment, net of salvage value, are amortized on a unit-of-production method over the
estimated productive life of the proved oil and gas reserves. Unevaluated oil and gas properties are excluded from this
calculation.  Depletion and depreciation expense for the Company’s oil and gas properties totaled $0.3 million for
the quarter ending March 31, 2013.  Capitalized
oil and gas property costs are limited to an amount (the ceiling limitation) equal to the sum of the following: (a)  
As of March 31, 2013 the present value of estimated future net revenue from the projected production of proved oil and gas reserves,
calculated at the simple arithmetic average, first-day-of-the-month prices during the twelve-month period before the balance sheet
date  (with consideration of price changes only to the extent provided by contractual arrangements) and a discount factor
of 10%; (b)  
The cost of investments in unproved and unevaluated properties excluded from the costs being amortized; and (c)  
The lower of cost or estimated fair value of unproved properties included in the costs being amortized. When
it is determined that oil and gas property costs exceed the ceiling limitation, an impairment charge is recorded to reduce its
carrying value to the ceiling limitation.  The Company did not recognize an impairment loss on their oil and gas properties
during 2012 or during the three months ended March 31, 2013.  The costs
of certain unevaluated leasehold acreage and certain wells being drilled are not amortized. The Company excludes all costs until
proved reserves are found or until it is determined that the costs are impaired. Costs not amortized are periodically assessed
for possible impairments or reductions in value. If a reduction in value has occurred, costs being amortized are increased.  Revenue Recognition—Revenues
are recognized for oil and natural gas sales under the sales method of accounting. Under this method, revenues are recognized
on production as it is taken and delivered to its purchasers. The volumes sold may be more or less than the volumes entitled to,
based on the owner’s net interest in the Assets. These differences result from production imbalances, which are not significant,
and are reflected as adjustments to prove reserves and future cash flows in the unaudited supplementary oil and gas information
included herein.  Accounting Policy on
Depletion—The Company employs the Units of Production method whereby depletion of proved oil and gas properties is
computed on the units-of-production method, where capitalized costs, as adjusted for future development costs and asset
retirement obligations, are amortized over the total estimated proved reserves.  Asset Retirement Obligations—The
fair value of asset retirement obligations are recorded in the period in which they are incurred if a reasonable estimate of fair
value can be made, and the corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. 
The fair value of the asset retirement obligation is measured using expected future cash outflows discounted at the Company’s
credit-adjusted risk-free interest rate.  Fair value, to the extent possible, should include a market risk premium for unforeseeable
circumstances.  No market risk premium was included in the Company’s asset retirement obligation fair value estimate
since a reasonable estimate could not be made.  The liability is accreted to its then present value each period, and the
capitalized cost is depleted or amortized over the estimated recoverable reserves using the units-of-production method.  (8)Subsequent Events  Management performed an evaluation of the Fund’s
activity through the date the financial statements were issued, noting no subsequent events.


Table of Contents21





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 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 $5.0 million and $75.0 million, although we may engage in transactions with smaller or
larger investee companies from time to time. We seek to invest primarily in companies pursuing growth either through acquisition
or organically, leveraged buyouts, management buyouts and recapitalizations of existing businesses or special situations. Our income-producing
investments consist principally of debt securities including subordinate debt, debt convertible into common or preferred stock,
or debt combined with warrants and common and preferred stock. Debt and preferred equity financing may
also be used to create long-term capital appreciation through the exercise and sale of warrants received in connection with the
financing.We seek to achieve capital appreciation by making investments in equity and equity-oriented securities issued
by privately-owned companies in transactions negotiated directly with such companies.Given market conditions
over the past several years and the performance of our portfolio, our management and Board of Directors believe it is prudent to
continue to review alternatives to refine and further clarify the current strategies.   We elected to be treated as a Business
Development Company (“BDC”) under the Investment Company Act of 1940 Act (“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 each of which holds one or more portfolio investments listed on our Schedules of Investments. The
purpose of these Taxable Subsidiaries is to permit us to hold certain income-producing investments or portfolio companies
organized as limited liability companies, or LLCs, (or other forms of pass-through entities) and still satisfy the RIC tax
requirement that at least 90% of our gross revenue for income tax purposes must consist of investment income. Absent the
Taxable Subsidiaries, a portion of the gross income of these income-producing investments or of any LLC (or other
pass-through entity) portfolio investment, as the case may be, would flow through directly to us for the 90% test. To the
extent that such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and,
therefore, cause us to incur significant federal income taxes. The income of the LLCs (or other pass-through entities)
owned by Taxable Subsidiaries is taxed to the Taxable Subsidiaries and does not flow through to us, thereby helping us preserve
our RIC status and resultant tax advantages. We do not consolidate the Taxable Subsidiaries for income tax purposes and they may
generate income tax expense because of the Taxable Subsidiaries’ ownership of the portfolio investments. We reflect any
such income tax expense on our Statements of Operations.  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.
   Table of Contents22
 
  Thinly Traded and Over-the-Counter Securities—Generally,
we value securities that are traded in the over-the-counter market or on a stock exchange at the average of the prevailing bid
and ask prices on the date of the relevant period end. However, we may apply a discount to the market value of restricted or thinly
traded public securities to reflect the impact that these restrictions have on the value of these securities. We review factors,
including the trading volume, total securities outstanding and our percentage ownership of securities to determine whether the
trading levels are active (Level 1) or inactive (Level 2) or unobservable (Level 3). These types of securities represented 16.0%
and 15.4% of our investments in portfolio securities as of March 31, 2013 and December 31, 2012, respectively. We utilized independent
pricing services with certain of our fair value estimates. To corroborate “bid/ask” quotes from independent pricing
services, we perform a market-yield approach to validate prices obtained or obtain other evidence.  During the first twelve months after an investment
is made, 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, our 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 our management calculates the enterprise value of a company as a multiple of earnings before interest,
taxes, depreciation and amortization (“EBITDA”) generated by the company for the trailing twelve month period. 
Adjustments to the company’s EBITDA, including those for non-recurring items, may be considered. Multiples are estimated
based on current market conditions and past experience in the private company marketplace and are subjective in nature. We will
apply liquidity and other discounts we deem appropriate to equity valuations where applicable. We may also use, when available,
third-party transactions in a portfolio company’s securities as the basis of valuation (the “private market method”).
The private market method will be used only with respect to completed transactions or firm offers made by sophisticated, independent
investors.   Income approach—The income approach
typically utilized by our management calculates the enterprise value of a company utilizing a discounted cash flow model incorporating
projected future cash flows of the company.  Projected future cash flows consider the historical performance of the company
as well as current and projected market participant performance. Discount rates are estimated based on current market conditions
and past experience in the private company marketplace and are subjective in nature. We will apply liquidity and other discounts
we deem appropriate to equity valuations where applicable.  Asset approach—We consider the
asset approach to determine the fair value of significantly deteriorated investments demonstrating circumstances indicative of
a liquidation analysis. This situation may arise when a portfolio company: 1) cannot generate adequate cash flow to meet the principal
and interest payments on its indebtedness; 2) is not successful in refinancing its debt upon maturity; 3) we believe the
credit quality of a loan has deteriorated due to changes in the business and underlying asset or market conditions which may result
in the company’s inability to meet future obligations; or 4) the portfolio company’s reorganization or bankruptcy.
Consideration is also given as to whether a liquidation event would be orderly or forced.  We base adjustments upon such factors as the
portfolio company’s earnings, cash flow and net worth, the market prices for similar securities of comparable companies,
an assessment of the company’s current and future financial prospects and various other factors and assumptions. In the case
of unsuccessful operations, we 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.  Our general intent is to hold our loans to
maturity when appraising its privately held debt investments. As such, we believe that the fair value will not exceed the cost
of the investment. However, in addition to the previously described analysis involving allocation of value to the debt instrument,
we perform a yield analysis to determine if a debt security has been impaired.    Table of Contents23
 
   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 $8.4 million and $9.0 million
as of March 31, 2013 and December 31, 2012, respectively, our fair value determinations may materially differ from the values that
would have been used had a ready market existed for the securities. As of March 31, 2013 and December 31, 2012, respectively, one
of the Fund’s portfolio investments, the 73,666 ordinary shares of OPG, was publicly listed on the NYSE Euronext Paris Exchange.  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 (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, 2012, we had a capital loss carry-forward of $29.3 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 for further discussion of our
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
have improved since 2009, albeit marginally. However, the economic recovery has been hampered by slower growth and persistent high
unemployment relative to historical levels. The U.S. Congressional Budget Office is forecasting continuing sluggish growth for
the remainder of 2013, with a projected unemployment rate exceeding 7.5% at year end. 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.  Notwithstanding a sharp downturn in merger
and acquisition (“M&A”) activity during the first quarter of 2013, market conditions for business transactions
including mergers and acquisitions and private equity investments have improved since 2010, as 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 three years.    Table of Contents24
 
      Consistent with other companies in the financial
services sector, our performance has been adversely affected. Between December 31, 2008 and December 31, 2012 our net asset value
declined from $9.16 per share to $3.11 per share. This further impacted the trading price of our common stock, as it declined approximately
21.9% and 10.4% during 2010 and 2011, respectively, before increasing 5.36% in 2012. As of March 31, 2013, the closing price of
our common stock closed was $2.16, which is a discount of 27.3% to our net asset value.  Over the past several years, we have executed
certain initiatives to enhance liquidity, achieve a lower operational cost structure, provide more assistance to portfolio companies
and realize certain of our portfolio investments. Specifically, we changed the composition of our Board of Directors and management,
terminated certain of our follow-on investments, internalized the management of the Fund, suspended our managed distribution policy,
modified our investment strategy to pursue shorter term liquidation opportunities, pursued non-cash investment opportunities, and
sold certain of our legacy and underperforming investment holdings. We believe these actions continue to be necessary to protect
capital and liquidity during this turbulent economic period in order to preserve and enhance shareholder value. Because our management
is internalized, certain of our expenses should not increase commensurate with an increase in the size of the Fund and, therefore,
we expect to achieve efficiencies in our cost structure if we are able to grow the Fund.  Liquidity and Capital Resources  We generate cash primarily from maturities,
sales of securities and borrowings, as well as capital gains realized upon the sale of portfolio investments. We use cash primarily
to make additional investments, either in new companies or as follow-on investments in the existing portfolio companies and to
pay the dividends to our stockholders.  Because of the nature and size of the portfolio
investments, we may periodically borrow funds to make qualifying investments to maintain our tax status as a RIC. We often borrow
such funds by utilizing a margin account with a securities brokerage firm. There is no assurance that such arrangement will be
available in the future. If the Fund is unable to borrow funds to make qualifying investments, it may no longer qualify as a RIC.
The Fund would then be subject to corporate income tax on its net investment income and realized capital gains, and distributions
to stockholders would be subject to income tax as ordinary dividends.  The Fund has the ability to borrow funds and
issue forms of senior securities representing indebtedness or stock, such as preferred stock, subject to certain restrictions.
Net taxable investment income and net taxable realized gains from the sales of portfolio investments are intended to be distributed
at least annually, to the extent such amounts are not reserved for payment of expenses and contingencies or to make follow-on or
new investments.  The Fund reserves the right to retain net long-term
capital gains in excess of net short-term capital losses for reinvestment or to pay contingencies and expenses. Such retained amounts,
if any, will be taxable to the Fund as long-term capital gains and stockholders will be able to claim their proportionate share
of the federal income taxes paid on such gains as a credit against their own federal income tax liabilities. Stockholders will
also be entitled to increase the adjusted tax basis of their Fund shares by the difference between their undistributed capital
gains and their tax credit.
 We are evaluating the impact of current market
conditions on our portfolio company valuations and their ability to provide current income. We have followed valuation techniques
in a consistent manner; however, we are cognizant of current market conditions that might affect future valuations of portfolio
securities. We believe that our operating cash flow and cash on hand will be sufficient to meet operating requirements and to
finance routine capital expenditures through the next twelve months.  Results of Operations  Investment Income and Expense  Net investment loss was $0.8 million and $0.5 million
for the three months ended March 31, 2013 and March 31, 2012, respectively. The net investment loss for the three months
ended March 31, 2013 resulted from the $0.1 million investment loss, due to the impairment of accrued interest income from Spectrum
Management LLC, along with the operating expenses for the quarter totaling $0.7 million. The increase in net investment loss generated
at March 31, 2013 compared to March 31, 2012 is due primarily to the decrease in total investment income.  Total income (loss) from portfolio securities
was ($0.1) million and $0.2 million for the three months ended March 31, 2013 and 2012, respectively. The $0.3 million decrease
was primarily due to the impairment of accrued interest receivable of Spectrum Management, LLC.    Table of Contents25
 
   Total expenses were relatively unchanged at
$0.7 million for the three months ended March 31, 2013 and 2012, respectively.  Realized Gains and Losses on Sales of Portfolio Securities  During the three months ended March 31,
2013 and 2012, we did not realize any net capital gains or losses.  Changes in Unrealized Appreciation/Depreciation of Portfolio
Securities  Net unrealized depreciation on investments
increased $0.7 million during the three months ended March 31, 2013, to a net unrealized depreciation of $17.9 million.  Such
decrease in unrealized depreciation is largely due to the following changes:  (i)Decrease in fair value of Equus Energy LLC of $0.2 million due to operating expenses.  (ii)Decrease in fair value of OPG of $0.1 million due to adecline in stock price and
foreign exchange translation.  (iii)Decrease in fair value of Spectrum of $0.4 million due to adecline in operating
performance.  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 value of ConGlobal of $0.3 million due to improved productivity.  (ii)Decrease in the fair value of Spectrum of $0.2 million due to the continued decline in operating
performance and liquidity issues.  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,
2013, we capitalized legal and consulting expenses of $0.1 million relating to Spectrum Management. We also received a
semi-annual interest payment of $0.03 million and a 5.75% partial principal repayment of $9,000 in respect of our €1.2
million [$1.5 million] in OPG notes.  During the three month ended March 31, 2012,
we made no new or follow-on investments.
  Subsequent Events  Management performed an evaluation of the Fund’s
activity through the date the financial statements were issued, noting no subsequent events.  Item  3.   Quantitative and Qualitative Disclosure
about Market Risk  We are subject to financial market risks, including
changes in interest rates with respect to investments in debt securities and outstanding debt payable, as well as changes in marketable
equity security prices. In the future, in addition to our investment in OPG shares and the New OPG Notes, we may invest in companies
outside the United States, including in Europe and Asia, which would give rise to exposure to foreign currency value fluctuations.
We do not use derivative financial instruments to mitigate any of these risks. The return on investments is generally not affected
by foreign currency fluctuations.  Our investments in portfolio securities consist
of some fixed-rate debt securities. Since the debt securities are generally priced at a fixed rate, changes in interest rates do
not directly affect interest income. In addition, changes in market interest rates are not typically a significant factor in the
determination of fair value of these debt securities, since the securities are generally held to maturity. We determine their fair
values based on the terms of the relevant debt security and the financial condition of the issuer.


Table of Contents26





A major portion of our investment portfolio
consists of debt and equity investments in private companies. Modest changes in public market equity prices generally do not significantly
impact the estimated fair value of these investments. However, significant changes in market equity prices can have a longer-term
effect on valuations of private companies, which could affect the carrying value and the amount and timing of gains or losses realized
on these investments. A small portion of the investment portfolio also consists of common stock in publicly traded companies. These
investments are directly exposed to equity price risk, in that a hypothetical ten percent change in these equity prices would result
in a similar percentage change in the fair value of these securities.  We are classified as a “non-diversified”
investment company under the 1940 Act, which means we are not limited in the proportion of our assets that may be invested in the
securities of a single user. The value of one segment called “Energy” includes one portfolio company and was 21.0%
of the net asset value and 76.8% of our investments in portfolio company securities (at fair value) as of March 31, 2013. 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, 2013. 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, 2013, 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 April 26, 2010, the Securities and
Exchange Commission (“SEC”) 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, we sold our 31.5% ownership
interest in Champion Window, Inc. (“Champion”), a portfolio company of the Fund, to Atrium Companies Inc. (“Atrium”)
pursuant to a Stock Purchase Agreement (“SPA”) dated December 22, 2005. The SPA contained certain limited rights of
indemnification for Atrium in connection with its purchase of such ownership interest.  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, we 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.


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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. It appears that 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 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.



We intend to vigorously contest the claims
and deny that we owe any indemnity obligations to Atrium or Champion and further deny that the Fund is in any way liable to Atrium
or Champion. To the extent Atrium and Champion are able to establish a right to an indemnity, we will contest the amount of the
claimed indemnity, inasmuch as we believe (among other defenses) that the indemnity obligation can only exist, 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 remained in continuous employment after the 2006 sale, and not to any employee who may have been hired in the six
years after the sale.



While we believe the Atrium claim is without
merit and we intend 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 million to $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 our percentage ownership in
Champion at the time of sale, which was 31.5% of Champion’s shares outstanding.



On August 12, 2012, Paula Douglass filed a
lawsuit against the Fund and members of the Board of Directors in the District Court of Harris County, Texas. Ms. Douglass’
complaint alleges various causes of action, including minority shareholder oppression, dilution, and breach of fiduciary duty,
and seeks unspecified damages and attorney’s fees. We consider the lawsuit as being without merit and intend to defend the
matter vigorously.



From time to time, the Fund is also a party
to certain proceedings incidental to the normal course of our business including the enforcement of our rights under contracts
with our portfolio companies. While the outcome of these legal proceedings cannot at this time be predicted with certainty, we
do not expect that these proceedings will have a material effect upon the Fund’s financial condition or results of operations.



Item 1A.   Risk
Factors



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,
2012.



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, 2013 |  | /s/ John A. Hardy       
|                   |  | John A. Hardy           
|                   |  | Chief Executive Officer 



























































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