EQS

Business Context and Reporting Period

Company: EQUUS TOTAL RETURN, INC. (a Delaware Corporation and Business Development Company)

Reporting Period: Quarterly period ended September 30, 2009 (Form 10-Q)

Business Overview: The Fund invests in equity and equity-oriented securities of privately-owned companies. On June 30, 2009, the Fund terminated its investment advisory agreement with Moore Clayton Capital Advisors, Inc., and transitioned to an "internalized" management structure, directly employing its management team.

Key Financial Metrics

Results of Operations (Nine Months Ended Sept 30, 2009)

• Total Investment Income: $2.9 million (vs. $2.4 million in 2008)
• Total Expenses: $2.9 million (vs. $3.1 million in 2008)
• Net Investment Income: $24,000 (vs. Net Loss of $719,000 in 2008)
• Net Realized Gain/Loss: Loss of $38,000 (vs. Gain of $977,000 in 2008)
• Net Unrealized Depreciation: $12.8 million (vs. $4.1 million in 2008)
• Net Decrease in Net Assets from Operations: $12.8 million
• Net Decrease in Net Assets per Share: $1.46

Material Changes vs. Prior Period

• Portfolio Valuation: Net unrealized depreciation increased significantly by $12.8 million, driven by decreases in the estimated fair market value of key portfolio companies including Infinia Corporation, Sovereign Business Forms, Inc., Spectrum Management, Inc., and Metic Group plc.
• Management Structure: The Fund ceased paying management and administrative fees to external advisers effective June 30, 2009, replacing them with internal compensation expenses.
• Dividend Policy: The Fund suspended its managed distribution policy and quarterly dividends indefinitely on March 24, 2009, following the Q1 2009 distribution.
• Liquidity Strategy: The Fund shifted strategy from originating new investments to deleveraging and preserving liquidity. Borrowings under the margin account decreased by approximately $11 million compared to year-end 2008.
• Market Discount: The stock traded at a 56.5% discount to NAV as of September 30, 2009, compared to a smaller discount in the prior period.

Guidance, Outlook, Risks, and Contingencies

• Liquidity Outlook: Management believes operating cash flow and cash on hand are sufficient to meet operating requirements and finance capital commitments for the next twelve months. The Fund has a $7.5 million revolving line of credit with Amegy Bank, which remains undrawn.
• Regulatory Contingency: On June 30, 2009, the Fund received a "Wells" notice from the SEC regarding a potential civil action related to a one-time administrative fee paid in 2005 and the compensation of a Fund officer. The Fund is cooperating with the inquiry.
• Valuation Risk: Almost all long-term investments are in privately-held or restricted securities. Valuations are subjective and determined quarterly by management; actual values upon disposition may differ materially.
• Tax Status Risk: The Fund utilizes margin borrowings to maintain its status as a Regulated Investment Company (RIC). If unable to borrow funds for qualifying investments, it may lose RIC status and become subject to corporate income tax.
• Concentration Risk: The Fund is "non-diversified." The Alternative Energy sector represented 18.8% of net assets, and Control Investments represented 61.2% of total portfolio investments.

Investor Verification Checklist

• SEC Inquiry Status: Verify the current status of the SEC Wells notice and any potential financial impact from the 2005 administrative fee and officer compensation issues.
• Portfolio Valuations: Review the specific valuation methodologies and assumptions used for the significant write-downs in Infinia Corporation, Sovereign Business Forms, and Spectrum Management.
• Debt Covenants: Confirm compliance with the $7.5 million revolving credit facility covenants and the margin account requirements necessary to maintain RIC tax status.
• Dividend Resumption: Assess the likelihood and timing of resuming dividend payments given the suspension of the managed distribution policy and the shift to internal management.
• Follow-on Commitments: Verify the remaining $0.5 million commitment to Trulite, Inc. and the Fund's ability to fund future follow-on investments without diluting shareholders or increasing leverage significantly.