EQS

Business Context and Reporting Period

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

Reporting Period: Quarterly Report (Form 10-Q) for the period ended September 30, 2007.

Business Overview: The Fund invests in equity and equity-oriented securities of privately-owned companies, seeking total return through capital appreciation and current income. It operates under a "total return" strategy approved in August 2006. As of September 30, 2007, the Fund held 8,333,428 shares of common stock outstanding with a Net Asset Value (NAV) per share of $10.54.

Key Financial Metrics

Liquidity and Debt:

• Cash & Temporary Investments: $34,155,242 (unrestricted) as of September 30, 2007.
• Margin Borrowings: $29,985,800 outstanding as of September 30, 2007, utilized to purchase U.S. Treasury bills to maintain Regulated Investment Company (RIC) diversification status. This loan was repaid on October 1, 2007.
• Revolving Credit Facility: $10 million line of credit with Regions Bank; undrawn as of September 30, 2007.

Material Changes vs. Prior Period

• Operational Performance: The Fund reported a net decrease in net assets from operations of $3.71 million for the nine months ended September 30, 2007, compared to a net increase of $13.32 million in the prior year period. This reversal was driven by a significant decline in net realized gains and a large decrease in unrealized appreciation.
• Realized Gains: Net realized gains dropped to $5.26 million from $18.13 million year-over-year. The 2006 period included a major gain of $26.8 million from the sale of Champion Window Holdings, Inc., partially offset by a $10.3 million loss on Equicom. The 2007 period included gains from the sale of The Drilltec Corporation ($3.83 million) and final escrow payments from Champion ($1.40 million).
• Unrealized Appreciation: Net unrealized appreciation decreased by $7.97 million in 2007, compared to a decrease of $3.94 million in 2006. The 2007 decline was attributed to the transfer of unrealized gains to realized gains upon sale and declines in the estimated fair value of ConGlobal Industries and PalletOne.
• Expenses: Total expenses decreased slightly to $4.63 million from $4.87 million. Notably, the Fund incurred $609,200 in offering costs in 2007, which were not present in the comparable 2006 period. Management fees and professional fees also declined.

Guidance, Outlook, Risks, and Unusual Items

Management Commentary & Outlook:

• The Fund continues to pursue a total return strategy, balancing growth and income investments.
• Management noted that the valuation of portfolio securities is the most significant area of judgment, as most investments are in privately-held companies with subjective fair value estimates.
• The Fund maintains a managed distribution policy, paying quarterly dividends of at least $0.50 per share annually. Dividends for the first three quarters of 2007 were paid in cash and stock.

Risks and Contingencies:

• Valuation Risk: The Fund holds $53.4 million in portfolio securities with no readily ascertainable market values. Actual sale prices may differ materially from estimated fair values.
• Liquidity & RIC Status: The Fund relies on borrowing (margin accounts) to purchase government securities to satisfy RIC diversification tests. If the Fund cannot borrow or if the IRS challenges this practice, it could lose RIC status and become subject to corporate income tax.
• Concentration Risk: The Fund is classified as "non-diversified." The "Business Products and Services" sector represented 22% of net assets and 36% of portfolio securities.
• Follow-on Investment Obligations: As of September 30, 2007, the Fund had $22.23 million in remaining commitments to portfolio companies. Failure to meet these could negatively impact portfolio company operations and the Fund's equity interest.

Unusual Items:

• Offering Costs: $609,200 expensed in Q3 2007 related to capital raising activities.
• Subsequent Events: On October 1, 2007, the Fund repaid its $30 million margin loan. On October 4, 2007, the Fund invested $3.0 million in mezzanine debt for Big Apple Entertainment.

Investor Verification Checklist

• Valuation Methodology: Verify the assumptions used by the Adviser to appraise the $53.4 million in private securities, particularly for ConGlobal Industries and PalletOne which saw value declines.
• RIC Compliance: Confirm the Fund's continued ability to borrow for diversification purposes to maintain tax-exempt RIC status.
• Commitment Utilization: Monitor the $22.23 million in unfunded commitments and the Fund's cash position to ensure it can meet follow-on investment calls without diluting existing shareholders or compromising liquidity.
• Market Discount: Note the persistent discount of the market price ($7.63) to NAV ($10.54), representing a discount of approximately 28%.
• Dividend Sustainability: Assess whether the net investment loss of $994,792 for the nine-month period impacts the ability to sustain the $0.50 per share annual dividend policy without returning capital.