Equus: A Closed End Fund in Transition

| About: Equus Total (EQS)

Equus Total Return, Inc. is a private equity firm specializing in small capitalization companies and structured as a closed end fund. It trades on the NYSE under the symbol EQS. It has been in operation since 1983 and public since 1991.

EQS had been run by an old established firm for many years. Although the results had originally been good, EQS had been in a state of decline for the past several years. Recently, there has been a change of management and control who seem to have some success in reinvigorating the company. It seems that approximately 45% of the outstanding shares are now controlled by the new group which has taken control. I am not really sure who they are or their backgrounds, but two entities, each owning approximately 10% of the shares, each, are domiciled in Dubai and Cyprus, respectively.

As of December 31, 2010, the fund had 8,862,000 shares outstanding and sold at approximately a 40% discount from net assets. Due to extremely poor results over the past several years, with former management, EQS had as of December 31, 2010 net unrealized depreciation of $24,000,000 and loss carryforwards of $15,600,000. These tax benefits alone, to an acquiring company, more than justify the price of the shares.

The new management team appears to have been extremely successful since taking control. Primarily, they have increased the funds cash position from $5,600,000 to $17,200,000 as of March 31, 2011. This cash position alone justifies the price of the stock.

EQS will not stay as it is or be liquidated. New management intends to take advantage of the unrealized losses and tax loss carryforwards by enlarging the fund. In November 2010 they filed a preliminary registration statement to increase the size of the fund through a substantial rights offering to existing shareholders. This rights offering has not occurred but appears eminent.

EQS also entered into an arrangement with a German real estate company to exchange shares in EQS at full net asset value of $4.29 per share for income producing bonds of this German real estate company. They purchased these bonds at a 34% discount to par and they are to be redeemed at 125% of par. I have no opinion about the transaction but it does show initiative.

At its present price, EQS simply seems extraordinarily cheap and does offer the possibility of substantial price appreciation. This by no means a rock solid investment but it is interesting. It is worth a shot. There is tremendous value at the present price level and new management has but their money where their mouths are by making a meaningful investment in the shares.

Disclosure: I am long EQS.

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