UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549










Form 10-Q/A








Amendment No. 1



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



For the quarterly period ended September 30,
2012



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



For the transition period from             to



Commission File No. 0-54615










VII Peaks-KBR Co-Optivist Income BDC
II, Inc.

(Exact name of Registrant as specified
in its charter)










|Maryland                        | 45-2918121            
|------------------------------- | ----------------------
|(State or other jurisdiction of | (I.R.S. Employer      
|incorporation or organization)  | Identification Number)



255 Shoreline Drive, Suite 428

Redwood City, California 94065

(Address of principal executive offices)



(877) 700-0527

(Registrant’s telephone number,
including area code)



Not applicable

(Former Name, Former Address and Former
Fiscal Year, if Changed Since Last Report)










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: YesxNo ̈



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 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, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):



|Large accelerated filer ̈ | Accelerated filer ̈ | Non-accelerated filerx                        | Smaller reporting company ̈
|------------------------ | ------------------ | --------------------------------------------- | --------------------------
|                         |                    | (Do not check if a smaller reporting company) |                           

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ̈Nox



The number of shares
of the Registrant’s common stock, par value $0.001 per share, outstanding as of November 5, 2012 was 680,240.











Explanatory Note



VII Peaks-KBR Co-Optivist
Income BDC II, Inc. (the “Company”) is filing this Amendment No. 1 (the “Amendment”) to its Quarterly Report
on Form 10-Q for the period ended September 30, 2012 filed with the Securities and Exchange Commission on November 13, 2012 for
the purpose of restating its financial statements to comply with the investment advisory agreement between the Company and the
Company’s investment manager, VII Peaks-KBR BDC Advisor II, LLC (the “Manager”). Specifically, the restatement
is resulting from a correction of a misinterpretation of the investment advisory agreement between the Company and the Manager,
regarding organization and offering expenses. The Company is not obligated to reimburse the Manager to the extent of amounts greater
than 1.5% of offering proceeds. Previously, the Company (i) expensed all organization expenses in the period incurred, (ii) capitalized
all offering expenses incurred prior to the date the Company commenced operations (July 12, 2012) and amortized such amount over
12 months from such date, and (iii) expensed all offering expenses incurred after the Company commenced operations. The Company
has restated its financial statements to reflect changes in its organization and offering expenses so that it expenses such amounts
as 1.5% of offering proceeds are payable to the Manager. In addition to the changes described above, the change also resulted in
changes to “Note 2. Significant Accounting Policies,” “Note 3. Organization and Offering Expenses” (renamed
“Note 3. Restatement of previously issued financial statements”), and “Note 5. Related Party Transactions.”
“Note 9. Subsequent Events,” has been updated as well.











VII PEAKS-KBR CO-OPTIVIST INCOME BDC
II, INC.

FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 2012



TABLE OF CONTENTS



|           |                                                                                                                                                                               | Page
|---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|           |                                                                                                                                                                               |     
|PART I     | FINANCIAL INFORMATION                                                                                                                                                         | 1   
|           |                                                                                                                                                                               |     
|Item 1     | Financial Statements                                                                                                                                                          | 1   
|           |                                                                                                                                                                               |     
|           | Statements of Assets and Liabilities as of September 30, 2012 (unaudited) and December 31, 2011                                                                               | 1   
|           |                                                                                                                                                                               |     
|           | Statements of Operations for the Three and Nine Months Ended September 30, 2012 and for the Period from August 3, 2011 (Date of Inception) to September 30, 2011 (unaudited)  | 2   
|           |                                                                                                                                                                               |     
|           | Statements of Changes in Net Assets for the Nine Months Ended September 30, 2012 and for the Period from August 3, 2011 (Date of Inception) to September 30, 2011 (unaudited) | 3   
|           |                                                                                                                                                                               |     
|           | Statements of Cash Flows for the Nine Months Ended September 30, 2012 and for the Period from August 3, 2011 (Date of Inception) to September 30, 2011 (unaudited)            | 4   
|           |                                                                                                                                                                               |     
|           | Schedule of Investments as of September 30, 2012 (unaudited)                                                                                                                  | 5   
|           |                                                                                                                                                                               |     
|           | Notes to Financial Statements (unaudited)                                                                                                                                     | 6   
|           |                                                                                                                                                                               |     
|Item 2     | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                                                         | 14  
|           |                                                                                                                                                                               |     
|Item 3     | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                    | 21  
|           |                                                                                                                                                                               |     
|Item 4     | Controls and Procedures                                                                                                                                                       | 21  
|           |                                                                                                                                                                               |     
|PART II    | OTHER INFORMATION                                                                                                                                                             | 22  
|           |                                                                                                                                                                               |     
|Item 1     | Legal Proceedings                                                                                                                                                             | 22  
|           |                                                                                                                                                                               |     
|Item 1A    | Risk Factors                                                                                                                                                                  | 22  
|           |                                                                                                                                                                               |     
|Item 2     | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                   | 22  
|           |                                                                                                                                                                               |     
|Item 3     | Defaults upon Senior Securities                                                                                                                                               | 22  
|           |                                                                                                                                                                               |     
|Item 4     | Mine Safety Disclosures                                                                                                                                                       | 22  
|           |                                                                                                                                                                               |     
|Item 5     | Other Information                                                                                                                                                             | 22  
|           |                                                                                                                                                                               |     
|Item 6     | Exhibits                                                                                                                                                                      | 22  
|           |                                                                                                                                                                               |     
|Signatures |                                                                                                                                                                               | 23  



ii







PART I – FINANCIAL INFORMATION



Item 1. Financial Statement



VII PEAKS-KBR CO-OPTIVIST INCOME BDC
II, INC.



STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share and per share
data)



|                                                                                                                                     |  | As
    of              |      
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | -----
|                                                                                                                                     |  | September
    30, 2012 |      
|                                                                                                                                     |  | (Unaudited)            |      
|ASSETS                                                                                                                               |  |                        |      
|                                                                                                                                     |  |                        |      
|Investments, at fair value (amortized cost of $2,420
    and $0)                                                                     |  | $                      | 2,348
|Investments – money market                                                                                                           |  |                        | 1,215
|Interest receivable                                                                                                                  |  |                        | 66   
|Prepaid expenses                                                                                                                     |  |                        | 13   
|Due from related party                                                                                                               |  |                        | 324  
|Receivable for common stock purchased                                                                                                |  |                        | 713  
|Receivable for unsettled trades                                                                                                      |  |                        | 103  
|Total assets                                                                                                                         |  | $                      | 4,782
|                                                                                                                                     |  |                        |      
|LIABILITIES                                                                                                                          |  |                        |      
|Payable for unsettled trades                                                                                                         |  | $                      | 429  
|Management and incentive fees payable                                                                                                |  |                        | 14   
|Accounts payable and accrued liabilities                                                                                             |  |                        | 54   
|Stockholder distributions payable                                                                                                    |  |                        | 25   
|Total liabilities                                                                                                                    |  | $                      | 522  
|                                                                                                                                     |  |                        |      
|NET ASSETS                                                                                                                           |  |                        |      
|Preferred stock,
    par value, $.001 per share, 50,000,000 authorized, none issued and outstanding                                  |  |                        | -    
|Common stock, par
    value, $.001 per share, 200,000,000 authorized; 483,234 and 22,333 shares issued and outstanding, respectively |  |                        | 1    
|Paid-in capital in excess of par value                                                                                               |  |                        | 4,349
|Accumulated distribution in excess of net investment income                                                                          |  |                        | (18  
|Net unrealized depreciation on investments                                                                                           |  |                        | (72  
|Total net assets                                                                                                                     |  |                        | 4,260
|Total liabilities and net assets                                                                                                     |  | $                      | 4,782
|                                                                                                                                     |  |                        |      
|Net asset value per share                                                                                                            |  | $                      | 8.82 



(1) Derived from the audited statement of assets and liabilities
as of December 31, 2011.



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











VII PEAKS-KBR CO-OPTIVIST INCOME BDC
II, INC.



STATEMENTS OF OPERATIONS

(in thousands, except share and per share
data)

(Unaudited)



|                                                                |  | For the Three Months Ended September 30, |         |   | For the Nine Months Ended September 30, |   |        | For the Period from August 3 (Date of Inception) to September 30, | 
|--------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | --------------------------------------- | - | ------ | ----------------------------------------------------------------- | 
|                                                                |  | 2012                                     |         |   | 2012                                    |   |        | 2011                                                              | 
|                                                                |  |                                          |         |   |                                         |   |        |                                                                   | 
|Investment income:                                              |  |                                          |         |   |                                         |   |        |                                                                   | 
|Interest from investments                                       |  | $                                        | 32      |   |                                         | $ | 32     |                                                                   | 
|Total investment income                                         |  |                                          | 32      |   |                                         |   | 32     |                                                                   | 
|                                                                |  |                                          |         |   |                                         |   |        |                                                                   | 
|Operating expenses:                                             |  |                                          |         |   |                                         |   |        |                                                                   | 
|Professional fees                                               |  |                                          | 37      |   |                                         |   | 67     |                                                                   | 
|Directors fees                                                  |  |                                          | 11      |   |                                         |   | 20     |                                                                   | 
|Insurance                                                       |  |                                          | 13      |   |                                         |   | 35     |                                                                   | 
|Management fees                                                 |  |                                          | 19      |   |                                         |   | 19     |                                                                   | 
|General and administrative                                      |  |                                          | 44      |   |                                         |   | 75     |                                                                   | 
|Organizational and offering expense                             |  |                                          | 62      |   |                                         |   | 62     |                                                                   | 
|Expenses before expense reimbursements                          |  |                                          | 186     |   |                                         |   | 278    |                                                                   | 
|Expense reimbursement                                           |  |                                          | (282    | ) |                                         |   | (282   | )                                                                 | 
|Total expenses net of expense reimbursements                    |  |                                          | (96     | ) |                                         |   | (4     | )                                                                 | 
|                                                                |  |                                          |         |   |                                         |   |        |                                                                   | 
|Net investment income (loss)                                    |  |                                          | 128     |   |                                         |   | 36     |                                                                   | 
|                                                                |  |                                          |         |   |                                         |   |        |                                                                   | 
|Realized and unrealized gain (loss) on investments:             |  |                                          |         |   |                                         |   |        |                                                                   | 
|Net realized gain from investments                              |  |                                          | -       |   |                                         |   | -      |                                                                   | 
|Net unrealized depreciation on investments                      |  |                                          | (72     | ) |                                         |   | (72    | )                                                                 | 
|Net realized and unrealized loss on investments                 |  |                                          | (72     | ) |                                         |   | (72    | )                                                                 | 
|                                                                |  |                                          |         |   |                                         |   |        |                                                                   | 
|Net increase (decrease) in net assets resulting from operations |  | $                                        | 56      |   |                                         | $ | (36    | )                                                                 | 
|                                                                |  |                                          |         |   |                                         |   |        |                                                                   | 
|Per share information - basic and diluted:                      |  |                                          |         |   |                                         |   |        |                                                                   | 
|Net investment income (loss)                                    |  | $                                        | 0.52    |   |                                         | $ | 0.37   |                                                                   | 
|Net increase (decrease) in net assets resulting from operations |  | $                                        | 0.23    |   |                                         | $ | (0.37  | )                                                                 | 
|Weighted average common shares outstanding                      |  |                                          | 243,985 |   |                                         |   | 96,756 |                                                                   | 



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



2







VII PEAKS-KBR CO-OPTIVIST INCOME BDC
II, INC.



STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except share and per share
data)

(Unaudited)



|                                                            |  | For the Nine Months Ended September 30, 2012 |         |   | For the Period from August 3, 2011 (Date of Inception) to September  30, 2011 |  
|----------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ----------------------------------------------------------------------------- | -
|                                                            |  |                                              |         |   |                                                                               |  
|Operations:                                                 |  |                                              |         |   |                                                                               |  
|Net investment income (loss)                                |  | $                                            | 36      |   |                                                                               | $
|Net realized gain from investments                          |  |                                              | -       |   |                                                                               |  
|Net unrealized depreciation on investments                  |  |                                              | (72     | ) |                                                                               |  
|Net increase (decrease) in net assets from operations       |  |                                              | (36     | ) |                                                                               |  
|Stockholder distributions:                                  |  |                                              |         |   |                                                                               |  
|Distributions from net investment income                    |  |                                              | (32     | ) |                                                                               |  
|Distributions from paid in capital                          |  |                                              | (18     | ) |                                                                               |  
|Net decrease in net assets from stockholder distributions   |  |                                              | (50     | ) |                                                                               |  
|Capital share transactions:                                 |  |                                              |         |   |                                                                               |  
|Issuance of common stock, net of issuance costs             |  |                                              | 4,149   |   |                                                                               |  
|Net increase in net assets from capital share transactions  |  |                                              | 4,149   |   |                                                                               |  
|                                                            |  |                                              |         |   |                                                                               |  
|Total increase (decrease) in net assets                     |  |                                              | 4,063   |   |                                                                               |  
|Net assets at beginning of period                           |  |                                              | 197     |   |                                                                               |  
|Net assets at end of period                                 |  | $                                            | 4,260   |   |                                                                               | $
|                                                            |  |                                              |         |   |                                                                               |  
|Net asset value per common share                            |  | $                                            | 8.82    |   |                                                                               | $
|Common shares outstanding at end of period                  |  |                                              | 483,234 |   |                                                                               |  
|                                                            |  |                                              |         |   |                                                                               |  
|Accumulated distribution in excess of net investment income |  | $                                            | (18     | ) |                                                                               | $



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



3







VII PEAKS-KBR CO-OPTIVIST INCOME BDC
II, INC.



STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



|                                                                                                              |  | For the Nine Months Ended September 30, 2012 |        |   | For the Period from August 3, 2011 (Date of Inception) to September 30, 2011 |  
|------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------ | - | ---------------------------------------------------------------------------- | -
|                                                                                                              |  |                                              |        |   |                                                                              |  
|Operating activities:                                                                                         |  |                                              |        |   |                                                                              |  
|Net decrease in net assets from operations                                                                    |  | $                                            | (36    | ) |                                                                              | $
|Adjustments to reconcile net decrease in net assets from operations to net cash used in operating activities: |  |                                              |        |   |                                                                              |  
|                                                                                                              |  |                                              |        |   |                                                                              |  
|Net accretion of discount on investments                                                                      |  |                                              | (9     | ) |                                                                              |  
|Repayments of investments                                                                                     |  |                                              | 101    |   |                                                                              |  
|Purchase of investments                                                                                       |  |                                              | (2,512 | ) |                                                                              |  
|Purchase of money market investments                                                                          |  |                                              | (1,014 | ) |                                                                              |  
|Net unrealized depreciation on investments                                                                    |  |                                              | 72     |   |                                                                              |  
|(Increase) decrease in operating assets:                                                                      |  |                                              |        |   |                                                                              |  
|Interest receivable                                                                                           |  |                                              | (66    | ) |                                                                              |  
|Prepaid expenses                                                                                              |  |                                              | (13    | ) |                                                                              |  
|                                                                                                              |  |                                              |        |   |                                                                              |  
|Receivable for unsettled trades                                                                               |  |                                              | (103   | ) |                                                                              |  
|Due from related party                                                                                        |  |                                              | (324   | ) |                                                                              |  
|Increase (decrease) in operating liabilities:                                                                 |  |                                              |        |   |                                                                              |  
|Payable for unsettled trades                                                                                  |  |                                              | 429    |   |                                                                              |  
|Management and incentive fees payable                                                                         |  |                                              | 14     |   |                                                                              |  
|Accounts payable and accrued liabilities                                                                      |  |                                              | 50     |   |                                                                              |  
|Net cash used in operating activities                                                                         |  |                                              | (3,411 | ) |                                                                              |  
|                                                                                                              |  |                                              |        |   |                                                                              |  
|Financing activities:                                                                                         |  |                                              |        |   |                                                                              |  
|Proceeds from issuance of shares of common stock, net                                                         |  |                                              | 3,428  |   |                                                                              |  
|Stockholder distributions                                                                                     |  |                                              | (17    | ) |                                                                              |  
|Net cash provided by financing activities                                                                     |  |                                              | 3,411  |   |                                                                              |  
|                                                                                                              |  |                                              |        |   |                                                                              |  
|Net increase in cash                                                                                          |  |                                              | -      |   |                                                                              |  
|Cash, beginning of period                                                                                     |  |                                              | -      |   |                                                                              |  
|Cash, end of period                                                                                           |  | $                                            | -      |   |                                                                              | $
|                                                                                                              |  |                                              |        |   |                                                                              |  
|Supplemental non-cash information:                                                                            |  |                                              |        |   |                                                                              |  
|DRIP distribution payable                                                                                     |  | $                                            | 9      |   |                                                                              | $
|Cash distribution payable                                                                                     |  | $                                            | 16     |   |                                                                              | $
|DRIP distribution paid                                                                                        |  | $                                            | 8      |   |                                                                              | $



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



4







VII PEAKS-KBR CO-OPTIVIST INCOME BDC
II, INC.



SCHEDULE OF INVESTMENTS

(dollars in thousands)



September 30, 2012

(Unaudited)



|Portfolio Company (a)                           |  | Industry                                  |  | Investment
    Coupon Rate, Maturity Date |  | Principal |       |  | Amortized
    Cost |   |       | Fair
    Value |  |   | % of
    Net Assets                                                                                                                                  | 
|----------------------------------------------- |  | ----------------------------------------- |  | ----------------------------------------- |  | --------- | ----- |  | ------------------ | - | ----- | -------------- |  | - | ---------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|Senior Secured First Lien Debt - 18.4% (b)      |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|Apria Healthcare Group, Inc.                    |  | Healthcare & Pharmaceuticals              |  | 11.25%, 11/01/2014                        |  | $         | 100   |  |                    | $ | 104   |                |  | $ | 102                                                                                                                                                  | 
|GXS Worldwide, Inc.                             |  | Services: Business                        |  | 9.75%, 6/15/2015                          |  | $         | 250   |  |                    |   | 262   |                |  |   | 258                                                                                                                                                  | 
|McClatchy Co.                                   |  | Media: Advertising, Printing & Publishing |  | 11.5%, 2/15/2017                          |  | $         | 200   |  |                    |   | 214   |                |  |   | 215                                                                                                                                                  | 
|Ryerson, Inc.                                   |  | Metals & Mining                           |  | 12.00%, 11/01/2015                        |  | $         | 200   |  |                    |   | 207   |                |  |   | 207                                                                                                                                                  | 
|Sub Total Senior Secured
    First Lien Debt    |  |                                           |  |                                           |  |           |       |  |                    |   | 787   |                |  |   | 782                                                                                                                                                  | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|Senior Secured Second Lien  Debt - 7.1%
    (b) |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|Apria Healthcare Group, Inc.                    |  | Healthcare & Pharmaceuticals              |  | 12.375%, 11/1/2014                        |  | $         | 100   |  |                    | $ | 100   |                |  | $ | 98                                                                                                                                                   | 
|Aspect Software, Inc.                           |  | Telecommunications                        |  | 10.625%, 5/15/2017                        |  | $         | 200   |  |                    |   | 215   |                |  |   | 205                                                                                                                                                  | 
|Sub Total Senior Secured
    Second Lien Debt   |  |                                           |  |                                           |  |           |       |  |                    |   | 315   |                |  |   | 303                                                                                                                                                  | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|Senior Unsecured Debt - 20.0% (b)               |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|Alliance HealthCare Services, Inc.              |  | Healthcare & Pharmaceuticals              |  | 8.00%, 12/1/2016                          |  | $         | 100   |  |                    | $ | 83    |                |  | $ | 86                                                                                                                                                   | 
|Alliance One International, Inc.                |  | Beverage, Food & Tobacco                  |  | 10.00%, 7/15/2016                         |  | $         | 150   |  |                    |   | 157   |                |  |   | 155                                                                                                                                                  | 
|Education Management LLC                        |  | Services: Consumer                        |  | 8.75%, 6/1/2014                           |  | $         | 200   |  |                    |   | 175   |                |  |   | 158                                                                                                                                                  | 
|First Data Corp.                                |  | Banking, Finance, Insurance & Real Estate |  | 10.55%, 9/24/2015                         |  | $         | 100   |  |                    |   | 104   |                |  |   | 102                                                                                                                                                  | 
|First Data Corp.                                |  | Banking, Finance, Insurance & Real Estate |  | 9.875%, 9/24/2015                         |  | $         | 100   |  |                    |   | 103   |                |  |   | 102                                                                                                                                                  | 
|Seitel, Inc.                                    |  | High Tech Industries                      |  | 9.75%, 2/15/2014                          |  | $         | 200   |  |                    |   | 203   |                |  |   | 201                                                                                                                                                  | 
|Suntech Power Holdings Company, Ltd. (c)        |  | Environmental Industries                  |  | 3.00%, 3/15/2013                          |  | $         | 100   |  |                    |   | 79    |                |  |   | 50                                                                                                                                                   | 
|Sub Total Senior Unsecured
    Debt             |  |                                           |  |                                           |  |           |       |  |                    |   | 904   |                |  |   | 854                                                                                                                                                  | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|Senior Subordinated Debt -9.6% (b)              |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|Serena Software, Inc.                           |  | High Tech Industries                      |  | 10.375%, 3/15/2016                        |  | $         | 200   |  |                    | $ | 207   |                |  | $ | 204                                                                                                                                                  | 
|Sungard Data Systems, Inc.                      |  | High Tech Industries                      |  | 10.25%, 8/15/2015                         |  | $         | 200   |  |                    |   | 207   |                |  |   | 205                                                                                                                                                  | 
|Sub Total Senior Subordinated
    Debt          |  |                                           |  |                                           |  |           |       |  |                    |   | 414   |                |  |   | 409                                                                                                                                                  | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|U.S. Bank Money Market 5 - CT                   |  | Money Market Investments                  |  | 0.04% demand                              |  | $         | 1,215 |  |                    | $ | 1,215 |                |  | $ | 1,215                                                                                                                                                | 
|Money Market Investments
    – 28.5% (b)        |  |                                           |  |                                           |  |           |       |  |                    | $ | 1,215 |                |  | $ | 1,215                                                                                                                                                | 
|                                                |  |                                           |  |                                           |  |           |       |  |                    |   |       |                |  |   |                                                                                                                                                      | 
|TOTAL
    INVESTMENTS - 55.1% (b)               |  |                                           |  |                                           |  |           |       |  |                    | $ | 3,635 |                |  |   | $
                                                                                                                                             3,563 | 



(a) All of our investments are issued
by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940, except for Alliance One International,
Inc., Education Management LLC and Suntech Power Holdings Company, Ltd.



(b) Percentages are based on net assets of $4,260 as of September
30, 2012.



(c) Non-U.S. company. The principal place of business for Suntech
Power Holdings Company, Ltd. Is China.



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



5







VII PEAKS-KBR CO-OPTIVIST INCOME BDC
II, INC.



NOTES TO FINANCIAL STATEMENTS

September 30, 2012



(Unaudited)



Note 1.  Nature of Operations



VII Peaks-KBR Co-Optivist
Income BDC II, Inc. (the “Fund”), a Maryland corporation formed on August 3, 2011, is an externally managed, non-diversified
closed-end management investment company that has elected to be treated as a business development company (“BDC”) under
the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund intends to elect to be treated for federal
income tax purposes as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code of 1986,
as amended (the “Code”). The Fund intends to invest in discounted corporate debt and equity-linked debt securities
of public and private companies whose securities trade on the secondary loan market for institutional investors.



On August 9, 2011,
the Fund filed a registration statement on Form N-2 to sell up to 75.0 million shares of common stock at an initial public offering
price of $10.00 per share. The registration statement was declared effective by the Securities Exchange Commission (the “SEC”)
on March 1, 2012. The Fund commenced operations when it raised gross offering proceeds of over $1.0 million, all of which was from
persons who were not affiliated with the Fund or VII Peaks-KBR BDC Advisor II, LLC (the “Manager”) by one year from
the date the registration statement was declared effective by the SEC. Prior to the successful satisfaction of that condition,
all subscription payments were placed in an account held by the escrow agent, UMB Bank, N.A., in trust for the benefit of the Fund’s
subscribers, pending release to the Fund. The Fund achieved the minimum offering requirement on July 10, 2012 and commenced operations
on such date. As of September 30, 2012, the Fund issued 0.5 million shares of common stock for gross proceeds of $4.8 million.



Note 2.  Summary of Significant
Accounting Policies



Basis of Presentation



The financial statements
of the Fund included herein were prepared in conformity with accounting principles generally accepted in the United States of America
("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of
management, these financial statements include all adjustments, consisting only of normal recurring adjustments and accruals, necessary
for a fair presentation of the results for the interim period. These financial statements should be read in conjunction with the
audited financial statements and notes thereto as of December 31, 2011 and for the year then ended, which are included in the Fund’s
final prospectus, as amended or supplemented, filed pursuant to Rule 497 of the Securities Act of 1933, as amended, filed with
the SEC on March 12, 2012.



Use of Estimates in the Preparation
of Financial Statements



The preparation of
the accompanying financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial
statements, and income, gains (losses) and expenses during the period reported. Actual results could differ materially from those
estimates.



Investments – money market



The Fund has classified
its money market investments as investments carried at fair value.



Revenue Recognition



We record interest
income on an accrual basis to the extent that we expect the collect such amounts. For loans and debt securities with contractual
payment-in-kind (“PIK”) interest, which represents contractual interest accrued and added to the principal balance,
we generally will not accrue PIK interest for accounting purposes if the portfolio company valuation indicates that such PIK interest
is not collectible. We do not accrue as a receivable interest on loans and debt securities for accounting purposes if we have reason
to doubt our ability to collect such interest. Original issue discounts, market discounts or premiums are accreted or amortized
using the effective interest method as interest income. We record prepayment premiums on loans and debt securities as interest
income. Dividend income, if any, is recognized on an accrual basis to the extent that we expect to collect such amount.



6







U.S. Federal Income Taxes



The Fund intends to
elect to be treated for federal income tax purposes as a RIC under subchapter M of the Code and to operate in a manner so as to
qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Fund is required to annually
distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code. So long as the Fund maintains
its status as a RIC, it generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains
that it distributes at least annually to its stockholders as distributions. Rather, any tax liability related to income earned
by the Fund represents obligations of the Fund’s investors and will not be reflected in the financial statements of the Fund.
The Fund will also be subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income,
98.2% of capital gain net income, if any, and any recognized and undistributed income from prior years for which it paid no federal
income taxes.



New Accounting Pronouncements



In September 2011,
the FASB issued Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220): Presentation
of Comprehensive Income,” that will require a company to present components of net income and other comprehensive income
in one continuous statement or in two separate, but consecutive statements. There are no changes to the components that are recognized
in net income or other comprehensive income under current GAAP. This guidance is effective for fiscal years and interim periods
within those fiscal years, beginning after December 15, 2011. ASU 2011-05 did not have a material effect on the Fund’s financial
statements.



In May 2011, the FASB
issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and
IFRSs (“ASU 2011-04”), which amends GAAP to conform it with fair value measurement and disclosure requirements in International
Financial Reporting Standards (“IFRS”). The amendments in ASU 2011-04 change the wording used to describe the requirements
in GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in ASU 2011-04 are
to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011. As such,
the Fund has adopted this ASU and there were no related impacts on its financial position or results of operations.



Organizational and Offering Costs



The Fund is a closed-end
fund with a continuous offering period. Under the investment advisory agreement between the Fund and the Manager, our Manager fronts
the cost of the organization and offering expenses which are reimbursable by the Fund with up to 1.5% of the gross offering proceeds.
The Fund expenses organizational and offering costs as they become payable under the investment advisory agreement.



Note 3. Restatement of previously issued
financial statements.



As
discussed in Note 2, during the second quarter of fiscal 2013, the Fund restated its financial statements for organization and
offering expenses in order to comply with the terms of the investment advisory agreements between the Fund and the Manager. Previously,
the Fund expensed all organization costs as they were incurred by the Manager. Previously, the Fund capitalized all offering expenses
incurred prior to the date of commencement of operations (July 12, 2012) as deferred offering costs and amortized that amount over
12 months from the date of commencement of operations, and expensed all offering costs incurred by the Manager after the commencement
of operations as they were incurred by the Manager. However, because the Fund is only obligated to reimburse the Manager to the
extent of 1.5% of gross offering proceeds, the Fund is restating its financial statements to reflect the expense and obligation
to the Manager only as they are payable to the Manager at 1.5% of offering proceeds. The following table summarizes the effects
of the restatement on the specific items presented in the Company’s balance sheet as of September 30, 2012 and its statement
of operations for the nine months ended September 30, 2012, as previously reported in its Form 10-Q for the period ending September
30, 2012.



7







|                                                                    |  | As previously
    reported |       |   | As restated |  
|------------------------------------------------------------------- |  | -------------------------- | ----- | - | ----------- | -
|Statement of Assets and Liabilities                                 |  |                            |       |   |             |  
|Due from related party                                              |  | $                          | -     |   |             | $
|Deferred offering costs                                             |  |                            | 666   |   |             |  
|Total assets                                                        |  |                            | 5,124 |   |             |  
|Management and incentive fee payable                                |  |                            | 55    |   |             |  
|Due to related party                                                |  |                            | 301   |   |             |  
|                                                                    |  |                            |       |   |             |  
|Statement of Operations                                             |  |                            |       |   |             |  
|Organizational and offering expense                                 |  |                            | 440   |   |             |  
|Incentive fee                                                       |  |                            | 41    |   |             |  
|Expenses before expense reimbursement                               |  |                            | 697   |   |             |  
|Expense reimbursement                                               |  |                            | (802  | ) |             |  
|Expenses after expense reimbursement                                |  |                            | (105  | ) |             |  
|Net investment income                                               |  |                            | 137   |   |             |  
|Net increase (decrease) in net assets resulting from
    operations |  | $                          | 65    |   |             | $
|                                                                    |  |                            |       |   |             |  
|Per share information - basic and diluted                           |  |                            |       |   |             |  
|Net investment income                                               |  | $                          | 1.42  |   |             | $
|Net increase (decrease) in net assets resulting from
    operations |  | $                          | 0.67  |   |             | $
|Net asset value per share                                           |  | $                          | 8.81  |   |             | $



Note 4. Valuation of Portfolio Investments



The Fund determines
the net asset value of its investment portfolio each quarter. Securities that are publicly-traded are valued at the reported closing
price on the valuation date. Securities that are not publicly-traded are valued at fair value as determined in good faith by the
board of directors. In connection with that determination, the Manager will prepare portfolio company valuations using relevant
inputs, including, but not limited to, indicative dealer quotes, values of like securities, the most recent portfolio company financial
statements and forecasts, and valuations prepared by third-party valuation services.



With respect to investments
for which market quotations are not readily available, the Fund will undertake a multi-step valuation process each quarter, as
described below:



| | • | the quarterly valuation process begins with each portfolio company or investment being initially valued by members of the investment
committee, with such valuation taking into account information received from an independent valuation firm, if applicable;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | preliminary valuation conclusions are then documented and discussed with the members of the board of directors; and
| | - | -------------------------------------------------------------------------------------------------------------------



| | • | the board of directors discusses valuations and determines the fair value of each investment in the portfolio in good faith
based on various statistical and other factors, including the input and recommendation of members of the investment committee and
any third-party valuation firm, if applicable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investments are valued
utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other
relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business).
The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present
value amount (discounted) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated
by current market expectations about those future amounts. In following these approaches, the types of factors that we may take
into account in fair value pricing our investments include, as relevant: available current market data, including relevant and
applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection
provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make
payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial
ratios of peer companies that are public, mergers and acquisition comparables, the principal market and enterprise values, among
other factors.



The Fund has adopted
FASB ASC Topic 820, Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standards No. 157,
Fair Value Measurements), which defines fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles and expands disclosures about fair value measurements.



ASC Topic 820 clarifies
that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability
in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at
the measurement date, considered from the perspective of market participants. ASC Topic 820 provides a consistent definition of
fair value which focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over
entity-specific inputs. In addition, ASC Topic 820 provides a framework for measuring fair value and establishes a three-level
hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the
measurement date. The three levels of valuation hierarchy established by ASC Topic 820 are defined as follows:



8







Level 1:  Quoted
prices in active markets for identical assets or liabilities, accessible by the Fund at the measurement date.



Level 2:  Quoted
prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in
markets that are not active, or other observable inputs other than quoted prices.



Level 3:  Unobservable
inputs for the asset or liability.



In all cases, the level
in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest
level of input that is significant to the fair value measurement.



The following table presents fair value
measurements of investments, by major class, as of September 30, 2012 according to the fair value hierarchy (dollars in thousands).There were no investments as of December 31, 2011.



|                                |  | Level 1 |       |  | Level 2 |   |       | Total | 
|------------------------------- |  | ------- | ----- |  | ------- | - | ----- | ----- | 
|Investments – Money Market      |  | $       | 1,215 |  |         | $ | —     |       | 
|Senior Secured First Lien Debt  |  |         | —     |  |         |   | 782   |       | 
|Senior Secured Second Lien Debt |  |         | —     |  |         |   | 303   |       | 
|Senior Unsecured Debt           |  |         | —     |  |         |   | 854   |       | 
|Senior Subordinated Debt        |  |         | —     |  |         |   | 409   |       | 
|Total                           |  | $       | 1,215 |  |         | $ | 2,348 |       | 



The composition of the Fund’s investments
as of September 30, 2012, at amortized cost and fair value were as follows (dollars in thousands). There were no investments as
of December 31, 2011.



|                                |  | Investments at  Amortized Cost |       |  | Investments at Fair  Value |   |       | Fair Value Percentage  of Total Portfolio | 
|------------------------------- |  | ------------------------------ | ----- |  | -------------------------- | - | ----- | ----------------------------------------- | 
|Investments – Money Market      |  | $                              | 1,215 |  |                            | $ | 1,215 |                                           | 
|Senior Secured First Lien Debt  |  |                                | 787   |  |                            |   | 782   |                                           | 
|Senior Secured Second Lien Debt |  |                                | 315   |  |                            |   | 303   |                                           | 
|Senior Unsecured Debt           |  |                                | 904   |  |                            |   | 854   |                                           | 
|Senior Subordinated Debt        |  |                                | 414   |  |                            |   | 409   |                                           | 
|Total                           |  | $                              | 3,635 |  |                            | $ | 3,563 |                                           | 



9







Note 5. Related Party Transactions



The Fund is managed by the Manager. The Manager is wholly-owned
by VII Peaks-KBR, LLC which is a joint venture between VII Peaks Capital, LLC (“VII Peaks”), and KBR Capital Advisors,
LLC (“KBR”).



Investment Advisory
Agreement



The Fund has entered
into an investment advisory agreement with the Manager to manage the Fund’s investment activities. Pursuant to the investment
advisory agreement, the Manager implements the Fund’s business strategy on a day-to-day basis and performs certain services
for us, subject to oversight by our board of directors. The Manager is responsible for, among other duties, determining investment
criteria, sourcing, analyzing and executing investment transactions, asset sales, financings and performing asset management duties.
Under the investment advisory agreement, the Manager is entitled to a base management and incentive fee as outlined in the Investment
Advisory Agreement with the Fund. The base management fee is 2% of net assets below $100 million; 1.75% of net assets between $100
million and $250 million; and 1.5% of net assets over $250 million. For the nine months ended September 30, 2012, the Fund did
not incur any base management fees.



The incentive fee has
two parts. The first part, the subordinated incentive fee on income, is calculated and payable quarterly in arrears based upon
the Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter. The subordinated
incentive fee on income is 20% of pre-incentive net investment income subject to a quarterly return to investors, expressed as
a rate of return on adjusted capital at the beginning of the most recently completed calendar quarter, of 2.0% (8.0% annualized).
The second part of the incentive fee, the incentive fee on capital gains, is an incentive fee on capital gains earned on liquidated
investments from the portfolio and is determined and payable in arrears as of the end of each calendar year (or upon termination
of the investment advisory agreement). This fee equals 20% of the Fund’s incentive fee capital gains, which will equal the
Fund’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed
net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any
previously paid capital gains incentive fees. For the nine months ended September 30, 2012, the Fund did not incur any incentive
fees related to net investment income or capital gains.



Under US GAAP,
the Fund calculates capital gains incentive fees as if the Fund had realized all assets at their fair values and liabilities at
their settlement amounts as of the reporting date. GAAP requires that the capital gains incentive fee accrual assume the cumulative
aggregate unrealized capital appreciation is realized, even though such unrealized capital appreciation is not payable under the
investment advisory agreement. Accordingly, the Fund accrues a provisional capital gains incentive fee taking into account any
unrealized gains or losses. There can be no assurance that such unrealized capital appreciation will be realized in the future
and that the provisional capital gains incentive fee will become payable.



Under the investment
advisory agreement, the Manager bears all offering and organizational expenses. Pursuant to the terms of the investment advisory
agreement, the Fund has agreed to reimburse the Manager for any such organizational and offering expenses incurred by the Manager
not to exceed 1.5% of the gross subscriptions raised by the Fund over the course of the offering period, which is currently scheduled
to terminate two years from the initial offering date, unless extended. From each sale of common stock, the Fund will pay the Manager
the lesser of 1.5% of the gross offering proceeds or the amount of unreimbursed offering and organizational expenses incurred by
the Manager.



For the nine months
ended September 30, 2012 and for the period from August 4, 2011 (inception) through December 31, 2011, the Manager incurred
organizational and offering costs of $752,000 and $454,000, respectively. Of the total $1,206,000 organizational and offering costs
incurred from inception through September 30, 2012, $62,000 was reimbursed to the Manager during the three and nine months ended
September 30, 2012. The Fund expects that the Manager will continue to incur organizational and offering costs as the Fund’s
offering continues, and such additional organizational and offering costs will increase the amount to which the Manager will be
entitled to reimbursement from gross offering proceeds. The unreimbursed amount will be eligible for reimbursement to the extent
the Fund receives subscriptions until March 1, 2014, which is the currently scheduled date that the offering period ends, unless
it is extended. Organizational and offering expenses paid for by the Manager and reimbursed by the Fund are expensed on the Fund’s
statement of operations as they are payable to the Manager.



From time to time,
the Fund has paid directly certain expenses that were classified as organization or offering expenses that should have been borne
by the Manager and for which the Manager is obligated to reimburse the Fund. As of December 31, 2012, the unreimbursed amount of
organization and offering expenses was $42,000 which amount is included in “Due from related party” on the Fund’s
balance sheet as of that date.



Expense Reimbursement
Agreement



On November 9, 2012,
the Fund entered into an expense reimbursement agreement with the Manager, under which the Manager agreed to reimburse the Fund
for all U.S. GAAP compliant expenses recognized on the quarterly financial statements of the Fund for 2012, retroactive to the
date of formation of the Fund on August 3, 2011. In 2013, the expense reimbursement agreement was modified to exclude management
fees and incentive fees payable to the Manager effective as of January 1, 2013. The Fund recognizes a receivable on its books for
the amount due from the Manager under the expense reimbursement agreement, and the Manager recognizes a liability on its books
in the same amount. The expense reimbursement agreement allows the Manager and the Fund to offset the receivable in favor of the
Fund created under the expense reimbursement agreement against the contingent payable owed by the Fund to the Manager under the
investment advisory agreement, resulting in a net receivable or payable position. As of September 30, 2012, the Manager was indebted
to the Fund for $282,000 of expense reimbursements under the expense reimbursement agreement.



The expense reimbursement
agreement expires on the earlier of August 3, 2014 or the start of the quarter in which the Fund reaches $75 million in net assets.
Amounts reimbursed by the Manager under the expense reimbursement agreement are not subject to recoupment by the Manager at a later
date.



Administration Agreement



The Fund has also entered
into an administration agreement with the Manager under which the Manager provides the Fund with office facilities, equipment and
clerical, bookkeeping and record keeping services at such facilities and provides or oversees the performance of, the Fund’s
required administrative services, which include, among other things, being responsible for the financial records which the Fund
is required to maintain and preparing reports to its stockholders. The Manager is reimbursed amounts based on allocable portion
of overhead costs under this agreement. During the nine months ended September 30, 2012, the Fund reimbursed the Manager for $12,000
in administration expenses under the administration agreement.



10







Dealer Manager Agreement



KBR Capital Markets,
LLC (the “Dealer Manager”) is an affiliate of KBR, and is a licensed broker-dealer registered with the Financial Industry
Regulatory Authority (“FINRA”) and serves as the Dealer Manager for the Fund’s public offering of shares of common
stock. The Dealer Manager receives selling commissions of 7% of gross offering proceeds, all of which is expected to be re-allowed
to selected dealers, and a dealer manager fee of up to 3% of gross offering proceeds, all or a portion of which may be re-allowed
to selected dealers.



Purchase of Shares



The Manager purchased
111 and 22,222 shares of common stock on August 31, 2011 and December 31, 2011, respectively. These shares were purchased at a
price of $9.00 per share, which represents the initial public offering price of $10.00 per share, net of selling commission and
dealer manager fees.



Note 5.  Common Stock



The Manager purchased
111 and 22,222 shares of common stock on August 31, 2011 and December 31, 2011, respectively. These shares were purchased at a
price of $9.00 per share, which represents the initial public offering (“IPO”) price of $10.00 per share, net of selling
commissions and dealer manager fees.



On July 10, 2012, the Fund had raised sufficient
proceeds to break escrow on its IPO and through September 30, 2012, the Fund has sold 0.5 million shares of common stock for gross
proceeds of $4.8 million including the purchases made by the Manager.



Note 6.  Earnings Per Share



In accordance with the provisions of FASB
ASC 260, “Earnings per Share” (“ASC 260”), basic earnings per share is computed by dividing earnings available
to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common
shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.



The following information sets forth the
computation of the weighted average basic and diluted net increase (decrease) in net assets per share from operations for the three
and nine months ended September 30, 2012 and for the period from August 3, 2011 (date of inception) to September 30, 2011.



|                                                                                               |  | For the Three Months Ended September 30, |         |  | For the Nine Months Ended September 30, |   |        | For the Period Ended August 3, 2011 (Date of Inception) to September 30, | 
|---------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- |  | --------------------------------------- | - | ------ | ------------------------------------------------------------------------ | 
|                                                                                               |  | 2012                                     |         |  | 2012                                    |   |        | 2011                                                                     | 
|Basic and diluted                                                                              |  |                                          |         |  |                                         |   |        |                                                                          | 
|Net increase (decrease)  in net assets resulting from operations                               |  | $                                        | 56      |  |                                         | $ | (36    | )                                                                        | 
|Weighted average common shares outstanding                                                     |  |                                          | 243,985 |  |                                         |   | 96,756 |                                                                          | 
|Net increase (decrease)  in net assets resulting from operations per share - basic and diluted |  | $                                        | 0.23    |  |                                         | $ | (0.37  | )                                                                        | 



The Fund had no potentially
dilutive securities as of September 30, 2012 or September 30, 2011, resulting in the same number of shares for basic and diluted.



Note 7.  Distributions



The Fund has declared and paid distributions
to stockholders on a semi-monthly basis since it commenced operations. From time to time, the Fund may also pay interim distributions
at the discretion of its board of directors. The Fund may fund its distributions to stockholders from any sources of funds available
to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of
assets and non-capital gains proceeds from the sale of assets. The Fund’s distributions may exceed its earnings, especially
during the period before the Fund has substantially invested the proceeds from its IPO. As a result, a portion of the distributions
may represent a return of capital for tax purposes. As of September 30, 2012, the Fund has accrued $0.02 million in stockholder
distributions that were unpaid.



11







The following table reflects the distributions
per share declared and paid or payable in cash or with the reinvestment plan (“DRIP”) on the Fund’s common stock
to date (dollars in thousands except share and per share amounts) for the period August 3, 2011 (date of inception) to September
30, 2012:



|Payment Dates      |  | Net Investment Income |    |  | Realized Gain from Investments |   |   | Unrealized Appreciation from Investments |  |   | Return of Capital |  |  | Per Share |    |  | Paid in Cash |   |      | DRIP |  |   | TOTAL | 
|------------------ |  | --------------------- | -- |  | ------------------------------ | - | - | ---------------------------------------- |  | - | ----------------- |  |  | --------- | -- |  | ------------ | - | ---- | ---- |  | - | ----- | 
|                   |  |                       |    |  |                                |   |   |                                          |  |   |                   |  |  |           |    |  |              |   |      |      |  |   |       | 
|August 17, 2012    |  | $                     | 4  |  |                                | $ | - |                                          |  | $ | -                 |  |  | $         | -  |  |              | $ | 0.03 |      |  | $ | 3     | 
|August 31, 2012    |  |                       | 4  |  |                                |   | - |                                          |  |   | -                 |  |  |           | -  |  |              |   | 0.03 |      |  |   | 3     | 
|September 14, 2012 |  |                       | 9  |  |                                |   | - |                                          |  |   | -                 |  |  |           | -  |  |              |   | 0.03 |      |  |   | 6     | 
|September 28, 2012 |  |                       | 9  |  |                                |   | - |                                          |  |   | -                 |  |  |           | -  |  |              |   | 0.03 |      |  |   | 6     | 
|October 15, 2012   |  |                       | 6  |  |                                |   | - |                                          |  |   | -                 |  |  |           | 6  |  |              |   | 0.03 |      |  |   | 8     | 
|October 31, 2012   |  |                       | -  |  |                                |   | - |                                          |  |   | -                 |  |  |           | 12 |  |              |   | 0.03 |      |  |   | 8     | 
|                   |  | $                     | 32 |  |                                | $ | - |                                          |  | $ | -                 |  |  | $         | 18 |  |              |   |      |      |  | $ | 34    | 



The following table
reflects the sources of the cash distributions on a tax basis that the Company has paid on its common stock during the three months
ended December 31, 2012:



|                                                        |  | Nine Months Ended September 30, 2012 |   
|------------------------------------------------------- |  | ------------------------------------ | --
|Source of Distribution                                  |  | Distribution Amount                  |   
|Net investment income                                   |  |                                      | 32
|Distributions on account of preferred and common equity |  |                                      | 18
|Total                                                   |  | $                                    | 50



12







Note 8.  Financial Highlights



The following is a schedule of financial
highlights for the nine months ended September 30, 2012:



|                                                                    |  | For the Nine Months Ended 
September 30, 2012 |        
|------------------------------------------------------------------- |  | --------------------------------------------- | -------
|Per share data:                                                     |  |                                               |        
|Net asset value, beginning of period                                |  | $                                             | 8.82   
|                                                                    |  |                                               |        
|Results of operations (1)                                           |  |                                               |        
|Net investment income                                               |  |                                               | 0.37   
|Net realized and unrealized loss on investments                     |  |                                               | (0.74  
|Net decrease in net assets resulting from operations                |  |                                               | (0.37  
|                                                                    |  |                                               |        
|Stockholder distributions (2)                                       |  |                                               |        
|Distributions from net investment income                            |  |                                               | (0.33  
|Distributions from capital                                          |  |                                               | (0.19  
|Net decrease in net assets resulting from stockholder distributions |  |                                               | (0.52  
|                                                                    |  |                                               |        
|Capital share transactions                                          |  |                                               |        
|Impact from issuance of common stock (3)                            |  |                                               | 0.89   
|                                                                    |  |                                               |        
|Net asset value, end of period                                      |  | $                                             | 8.82   
|Shares outstanding at end of period                                 |  |                                               | 483,234
|Total return (5)                                                    |  |                                               | 5.86   
|Ratio/Supplemental data:                                            |  |                                               |        
|Net assets, end of period (in thousands)                            |  | $                                             | 4,260  
|Average net assets (in thousands)                                   |  |                                               | 1,018  
|Ratio of net investment income to average net assets (4)(7)         |  |                                               | 7.08   
|Ratio of operating expenses to average net assets (4)(7)            |  |                                               | (0.79  
|Ratio of expenses reimbursed to average net assets                  |  |                                               | 55.40  
|Portfolio turnover ratio (6)                                        |  |                                               | 4.28   



| | (1) | The per share was derived by using the weighted average shares outstanding during the period. Net investment income per share
excluding the expense reimbursements equals ($2.54) for the nine months ended September 30, 2012. There was no expense reimbursement
for the period from August 3, 2011 (date of inception) to September 30, 2011.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The per share data for distributions reflects the actual
amount of distributions declared per share during the period.
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (3) | The issuance of common stock on a per share basis reflects
the incremental net asset value changes as a result of the issuance of shares of common stock in the Fund's continuous offering.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The ratios are after giving
effect to amounts reimbursed by the Manager under an expense reimbursement agreement. See “Note 5 – Related Party
Transactions.”For the nine months ended September 30, 2012, excluding the expense reimbursement, the ratio of
net investment income and operating expenses to average net assets would have been (48.32)% and 54.62%, respectively. For the
period from August 3, 2011 (date of inception) to September 30, 2011, there was no expense reimbursement.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Total return is calculated assuming a purchase of shares
at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported.
Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP. The total
return based on net asset value for the nine months ended September 30, 2012, includes the effect of the expense reimbursement
which added 28.83% to the return. For the period from August 3, 2011 (date of inception) to September 30, 2011, there was no expense
reimbursement.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Portfolio turnover rate is calculated using the year-to-date
sales over the average of the invested assets at fair value. Not annualized.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Ratios are annualized.
| | --- | ----------------------



13







Note 9.  Subsequent Events



Management of the Fund
has evaluated subsequent events in the preparation of the Fund’s financial statements and has determined that no events require
recognition or disclosure in the financial statements except for the following:



From October 1, 2012 to December
31, 2012, the Fund issued $0.5 shares of common stock for gross proceeds of $4.7 million. During the three months ended March 31,
2013, the Fund sold 755,028 shares of common stock in its offering for net proceeds of $6.85 million. After April 1, 2013, the
Fund issued 0.3 million shares of common stock for gross proceeds of $2.9 million until the Fund suspended its continuous offering
pending approval of a post-effective amendment to its financial statements.



For the period from
October 1, 2012 to December 31, 2012, the Fund declared distributions of $0.26075 per share. From January 1, 2013 to June 28, 2013,
the Fund declared distributions of $0.386922 per share.



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



The following discussion
should be read in conjunction with the accompanying financial statements of VII Peaks-KBR Co-Optivist Income BDC II, Inc., and
the notes thereto. As used herein, the terms “we,” “our” and “us” refer to VII Peaks-KBR Co-Optivist
Income BDC II, Inc., a Maryland corporation and, as required by context to VII Peaks-KBR Advisor II, LLC (the “Manager”),
which serves as our investment adviser and administrator. We are externally managed by our Manager.



Forward-Looking Statements



This Form 10-Q includes
forward-looking statements that reflect our expectations and projections about our future results, performance, prospects and opportunities.
We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,”
“expect,” “estimate,” “intend,” “should,” “would,” “could,”
“potentially,” or “may” or other words that convey uncertainty of future events or outcomes to identify
these forward-looking statements. Forward-looking statements in this Form 10-Q are subject to a number of risks and uncertainties,
some of which are beyond our control, including, among other things:



| | • | our ability to invest in discounted corporate debt and equity-linked debt securities of our target companies;
| | - | -------------------------------------------------------------------------------------------------------------



| | • | our about ability to successfully employ our Co-Optivist TM approach in executing our investment strategy;
| | - | ----------------------------------------------------------------------------------------------------------



| | • | a limited pool of prospective target businesses;
| | - | ------------------------------------------------



| | • | our ability to pay distributions on our shares of common stock;
| | - | ---------------------------------------------------------------



| | • | an economic downturn which could impair our target companies’ abilities to continue to operate, which could lead to the
loss of some or all of our assets; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | changes in general economic or business conditions or economic or demographic trends in the United States.
| | - | ----------------------------------------------------------------------------------------------------------



Our actual results,
performance, prospects or opportunities could differ materially from those expressed in or implied by our forward-looking statements.
In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements.
These forward-looking statements are made as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise
any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events or otherwise,
except as required by law. The forward-looking statements and projections contained in this Quarterly Report on Form 10-Q are excluded
from the safe harbor protection provided by Section 27A of the Securities Act of 1933.



Overview



We invest in discounted
corporate debt and equity-linked debt securities of public and private companies whose securities trade on the secondary loan market
for institutional investors and provide distributions to investors. At the same time, we actively work with the target company’s
management to restructure the underlying securities and improve the liquidity position of the target company’s balance sheet.
We employ a proprietary “Co-Optivist TM ” approach (“cooperative activism”, Co-Optivist TM
is a registered trademark of VII Peaks Capital, LLC, or VII Peaks, and is being used with their permission) in executing our investment
strategy, which entails proactively engaging the target company management on average 24 months prior to a redemption event (typically
a put or maturity event) to create an opportunity for growth in the investments. Our strategy is not dependent on restructuring
to generate distributions.



Our investment objectives
are to generate current income and capital appreciation. We meet our investment objectives by: (i) realizing income and capital
appreciation through the acquisition, management and orderly liquidation of corporate debt securities, (ii) making distributions
of available distributable cash to our shareholders, and (iii) preserving the capital investments of our stockholders.



14







Our proprietary “Co-Optivist
TM” (cooperative activism) approach entails investment in the corporate debt and equity-linked debt securities
of target companies, or target investments, in conjunction with proactively engaging the target companies’ management. We
acquire target investments whose debt securities trade on the over-the-counter market for institutional loans at a discount to
their par redemption value, and will be subject to a “redemption event” within (on average) 24 months. We define a
“redemption event” as a maturity event or a put event (where investors in the target company’s debt security
can have a redemption right at a pre-determined price). We hold such debt an average of 12–18 months, during which time we
anticipate working actively with the target company’s management to effect and/or participate in a restructuring or exchange
of the invested securities for new securities.



We make investments
in target companies that meet our investment criteria. The size of an individual investment will vary based on numerous factors,
including the amount of funds raised in this offering. However, assuming we raise the maximum offering amount of $750.0 million,
we expect to hold at least 50 investments, and we anticipate that the minimum investment size will be approximately $0.25 million.
We do not anticipate being heavily invested in any one industry, and generally, we do not expect to invest in more than two different
classes of debt of the same target company. We intend to invest in debt and equity-linked debt of target companies with a minimum
enterprise value of $200.0 million and whose debt and equity-linked debt is actively traded in the secondary loan market. We expect
our portfolio to be predominantly composed of fixed-rate high-yield and equity-linked corporate debt securities. However, we may
also purchase senior secured corporate debt securities which may have variable interest rates. We currently anticipate that the
portion of our portfolio composed of variable rate corporate debt securities, if any, will not exceed 20%, but we may increase
that to 33% of our aggregate portfolio at the time of any purchase depending on market opportunities.



We offer our stockholders
the ability to receive distributions as well as the potential capital appreciation resulting from the restructuring of the debt
of our target companies. To the extent we have distributable income available we anticipate declaring and paying distributions
on a semi-monthly basis. We declared and paid distributions beginning in August 2012 at $0.0306250 per share each (an annualized
rate of 7.35% based on our initial public offering price of $10.00 per share) to stockholders.



Between 2001 and 2008,
corporate debt levels and the supply of leverage offered by banks and other investors steadily increased. We believe a significant
amount of this debt will be subject to a redemption event prior to 2015. Many of the companies that have outstanding issues of
such debt have not, or been unable to proactively refinance, creating a “refinancing wall” that we believe will create
a liquidity shortfall for many issuers. The value of the debt securities of these companies as reflected in prices quoted in the
secondary loan market, may be at a significant discount to par, and represent a premium yield to maturity reflective of these liquidity
concerns, creating the opportunity for us to identify and invest in the debt securities of select companies at attractive current
market valuations. We believe that our Co-Optivist TM approach can help our target companies achieve results that are
beneficial to the long-term value of their businesses, which will in turn, result in capital gains through capital appreciation,
or the exchange of invested securities into a current security or cash at a premium to its acquisition price. Our principals collectively
have experience in principal investing, debt securities and general capital markets, and we believe we are well-positioned to capitalize
on these opportunities.



Our investment activities
are managed by our Manager who is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or
the Advisers Act. Our Manager is responsible for sourcing potential investments, conducting research on prospective investments,
analyzing investment opportunities, structuring our investments, and monitoring our investments and portfolio companies on an ongoing
basis. Our Manager is led by Gurpreet (Gurprit) S. Chandhoke, who also serves as our Chief Executive Officer, who has extensive
experience in underwriting and issuing debt products that include high-yield, bank debt and convertible debt and has acted as financial
adviser to private equity funds, venture capital firms and corporations in mergers and acquisitions, recapitalization and corporate
finance transactions, and has served as principal investor in private equity and leveraged buyout transactions.



Our Manager has an
investment committee that is responsible for reviewing, discussing and approving each investment opportunity we seek to pursue.
We anticipate that our investment committee will meet once a week to discuss new and existing opportunities and developments on
current investments. Our investment committee currently consists of Mr. Chandhoke, our Chief Executive Officer, Stephen F. Shea
and Bhavin Shah, who also serves on our board of directors.



Critical Accounting Policies



Our financial statements,
which are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of
these financial statements will require our management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining
such estimates could cause actual results to differ.



Valuation of Portfolio Investments



We determine the net
asset value of our investment portfolio each quarter. Securities that are publicly-traded are valued at the reported closing price
on the valuation date. Securities that are not publicly-traded are valued at fair value as determined in good faith by our board
of directors. In connection with that determination, our Manager prepares portfolio company valuations using relevant inputs, including,
but not limited to, indicative dealer quotes, values of like securities, the most recent portfolio company financial statements
and forecasts, and valuations prepared by third-party valuation services.



With respect to investments
for which market quotations are not readily available, we will undertake a multi-step valuation process each quarter, as described
below:



15







| | · | our quarterly valuation process begins with each portfolio company or investment being initially valued by members of our investment
committee, with such valuation taking into account information received from our independent valuation firm, if applicable;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | preliminary valuation conclusions are then documented and discussed with the members of our board of directors; and
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | the board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith
based on various statistical and other factors, including the input and recommendation of members of our investment committee and
any third-party valuation firm, if applicable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investments are valued
utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other
relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business).
The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present
value amount (discounted) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated
by current market expectations about those future amounts. In following these approaches, the types of factors that we may take
into account in fair value pricing our investments include, as relevant: available current market data, including relevant and
applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection
provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make
payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial
ratios of peer companies that are public, M&A comparables, the principal market and enterprise values, among other factors.



We have adopted FASB
ASC Topic 820, Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standards No. 157, Fair
Value Measurements), which defines fair value, establishes a framework for measuring fair value in accordance with generally
accepted accounting principles and expands disclosures about fair value measurements.



ASC Topic 820 clarifies
that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability
in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at
the measurement date, considered from the perspective of market participants. ASC Topic 820 provides a consistent definition of
fair value which focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over
entity-specific inputs. In addition, ASC Topic 820 provides a framework for measuring fair value and establishes a three-level
hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the
measurement date. The three levels of valuation hierarchy established by ASC Topic 820 are defined as follows:



Level 1:  Quoted
prices in active markets for identical assets or liabilities, accessible by the Fund at the measurement date.



Level 2:  Quoted prices
for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets
that are not active, or other observable inputs other than quoted prices.



Level 3:  Unobservable
inputs for the asset or liability.



In all cases, the level
in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest
level of input that is significant to the fair value measurement.



Revenue Recognition



We record interest
income on an accrual basis to the extent that we expect the collect such amounts. For loans and debt securities with contractual
payment-in-kind (“PIK”) interest, which represents contractual interest accrued and added to the principal balance,
we generally will not accrue PIK interest for accounting purposes if the portfolio company valuation indicates that such PIK interest
is not collectible. We do not accrue as a receivable interest on loans and debt securities for accounting purposes if we have reason
to doubt our ability to collect such interest. Original issue discounts, market discounts or premiums are accreted or amortized
using the effective interest method as interest income. We record prepayment premiums on loans and debt securities as interest
income. Dividend income, if any, is recognized on an accrual basis to the extent that we expect to collect such amount.



Net Realized Gains or Losses and Net
Change in Unrealized Appreciation or Depreciation



We measure net realized
gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment,
without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment
penalties. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during
the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses
are realized.



16







Organizational and Offering Costs



The Fund is a closed-end
fund with a continuous offering period. Under the investment advisory agreement between the Fund and the Manager, our Manager fronts
the cost of the organization and offering expenses which are reimbursable by the Fund with up to 1.5% of the gross offering proceeds.
The Fund expenses organizational and offering costs as they become payable under the investment advisory agreement.



Payment-in-Kind Interest



We may have investments
in our portfolio that contain a PIK interest provision. Any PIK interest will be added to the principal balance of such investments
and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to maintain
our status as a registered investment company (“RIC”), substantially all of this income must be paid out to stockholders
in the form of distributions, even if we have not collected any cash.



Federal Income Taxes



We intend to elect
to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to
pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our shareholders from our
tax earnings and profits. To obtain and maintain our RIC tax treatment, we must meet, among other things, specified source-of-income
and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term
capital gains in excess of realized net long-term capital losses, if any.



Portfolio and Investment Activity



During the three and nine months ended September
30, 2012, we made $2.5 million of investments in new portfolio companies and had $0.1 million in aggregate amount of exits and
repayments, resulting in net investments of $2.4 million for the period. We had no investments as of September 30, 2011.



The following table presents our portfolio
composition based on fair value at September 30, 2012. We had no investments as of December 31, 2011.



|                                |  | At September 30, 2012         |      
|------------------------------- |  | ----------------------------- | -----
|                                |  | Percentage of Total Portfolio |      
|Investments Money Market        |  |                               | 33.4 
|Senior Secured First Lien Debt  |  |                               | 21.7 
|Senior Secured Second Lien Debt |  |                               | 8.7  
|Senior Unsecured Debt           |  |                               | 24.9 
|Senior Subordinated Debt        |  |                               | 11.4 
|Total                           |  |                               | 100.0



As of November 7, 2012, our investment portfolio
had a yield to maturity of 12.31%.



17







The following
table shows the portfolio composition by industry grouping at fair value at September 30, 2012 (dollars in thousands). We had
no investments as of December 31, 2011.



|                                          |  | At September 30, 2012     |      
|----------------------------------------- |  | ------------------------- | -----
|                                          |  | Investments at Fair Value |      
|Investments – Money Market                |  | $                         | 1,215
|High Tech Industries                      |  |                           | 611  
|Healthcare & Pharmaceuticals              |  |                           | 286  
|Services: Business                        |  |                           | 257  
|Media: Advertising, Printing & Publishing |  |                           | 215  
|Metals & Mining                           |  |                           | 206  
|Telecommunications                        |  |                           | 206  
|Banking, Finance, Insurance & Real Estate |  |                           | 204  
|Services: Consumer                        |  |                           | 158  
|Beverage, Food & Tobacco                  |  |                           | 155  
|Environmental Industries                  |  |                           | 50   
|Total                                     |  | $                         | 3,563



Results of Operations



Operating results for the three and nine
months ended September 30, 2012 and for the period from August 3, 2011 (date of inception) to September 30, 2011 are as follows
(dollars in thousands):



|                                                                |  | For the Three  Months Ended  September 30, |     |   | For the Period  Ended August 3,  2011 (Date of  Inception) to  September 30, |  
|--------------------------------------------------------------- |  | ------------------------------------------ | --- | - | ---------------------------------------------------------------------------- | -
|                                                                |  | 2012                                       |     |   | 2011                                                                         |  
|Total investment income                                         |  | $                                          | 32  |   |                                                                              | $
|Total expenses, net                                             |  |                                            | (96 | ) |                                                                              |  
|Net investment  income (loss)                                   |  |                                            | 128 |   |                                                                              |  
|Net realized gain                                               |  |                                            | —   |   |                                                                              |  
|Net unrealized depreciation                                     |  |                                            | (72 | ) |                                                                              |  
|Net increase (decrease) in net assets resulting from operations |  | $                                          | 56  |   |                                                                              | $



|                                                                |  | For the Nine  Months Ended  September 30, |     |   | For the Period  Ended August 3,  2011 (Date of  Inception) to  September 30, |  
|--------------------------------------------------------------- |  | ----------------------------------------- | --- | - | ---------------------------------------------------------------------------- | -
|                                                                |  | 2012                                      |     |   | 2011                                                                         |  
|Total investment income                                         |  | $                                         | 32  |   |                                                                              | $
|Total expenses, net                                             |  |                                           | (4  | ) |                                                                              |  
|Net investment income (loss)                                    |  |                                           | 36  |   |                                                                              |  
|Net realized gain                                               |  |                                           | —   |   |                                                                              |  
|Net unrealized depreciation                                     |  |                                           | (72 | ) |                                                                              |  
|Net increase (decrease) in net assets resulting from operations |  | $                                         | (36 | ) |                                                                              | $



Revenues



Our activities since
inception have largely been organizational activities and those necessary to prepare for our public offering of shares of our common
stock. We plan to generate revenue primarily from the cash interest we will collect on our debt investments and, to a lesser extent,
from the early termination fees that many of our debt investments require the borrower to pay. Further, we may generate revenue
in the form of commitment, origination, structuring or diligence fees. Any such fees will be generated in connection with our investments
and recognized as earned.



18







Expenses



The composition of our operating expenses
for the three and nine months ended September 30, 2012 and for the period from August 3, 2011 (date of inception) to September
30, 2011 was as follows (dollars in thousands):



|                                                       |  | For the Three Months Ended September 30, |      |   | For the Period Ended August 3, 2011 (Date of Inception) to September 30, |  
|------------------------------------------------------ |  | ---------------------------------------- | ---- | - | ------------------------------------------------------------------------ | -
|                                                       |  | 2012                                     |      |   | 2011                                                                     |  
|Professional fees                                      |  | $                                        | 37   |   |                                                                          | $
|Director fees                                          |  |                                          | 11   |   |                                                                          |  
|Insurance                                              |  |                                          | 13   |   |                                                                          |  
|Management fees                                        |  |                                          | 19   |   |                                                                          |  
|General and administrative                             |  |                                          | 44   |   |                                                                          |  
|Organizational and offering expense                    |  |                                          | 62   |   |                                                                          |  
|Operating expenses before expense reimbursements       |  |                                          | 186  |   |                                                                          |  
|Expense reimbursement                                  |  |                                          | (282 | ) |                                                                          |  
|Total operating expenses net of expense reimbursements |  | $                                        | (96  | ) |                                                                          | $



|                                                        |  | For the Nine Months Ended September 30, |      |   | For the Period Ended August 3, 2011 (Date of Inception) to September 30, |  
|------------------------------------------------------- |  | --------------------------------------- | ---- | - | ------------------------------------------------------------------------ | -
|                                                        |  | 2012                                    |      |   | 2011                                                                     |  
|Professional fees                                       |  | $                                       | 67   |   |                                                                          | $
|Director fees                                           |  |                                         | 20   |   |                                                                          |  
|Insurance                                               |  |                                         | 35   |   |                                                                          |  
|Management fees                                         |  |                                         | 19   |   |                                                                          |  
|General and administrative                              |  |                                         | 75   |   |                                                                          |  
|Organizational and offering expense                     |  |                                         | 62   |   |                                                                          |  
|Operating expenses before expense reimbursements        |  |                                         | 278  |   |                                                                          |  
|Expense reimbursement                                   |  |                                         | (282 | ) |                                                                          |  
|Total operating expenses, net of expense reimbursements |  | $                                       | (4   | ) |                                                                          | $



Net Change in Unrealized Appreciation or Depreciation
on Investments



For the three and nine
months ended September 30, 2012, we had $0.07 million and $0.07 million, respectively, of unrealized depreciation. For the period
from August 3, 2011 (date of inception) to September 30, 2011, we held no investments.



Changes in Net Assets from Operations



For the three and nine
months ended September 30, 2012, we recorded a net increase (decrease) in net assets resulting from operations of $0.6 million
and ($0.4) million, respectively. Based on 243,985 and 96,756 weighted average common shares outstanding for the three and six
months ended September 30, 2012, respectively, our per share net increase (decrease) in net assets resulting from operations was
$0.23 and ($0.37), respectively.



19







Liquidity and Capital Resources



We generate cash primarily
from the net proceeds of our ongoing continuous public offering and from cash flows from fees, interest and dividends earned from
our investments as well as principal repayments and proceeds from sales of our investments. On July 10, 2012, we satisfied our
minimum offering requirement of raising gross offering proceeds in excess of $1.0 million from persons who are not affiliated with
us or our Manager, and commenced operations. As of September 30, 2012, we issued 0.5 million shares of common stock for gross proceeds
of $4.8 million. We sell our shares on a continuous basis at a current offering price of $10.00; however, to the extent that our
net asset value per share increases, we will sell at a price necessary to ensure that our shares are not sold at a price, after
deduction of selling commissions and dealer manager fees, that is below our net asset value per share.



Prior to investing
in debt securities, we invest the net proceeds from our continuous offering primarily in money market funds that invest in U.S.
government securities and high-quality debt instruments maturing in one year or less from the time of investment. As of September
30, 2012, we had $1.2 million invested in money market investments pending investment in debt instruments.



For the three months
ended September 30, 2012, we experienced a net increase in money market investments of $1 million. For the three months ended September
30, 2012, approximately $3.4 million was generated from our financing activities, which primarily consisted of $3.4 million in
net offering proceeds received, offset by $17,000 in distributions. We used approximately $3.4 million of cash in our operating
activities primarily as a result of increases in receivables for interest and due from related party totaling $1.1 million. Also,
we received proceeds from the sale of, repayment of and principal payments on portfolio debt investments of $.01 million, offset
by the purchase of new portfolio debt investments of $2.5 million.



We do not expect to
borrow funds during the following twelve months to make investments. In the future, however, if the market for debt financing presents
attractively priced debt financing opportunities, or if our board of directors determines that leveraging our portfolio would be
in our best interests and the best interests of our shareholders, we may decide to borrow funds to make investments. We do not
currently anticipate issuing any preferred shares.



Distributions



We offer our stockholders
the ability to receive distributions as well as the potential capital appreciation resulting from the restructuring of the debt
of our target companies. To the extent we have distributable income available we declare and pay distributions on a semi-monthly
basis. In August 2012, we began paying distributions at a semi-monthly rate of $0.030625, and during the quarter ending September
30, 2012 we declared six semi-monthly distributions of $0.030625 per share each (an annualized rate of 7.35% based on our initial
public offering price of $10.00 per share) to stockholders. The total distributions declared in the quarter ending September 30,
2012 was $0.18375 per share.



Any distributions
to our shareholders are declared out of assets legally available for distribution. We expect to continue making distributions unless
our results of operations, our general financial condition, general economic conditions, or other factors prohibit us from doing
so. There can be no assurance that we will be able to sustain distributions at any particular level.



Each year a statement
on Internal Revenue Service Form 1099-DIV (or such successor form) identifying the source of the distributions (i.e., paid from
ordinary income, paid from net capital gain on the sale of securities, or a return of capital) will be mailed to our shareholders.
Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from
this offering. As a result, a portion of the distributions we make may represent a return of capital for tax purposes. The tax
basis of shares must be reduced by the amount of any return of capital distributions, which will result in an increase in the amount
of any taxable gain (or a reduction in any deductible loss) on the sale of shares.



Distribution Reinvestment Plan



We have adopted an
“opt-in” distribution reinvestment plan pursuant to which you may elect to have the full amount of your cash distributions
reinvested in additional shares of our common stock. If you wish to receive your distribution in cash, no action will be required
on your part to do so. There will be no selling commissions, dealer manager fees or other sales charges to you if, you elect to
participate in the distribution reinvestment plan. We will pay the plan administrator’s fees under the plan. Your distribution
amount will purchase shares at 95% of the price that the shares are offered pursuant to the effective registration statement of
the public offering. Shares issued pursuant to our distribution reinvestment plan will have the same voting rights as our shares
of common stock offered pursuant to this prospectus.



Election as a RIC



We intend to elect
to be treated as a RIC under Subchapter M of the Code commencing in the first taxable year in which we meet the minimum offering
requirements. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we distribute
to our stockholders from our tax earnings and profits. To qualify as a RIC, we must, among other things, meet certain source-of-income
and asset diversification requirements. In addition, in order to obtain RIC tax treatment, we must distribute to our stockholders,
for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary
income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss, or the annual
distribution requirement. Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax
on our undistributed taxable income and could be subject to U.S. federal excise, state, local and foreign taxes.



20







Related-Party Transactions and Agreements



We have entered into
agreements with the Manager and the Dealer Manager, whereby we pay certain fees and reimbursements to these entities. These include
payments to the Dealer Manager for selling commissions and the Dealer Manager fee and payments to our Manager for reimbursement
of organization and offering costs. In addition, we make payments for certain services that include, but are not limited to, the
identification, execution, and management of our investments and also the management of our day-to-day operations provided to us
by our Manager, pursuant to various agreements that we have entered into. See Note 5 to the financial statements included elsewhere
in this quarterly report on Form 10-Q for additional information regarding such contractual obligations.



Contractual Obligations



We have entered into
agreements with the Manager and the Dealer Manager, whereby we pay certain fees and reimbursements to these entities. These include
payments to the Dealer Manager for selling commissions and the Dealer Manager fee and payments to our Manager for reimbursement
of organization and offering costs. In addition, we make payments for certain services that include, but are not limited to, the
identification, execution, and management of our investments and also the management of our day-to-day operations provided to us
by our Manager, pursuant to various agreements that we have entered into. See Note 5 to the financial statements included elsewhere
in this quarterly report on Form 10-Q for additional information regarding such contractual obligations.



Off-Balance Sheet Arrangements



We have no off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.



Item 3. Quantitative and Qualitative
Disclosures about Market Risk



We are subject to financial
market risks, including changes in interest rates. Any investments we make that are denominated in a foreign currency will be subject
to risks associated with changes in currency exchange rates. These risks include the possibility of significant fluctuations in
the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary
market. These risks will vary depending upon the currency or currencies involved.



We may hedge against
interest rate and currency exchange rate fluctuations by using standard hedging instruments such as futures, options and forward
contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest
rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments
with fixed interest rates.



Item 4. Controls and Procedures



Disclosure Controls



In accordance with
Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the
supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of
the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act)
as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that the disclosure controls and procedures
are effective.



Change in Internal Control Over Financial
Reporting



No change occurred
in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter
ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.



21







PART II



OTHER INFORMATION



Item 1. Legal Proceedings



Neither we nor our
Manager are currently subject to any material legal proceedings.



Item 1A. Risk Factors



There have been no
material changes from the risk factors set forth in our final prospectus on Form 497 filed with the SEC on March 12, 2012, as supplemented
or amended.



Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds



Not applicable.



Item 3. Defaults upon Senior Securities



Not applicable.



Item 4. Mine Safety Disclosures



Not applicable.



Item 5. Other Information



Not applicable.



Item 6. Exhibits



The exhibits listed on the Exhibit Index
(following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form
10-Q.



22







SIGNATURES



Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                    | VII Peaks-KBR Co-Optivist Income BDC II, Inc.
|------------------- | ---------------------------------------------
|                    |                                              
|Date: July 25, 2013 | By                                           
|                    |                                              
|                    |                                              



|                    | VII Peaks-KBR Co-Optivist Income BDC II, Inc.
|------------------- | ---------------------------------------------
|                    |                                              
|Date: July 25, 2013 | By                                           
|                    |                                              



23







Item 6. Exhibits



Listed below are the
exhibits which are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):



|ExhibitNumber |  | Description of Document                                                                                                                                                             
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                                                                                     
|10.1*         |  | Expense Reimbursement Agreement by and between VII Peaks-KBR Co-Optivist Income BDC II, Inc. and VII Peaks-KBR BDC Advisor II, LLC, dated as of November 9, 2012.                   
|              |  |                                                                                                                                                                                     
|31.1*         |  | Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.                                                                
|              |  |                                                                                                                                                                                     
|31.2*         |  | Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.                                                                
|              |  |                                                                                                                                                                                     
|32.1*         |  | Certification of Chief Executive Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              |  |                                                                                                                                                                                     
|32.2*         |  | Certification of Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



*  Filed herewith.



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