<PAGE>

                                   FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549

(Mark One)

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

For the quarterly period ended June 30, 2001

                                      or

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

Commission File Number 0-19509


                             EQUUS II INCORPORATED
                          ---------------------------
            (Exact name of registrant as specified in its charter)


                Delaware                             76-0345915
     -------------------------------             ------------------
     (State or other jurisdiction of              (I.R.S. Employer
      incorporation or organization)             Identification No.)

      2929 Allen Parkway, Suite 2500
              Houston, Texas                          77019-2120
      -------------------------------             ------------------
       (Address of principal                            (Zip Code)
        executive offices)

Registrant's telephone number, including area code: (713)  529-0900

Securities registered pursuant to Section 12(b) of the Act:

             Title of each class            Name of each exchange
                                         on which registered

            Common Stock                   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes   X      No ____

Approximate aggregate market value of common stock held by non-affiliates of the
registrant:  $46,533,655 computed on the basis of $9.22 per share, closing price
of the common stock on the New York Stock Exchange Inc. on August 13, 2001.  For
the purpose of calculating this amount only, all directors and executive
officers of the registrant have been treated as affiliates.  There were
6,472,276 shares of the registrant's common stock, $.001 par value, outstanding,
as of August 13, 2001. The net asset value of a share at June 30, 2001 was
$14.47.

Documents incorporated by reference:  None
<PAGE>

                             EQUUS II INCORPORATED
                            (A Delaware Corporation)

                                     INDEX

<TABLE>
<CAPTION>

<S>                                                                                <C>
PART I.  FINANCIAL INFORMATION                                                     PAGE
                                                                                   ----
         Item 1.   Financial Statements

                   Balance Sheets

                   - June 30, 2001 and December 31, 2000...........................   1

                   Statements of Operations

                   - For the three months ended June 30, 2001 and 2000.............   2

                   - For the six months ended June 30, 2001 and 2000...............   3

                   Statements of Changes in Net Assets

                   - For the six months ended June 30, 2001 and 2000...............   4

                   Statements of Cash Flows

                   - For the six months ended June 30, 2001 and 2000...............   5

                   Selected Per Share Data and Ratios

                   - For the six months ended June 30, 2001 and 2000...............   7

                   Schedule of Portfolio Securities

                   - June 30, 2001.................................................   8

                   Notes to Financial Statements...................................  13

          Item 2.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations.............................  19

          Item 3.  Quantitative and Qualitative Disclosure about Market Risk.......  23

PART II.  OTHER INFORMATION

          Item 4. Submission of Matters to a Vote of Security Holders..............  24

          Item 6. Exhibits and Reports on Form 8-K.................................  25

SIGNATURE..........................................................................  25

</TABLE>


                                      ii
<PAGE>

Part I.   FINANCIAL INFORMATION

ITEM 1.   Financial Statements



                             EQUUS II INCORPORATED
                                 BALANCE SHEETS
                      JUNE 30, 2001 AND DECEMBER 31, 2000
                                  (Unaudited)


<TABLE>
<CAPTION>

                                                                                2001                         2000
                                                                            ------------                 ------------
Assets
------
<S>                                                                             <C>                          <C>
Investments in portfolio securities at fair value
     (cost $87,131,909 and $94,936,875, respectively)                       $ 83,521,194                 $ 94,117,912
Temporary cash investments, at cost which
     approximates fair value                                                  65,117,268                   77,041,332
Cash                                                                              32,023                        2,200
Accounts receivable                                                               14,383                          867
Accrued interest receivable                                                    4,236,266                    4,855,256
                                                                            ------------                 ------------

          Total assets                                                       152,921,134                  176,017,567
                                                                            ------------                 ------------

Liabilities and net assets
--------------------------

Liabilities:
     Accounts payable                                                            104,658                      338,178
     Due to management company                                                   413,266                      454,624
     Notes payable to bank                                                    69,750,000                   84,300,000
                                                                            ------------                 ------------

          Total liabilities                                                   70,267,924                   85,092,802
                                                                            ------------                 ------------

Commitments and contingencies

Net assets:
     Preferred stock, $.001 par value, 5,000,000 shares
        authorized, no shares outstanding                                              -                            -
     Common stock, $.001 par value, 25,000,000 shares
        authorized, 6,500,976 and 6,674,577 shares                                 6,501                        6,675
         outstanding
     Additional paid-in capital                                               95,157,712                   98,046,809
     Notes receivable from officers related to
        789,111 and 771,927 shares of common stock                           (10,386,345)                 (10,132,925)
     Undistributed net investment income                                       1,457,784                       36,936
     Undistributed net capital gains                                              28,273                    3,786,233
     Unrealized depreciation of portfolio securities, net                     (3,610,715)                    (818,963)
                                                                            ------------                 ------------
          Total net assets                                                  $ 82,653,210                 $ 90,924,765
                                                                            ============                 ============
          Net assets per share                                              $      14.47                 $      15.40
                                                                            ============                 ============

</TABLE>

                         The accompanying notes are an
                  integral part of these financial statements

                                       1
<PAGE>

                             EQUUS II INCORPORATED
                            STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)


<TABLE>
<CAPTION>

                                                                            2001                      2000
                                                                        -----------               -----------
<S>                                                               <C>                        <C>
Investment income:
     Income from portfolio securities                                   $   684,441               $   793,580
     Interest from temporary cash investments                                14,968                    28,425
     Other income                                                            31,551                   268,810
                                                                        -----------               -----------

          Total investment income                                           730,960                 1,090,815
                                                                        -----------               -----------

Expenses:
     Management fees                                                        413,266                   498,082
     Non-cash compensation expense                                       (1,356,819)                        -
     Director fees and expenses                                              59,722                    59,268
     Professional fees                                                      181,532                   (13,010)
     Administrative fees                                                     12,500                    12,500
     Mailing, printing and other expenses                                    36,417                    10,703
     Interest expense                                                       118,295                   404,288
     Franchise taxes                                                         73,090                   109,925
                                                                        -----------               -----------
          Total expenses                                                   (461,997)                1,081,756
                                                                        -----------               -----------
Net investment income (loss)                                              1,192,957                     9,059
                                                                        -----------               -----------
Realized gain (loss) on sales of portfolio securities, net               (6,960,059)                  608,586
                                                                        -----------               -----------
Unrealized depreciation of portfolio securities, net:
     End of period                                                       (3,610,715)               (2,873,740)
     Beginning of period                                                 (9,419,333)               (1,056,702)
                                                                        -----------               -----------
     (Increase) decrease in unrealized depreciation, net                  5,808,618                (1,817,038)
                                                                        -----------               -----------
     Total increase (decrease) in net assets from operations            $    41,516               $(1,199,393)
                                                                        ===========               ===========
</TABLE>

                         The accompanying notes are an
                  integral part of these financial statements

                                       2
<PAGE>

                             EQUUS II INCORPORATED
                            STATEMENTS OF OPERATIONS
                FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)




<TABLE>
<CAPTION>

                                                                          2001                      2000
                                                                       -----------               -----------
<S>                                                                      <C>                       <C>
Investment income:
     Income from portfolio securities                                  $ 1,527,864               $ 2,489,061
     Interest from temporary cash investments                               41,089                    54,597
     Other income                                                           55,000                   293,389
                                                                       -----------               -----------
          Total investment income                                        1,623,953                 2,837,047
                                                                       -----------               -----------

Expenses:
     Management fees                                                       842,465                 1,004,044
     Non-cash compensation expense                                      (1,356,819)                        -
     Director fees and expenses                                            136,047                   118,651
     Professional fees                                                     259,167                    40,160
     Administrative fees                                                    25,000                    25,000
     Mailing, printing and other expenses                                   62,095                    29,263
     Interest expense                                                      158,200                   793,969
     Franchise taxes                                                        76,950                   113,625
                                                                       -----------               -----------
          Total expenses                                                   203,105                 2,124,712
                                                                       -----------               -----------
Net investment income                                                    1,420,848                   712,335
                                                                       -----------               -----------
Realized gain (loss) on sales of portfolio securities, net              (3,757,960)                1,346,635
                                                                       -----------               -----------
Unrealized depreciation of portfolio securities, net:
     End of period                                                      (3,610,715)               (2,873,740)
     Beginning of period                                                  (818,963)               (1,100,588)
                                                                       -----------               -----------
     Increase in unrealized depreciation, net                           (2,791,752)               (1,773,152)
                                                                       -----------               -----------
     Total increase (decrease) in net assets from operations           $(5,128,864)              $   285,818
                                                                       ===========               ===========
</TABLE>



                         The accompanying notes are an
                  integral part of these financial statements

                                       3
<PAGE>

                             EQUUS II INCORPORATED
                      STATEMENTS OF CHANGES IN NET ASSETS
                FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)


<TABLE>
<CAPTION>

                                                                         2001                     2000
                                                                      -----------             ------------
<S>                                                                      <C>                      <C>
 Operations:

      Net investment income                                           $ 1,420,848             $    712,335
      Realized gain (loss) on sales of portfolio
         securities, net                                               (3,757,960)               1,346,635
      Increase in unrealized depreciation of
         portfolio securities, net                                     (2,791,752)              (1,773,152)
                                                                      -----------             ------------
 Increase (decrease) in net assets from operations                     (5,128,864)                 285,818
                                                                      -----------             ------------
 Capital Transactions:

      (Increase) decrease related to officers' notes                     (536,780)                 223,943
      Non-cash compensation expense related to officers'
         stock options                                                 (1,356,819)                       -
      Repurchase shares of common stock                                (1,249,092)              (2,312,142)
                                                                      -----------             ------------
 Decrease in net assets from capital transactions                      (3,142,691)              (2,088,199)
                                                                      -----------             ------------
 Decrease in net assets                                                (8,271,555)              (1,802,381)

 Net assets at beginning of period                                     90,924,765              101,418,820
                                                                      -----------             ------------
 Net assets at end of period                                          $82,653,210             $ 99,616,439
                                                                      ===========             ============
</TABLE>


                         The accompanying notes are an
                  integral part of these financial statements

                                       4
<PAGE>

                             EQUUS II INCORPORATED
                           STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                          2001                       2000
                                                                      -------------              -------------
<S>                                                                      <C>                        <C>
Cash flows from operating activities:
     Interest and dividends received                                  $     199,061              $   1,617,539
     Cash paid to management company, directors,
        bank and suppliers                                               (1,833,360)                (2,374,522)
                                                                      -------------              -------------
        Net cash used by operating activities                            (1,634,299)                  (756,983)
                                                                      -------------              -------------
Cash flows from investing activities:
     Purchase of portfolio securities                                    (4,573,874)                (9,896,062)
     Proceeds from sales of portfolio securities                         10,035,451                          -
     Principal payments from portfolio companies                                  -                  5,352,299
     (Advances) repayment from portfolio company                            (13,516)                    35,928
                                                                      -------------              -------------
        Net cash provided (used) by investing activities                  5,448,061                 (4,507,835)
                                                                      -------------              -------------
Cash flows from financing activities:
     Advances from bank                                                 136,300,000                108,200,000
     Repayments to bank                                                (150,850,000)              (107,240,831)
     Repurchase of common stock                                          (1,249,092)                (2,362,051)
     Payments received on officer notes                                      92,531                    991,161
     Dividend payments                                                       (1,442)                    (6,023)
                                                                      -------------              -------------
        Net cash used by financing activities                           (15,708,003)                  (417,744)
                                                                      -------------              -------------
Net decrease in cash and cash equivalents                               (11,894,241)                (5,682,562)

Cash and cash equivalents at beginning of period                         77,043,532                 55,819,682
                                                                      -------------              -------------
Cash and cash equivalents at end of period                            $  65,149,291              $  50,137,120
                                                                      =============              =============
</TABLE>

                         The accompanying notes are an
                  integral part of these financial statements

                                       5
<PAGE>

                             EQUUS II INCORPORATED
                           STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)
                                  (Continued)


<TABLE>
<CAPTION>
                                                                            2001                      2000
                                                                         -----------               -----------
<S>                                                                 <C>                      <C>
Reconciliation of increase (decrease) in net assets from
     operations to net cash used by operating activities:

Increase (decrease) in net assets from operations                        $(5,128,864)              $   285,818

Adjustments to reconcile increase (decrease) in net assets from
     operations to net cash used by operating activities:

     Realized (gain) loss on sale of portfolio securities, net             3,757,960                (1,346,635)
     Increase in unrealized depreciation, net                              2,791,752                 1,773,152
     Accrued interest and dividends exchanged for
         portfolio securities                                             (1,414,571)                 (724,166)
     Non-cash compensation expense related to officers'
         stock options                                                    (1,356,819)                        -
     Increase in accrued interest receivable                                 (10,321)                 (719,285)
     Interest income on officer notes                                              -                   223,943
     Decrease in accounts payable                                           (232,078)                 (240,798)
     Decrease in due to management company                                   (41,358)                   (9,012)
                                                                         -----------               -----------
Net cash used by operating activities                                    $(1,634,299)              $  (756,983)
                                                                         ===========               ===========
</TABLE>


                         The accompanying notes are an
                  integral part of these financial statements

                                       6
<PAGE>

                             EQUUS II INCORPORATED
         SUPPLEMENTAL INFORMATION - SELECTED PER SHARE DATA AND RATIOS
                FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)


<TABLE>
<CAPTION>

                                                                                   2001                2000
                                                                                 -------              ------
<S>                                                                                 <C>                   <C>
Investment income                                                                $  0.28              $ 0.47

Expenses                                                                            0.04                0.35
                                                                                 -------              ------
Net investment income                                                               0.24                0.12

Realized gain (loss) on sale of portfolio securities, net                          (0.64)               0.23

Increase in unrealized depreciation of portfolio securities, net                   (0.48)              (0.30)
                                                                                 -------              ------
Increase (decrease) in net assets from operations                                  (0.88)               0.05
                                                                                 -------              ------
Capital Transactions:

Decrease related to officers' notes                                                 0.07                0.04

Non-cash compensation expense                                                      (0.23)                  -

Effect of common stock repurchase                                                   0.11                0.23
                                                                                 -------              ------
Increase (decrease) in net assets from capital transactions                        (0.05)               0.27
                                                                                 -------              ------
Net increase (decrease) in net assets                                              (0.93)               0.32

Net assets at beginning of period                                                  15.40               16.61
                                                                                 -------              ------
Net assets at end of period                                                      $ 14.47              $16.93
                                                                                 =======              ======
Ratio of expenses to average net assets                                             0.23%               2.11%

Ratio of expenses to average net assets, exclusive of non-cash
     compensation expense                                                           1.80%               2.11%

Ratio of net investment income to average net assets, exclusive of
     non-cash compensation expense                                                  0.07%               0.71%

Ratio of increase (decrease) in net assets from operations
     to average net assets, exclusive of non-cash compensation expense            (7.47)%               0.28%

</TABLE>

                         The accompanying notes are an
                  integral part of these financial statements

                                       7
<PAGE>

                             EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 JUNE 30, 2001
                                  (Unaudited)



<TABLE>
<CAPTION>


                                                                                    Date of
                 Portfolio Company                                             Initial Investment        Cost           Fair Value
                 -----------------                                             -------------------       ----           ----------
<S>                                                                                   <C>                <C>              <C>
A. C. LIQUIDATING CORPORATION                                                     February 1985
    Asset held for liquidation
    -  10% secured promissory notes                                                                   $  188,014         $        -

AMERICAN TRENCHLESS TECHNOLOGY, LLC                                               February 2001
    Boring, tunneling and directional drilling
    -  100,000 shares of preferred stock                                                               1,000,000          1,000,000
    -  1,934,532 shares of common stock                                                                  116,550            116,550

THE BRADSHAW GROUP                                                                   May 2000
    Sells and services midrange and high-speed
     printing equipment
    -  1,335,000 shares of preferred stock                                                             1,335,000            335,000
    -  15% promissory note                                                                               222,945            222,945
    -  Warrant to buy 2,229,450 shares of common
       stock for $0.01 through May 2008                                                                        1                  -

CHAMPION WINDOW, INC.                                                               March 1999
    Primary aluminum window manufacturer & distributor
    -  1,400,000 shares of common stock                                                                1,400,000          6,200,000
    -  20,000 shares of preferred stock                                                                2,000,000          2,382,500

CONTAINER ACQUISITION, INC.                                                       February 1997
    Shipping container repair & storage
    -  1,370,000 shares of common stock                                                                1,370,000          2,870,000
    -  69,210 shares of preferred stock                                                                6,921,000          6,921,000
    -  Conditional warrant to buy up to 370,588 shares
       of common stock at $0.01 through June 2003                                                          1,000              1,000

DOANE PETCARE ENTERPRISES, INC.                                                    October 1995
    Manufacturer of private label pet food
    -  1,120,951 shares of common stock                                                                3,326,565          3,923,328
    -  15% promissory note with a face amount
       of $1,805,556                                                                                   1,275,403          1,275,403
    -  Warrants to buy 822,647 shares of common
       stock for $0.01 through March 2006                                                                601,852          2,871,039

THE DRILLTEC CORPORATION                                                           August 1998
    Provides protection & packaging for pipe & tubing
    -  Prime + 9.75% promissory note                                                                   1,000,000          1,000,000
    -  Warrant to buy 10% of the common
       equity for $100 through September 2002                                                                  -                  -
</TABLE>


                         The accompanying notes are an
                  integral part of these financial statements

                                       8
<PAGE>

                             EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 JUNE 30, 2001
                                  (Unaudited)
                                  (Continued)


<TABLE>
<CAPTION>


                                                                                    Date of
                 Portfolio Company                                             Initial Investment        Cost           Fair Value
                 -----------------                                             -------------------       ----           ----------
<S>                                                                                   <C>                <C>              <C>
EQUICOM, INC.                                                                          July 1997
    Radio stations
    -  452,000 shares of common stock                                                               $  141,250         $        -
    -  657,611 shares of preferred stock                                                             6,576,110          2,000,000
    -  10% promissory note                                                                           2,618,750          2,618,750

EQUIPMENT SUPPORT SERVICES, INC.                                                     December 1999
    Equipment rental
    -  35,000 shares of common stock                                                                   101,500                  -
    -  35,000 shares of preferred stock                                                              1,929,000          1,362,000
    -  8% promissory note                                                                            1,138,000          1,138,000

FS STRATEGIES, INC.                                                                    June 2000
    Temporary staffing and web-based human
     resources provider
    -  110,000 shares of common stock                                                                5,500,000          1,200,000

GCS RE, INC.                                                                         February 1989
    Investment in real estate
    -  1,000 shares of common stock                                                                    132,910            600,000

NCI BUILDING SYSTEMS, INC.  (NYSE - NCS)                                               April 1989
    Design & manufacture metal buildings
    -  200,000 shares of common stock                                                                  159,784          3,650,000

PETROCON ENGINEERING, INC.                                                           September 1998
    Engineering, systems & construction management
    -  12% promissory note                                                                            4,663,356          4,663,356
    -  887,338 shares of common stock                                                                       635                635
    -  8% Series B junior subordinated promissory note                                                2,659,332          2,659,332
    -  Warrant to buy up to 1,552,571 shares of common
       stock at $0.01 per share through March 2009                                                            -                  -

RAYTEL MEDICAL CORPORATION                                                            August 1997
    (NASDAQ - RTEL)
    Cardiovascular monitoring & imaging
    -  11,024 shares of common stock                                                                    330,730             24,364

RELIANT WINDOW HOLDINGS, LLC                                                         February 2001
    Aluminum & vinyl window manufacturer & distributor
    -  36.86% membership interest                                                                         3,686              3,686
</TABLE>


                         The accompanying notes are an
                  integral part of these financial statements

                                       9
<PAGE>

                             EQUUS II INCORPORATED
                       SCHEDULE OF PORTFOLIO SECURITIES
                                 JUNE 30, 2001
                                  (Unaudited)
                                  (Continued)


<TABLE>
<CAPTION>

                                                                                    Date of
                 Portfolio Company                                             Initial Investment        Cost           Fair Value
                 -----------------                                             -------------------       ----           ----------
<S>                                                                                   <C>                <C>              <C>
SOVEREIGN BUSINESS FORMS, INC.                                                      August 1996
    Business forms manufacturer
    -  16,740 shares of preferred stock                                                                $1,674,000        $1,674,000
    -  15% promissory notes                                                                             3,008,980         3,008,980
    -  Warrant to buy 551,894 shares of common stock
       at $1 per share through August 2006                                                                      -           734,019
    -  Warrant to buy 25,070 shares of common stock
       at $1.25 per share through October 2007                                                                  -            27,076
    -  Warrant to buy 273,450 shares of common stock
       at $1 per share through October 2009                                                                     -           363,689

SPECTRUM MANAGEMENT, LLC                                                           December 1999
    Business & personal property protection
    -  285,000 units of Class A equity interest                                                         2,850,000         2,850,000

STERNHILL PARTNERS I, LP                                                             March 2000
    Venture capital fund
    -  3% limited partnership interest                                                                  1,171,604         1,275,000

STRATEGIC HOLDINGS, INC.                                                           September 1995
    Processor of recycled glass
    -  3,089,751 shares of common stock                                                                 3,088,389                 -
    -  3,822,157 shares of Series B preferred stock                                                     3,820,624         3,250,000
    -  15% promissory note                                                                              6,750,000         6,750,000
    -  Warrant to buy 225,000 shares of common
       stock at $0.4643 per share through August 2005                                                           -                 -
    -  Warrant to buy 100,000 shares of common
       stock at $1.50 per share through August 2005                                                             -                 -
    -  Warrant to buy 2,219,237 shares of common
       stock at $0.01 per share through November 2005                                                           -                 -
    -  1,000 shares of SMIP, Inc. common stock                                                            150,000                 -
    -  15% promissory note of SMIP, Inc.                                                                  175,000           175,000

TRAVIS INTERNATIONAL, INC.                                                          December 1986
    Specialty distribution
    -  98,761 shares of common stock                                                                        5,397         1,200,000
</TABLE>



                         The accompanying notes are an
                  integral part of these financial statements

                                       10
<PAGE>

                             EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 JUNE 30, 2001
                                  (Unaudited)
                                  (Continued)


<TABLE>
<CAPTION>


                                                                                    Date of
                 Portfolio Company                                             Initial Investment        Cost           Fair Value
                 -----------------                                             -------------------       ----           ----------
<S>                                                                                   <C>                <C>              <C>

Tulsa Industries, Inc.                                                              December 1997
    Manufacturer of oil & gas equipment
    -  209,089 shares of common stock                                                                  $ 5,500,000       $ 2,000,000
    -  1,058 shares of Series B preferred stock                                                          1,058,000         1,058,000
    -  Junior participation in promissory note                                                             655,769           655,769

Turfgrass America, Inc.                                                                May 1999
    Grows, sells & installs warm season turfgrasses
    -  211,184 shares of common stock                                                                      600,000           600,000
    -  1,507,226 shares of preferred stock                                                                 768,638           768,638
    -  12% subordinated promissory note
    -  with a face amount of $4,000,000                                                                  3,655,000         3,655,000
    -  12% subordinated promissory note                                                                    502,035           502,035
    -  Warrants to buy 250,412 shares of common
       stock at $0.51 through April 2010                                                                         -                 -

United Industrial Services, Inc.                                                      July 1998
    Field service for petrochemical & power
     generation industries
    -  35,000 shares of preferred stock                                                                  3,500,000         2,500,000
    -  15% promissory note                                                                                 585,000           585,000
    -  Warrant to buy 63,637 shares of common stock
       at $0.01 through June 2008                                                                              100               100
    -  Warrant to buy 18,887 shares of common
       stock at $0.01 through March 2011                                                                         -                 -

VANGUARD VII, L.P.                                                                    June 2000
    Venture capital fund
    -  1.3% limited partnership interest                                                                   900,000           850,000
                                                                                                       -----------       -----------
          Total                                                                                        $87,131,909       $83,521,194
                                                                                                       ===========       ===========
</TABLE>


     Substantially all of the Fund's portfolio securities are restricted from
public sale without prior registration under the Securities Act of 1933.  The
Fund negotiates certain aspects of the method and timing of the disposition of
the Fund's investment in each portfolio company, including registration rights
and related costs.

     In connection with the investments in Champion Window, Inc., Container
Acquisition, Inc., The Drilltec Corporation, Sovereign Business Forms, Inc.,
Strategic Holdings, Inc., Turfgrass America, Inc. and United Industrial
Services, Inc. rights have been obtained to demand the registration of such
securities under the Securities Act of 1933, providing certain conditions are
met.  The Fund does not expect to incur significant costs, including costs of
any such registration, in connection with the future disposition of its
portfolio securities.


                         The accompanying notes are an
                  integral part of these financial statements

                                       11
<PAGE>

                             EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 JUNE 30, 2001
                                  (Unaudited)
                                  (Continued)

     As defined in the Investment Company Act of 1940, at June 30, 2001, the
Fund was considered to have a controlling interest in Champion Window, Inc.,
Container Acquisition, Inc., The Drilltec Corporation, Equicom, Inc., Reliant
Window Holdings, LLC, Sovereign Business Forms, Inc., Spectrum Management LLC,
Strategic Holdings, Inc., Tulsa Industries, Inc. and United Industrial Services,
Inc.

     Income was earned in the amount of $908,881 and $1,727,641 for the six
months ended June 30, 2001 and 2000, respectively, on portfolio securities of
companies in which the Fund has a controlling interest.

     As defined in the Investment Company Act of 1940, all of the Fund's
investments are in eligible portfolio companies.  The Fund provides significant
managerial assistance to all of the portfolio companies in which it has
invested, except Doane PetCare Enterprises, Inc. ("Doane"), Equipment Support
Services, Inc., Raytel Medical Corporation ("Raytel"), Sternhill Partners I,
L.P. and Vanguard VII, L.P.  The Fund provides significant managerial assistance
to portfolio companies that comprise 85% of the total value of the investments
in portfolio companies at June 30, 2001.

     The investments in portfolio securities held by the Fund are not
geographically diversified.  All of the Fund's portfolio companies (except for
Doane and Raytel and certain investments in the venture capital funds) are
headquartered in Texas, although several have significant operations in other
states.

     The Fund's investments in portfolio securities consist of the following
types of securities at June 30, 2001:


<TABLE>
<CAPTION>

                                                                                                    Percentage
           Type of Securities                          Cost                 Fair Value             of Fair Value
           ------------------                          ----                 ----------             -------------
<S>                                               <C>                     <C>                     <C>
Secured and Subordinated Debt                        $29,097,584             $28,909,570               34.6%
Preferred Stock                                       36,048,526              25,251,138               30.2%
Common Stock                                          16,457,556              20,384,877               24.4%
Limited Liability Company Investments                  2,853,686               2,853,686                3.5%
Limited Partnership Investments                        2,071,604               2,125,000                2.5%
Options and Warrants                                     602,953               3,996,923                4.8%
                                                     -----------             -----------              -----
Total                                                $87,131,909             $83,521,194              100.0%
                                                     ===========             ===========              =====
</TABLE>

     The following is a summary by industry of the Fund's investments as of
June 30, 2001:


<TABLE>
<CAPTION>
         Industry                                       Fair Value                  Percentage
                                                    ------------------            ---------------
<S>                                                 <C>                           <C>
Business Products and Services                         $20,207,709                      24.2%
Industrial                                              16,876,650                      20.2%
Building Products                                       17,761,859                      21.3%
Energy                                                  12,037,092                      14.4%
Consumer Goods and Services                              8,094,134                       9.7%
Media                                                    4,618,750                       5.5%
Venture Funds and other                                  2,725,000                       3.3%
Retailing/Distribution                                   1,200,000                       1.4%
                                                       -----------                     -----
Total                                                  $83,521,194                     100.0%
                                                       ===========                     =====
</TABLE>
                         The accompanying notes are an
                  integral part of these financial statements

                                       12
<PAGE>

                             EQUUS II INCORPORATED
                         NOTES TO FINANCIAL STATEMENTS
                            JUNE 30, 2001 AND 2000
                                  (Unaudited)

(1)  Organization and Business Purpose

     Equus II Incorporated (the "Fund"), a Delaware corporation with perpetual
existence, was formed by Equus Investments II, L.P. (the "Partnership") on
August 16, 1991.  On July 1, 1992, the Partnership was reorganized and all of
the assets and liabilities of the Partnership were transferred to the Fund in
exchange for shares of common stock of the Fund.  The shares of the Fund trade
on the New York Stock Exchange under the symbol EQS.

     The Fund seeks to achieve capital appreciation by making investments in
equity and equity-oriented securities issued by privately-owned companies in
transactions negotiated directly with such companies.  The Fund seeks to invest
primarily in companies which intend to acquire other businesses, including
leveraged buyouts.  The Fund may also invest in recapitalizations of existing
businesses or special situations from time to time.  The Fund's investments in
Portfolio Companies consist principally of equity securities such as common and
preferred stock, but also include other equity-oriented securities such as debt
convertible into common or preferred stock or debt combined with warrants,
options or other rights to acquire common or preferred stock.  Current income is
not a significant factor in the selection of investments.  The Fund elected to
be treated as a business development company under the Investment Company Act of
1940, as amended.

(2)  Management

     The Fund has entered into a management agreement with Equus Capital
Management Corporation, a Delaware corporation (the "Management Company").
Pursuant to such agreement, the Management Company performs certain services,
including certain management and administrative services necessary for the
operation of the Fund.  The Management Company receives a management fee at an
annual rate of 2% of the net assets of the Fund, paid quarterly in arrears.  The
Management Company also receives compensation for providing certain investor
communication services, of which $25,000 is included in the accompanying
Statements of Operations for each of the six months ended June 30, 2001 and
2000.

     The Management Company is controlled by a privately-owned corporation.

     As compensation for services rendered to the Fund, each director who is not
an officer of the Fund receives an annual fee of $25,000 paid quarterly in
arrears, a fee of $3,000 for each meeting of the Board of Directors attended in
person, a fee of $1,500 for participation in each telephonic meeting of the
Board of Directors and for each committee meeting attended ($500 for each
committee meeting if attended on the same day as a Board Meeting), and
reimbursement of all out-of-pocket expenses relating to attendance at such
meetings.  In addition, each director who is not an officer of the Fund is
granted incentive stock options to purchase shares of the Fund's stock from time
to time.  (See Note 9).  Certain officers and directors of the Fund serve as
directors of Portfolio Companies, and may receive and retain fees, including
non-employee director stock options, from such Portfolio Companies in
consideration for such service.

                                       13
<PAGE>

(3)  Significant Accounting Policies

     Valuation of Investments - Portfolio investments are carried at fair value
with the net change in unrealized appreciation or depreciation included in the
determination of net assets.  Investments in companies whose securities are
publicly traded are valued at their quoted market price, less a discount to
reflect the estimated effects of restrictions on the sale of such securities
("Valuation Discount"), if applicable.  Cost is used to approximate fair value
of other investments until significant developments affecting an investment
provide a basis for use of an appraisal valuation.  Thereafter, portfolio
investments are carried at appraised values as determined quarterly by the
Management Company, subject to the approval of the Board of Directors.  The fair
market values of debt securities, which are generally held to maturity, are
determined on the basis of the terms of the debt securities and the financial
conditions of the issuer.  Because of the inherent uncertainty of the valuation
of portfolio securities which do not have readily ascertainable market values,
amounting to $79,846,830 at June 30, 2001, and $90,328,540 (including $22,459 in
publicly-traded securities, net of a $1,518 Valuation Discount) at December 31,
2000, the Fund's estimate of fair value may significantly differ from the fair
value that would have been used had a ready market existed for the securities.
Appraised values do not reflect brokers' fees or other normal selling costs
which might become payable on disposition of such investments.

     On a daily basis, the Fund adjusts its net asset value for the changes in
the value of its publicly held securities and material changes in the value of
its private securities and reports those amounts to Lipper Analytical Services,
Inc.  Weekly and daily net asset values appear in various publications,
including Barron's and The Wall Street Journal and on the Fund's website,
www.equuscap.com.

     Investment Transactions - Investment transactions are recorded on the
accrual method.  Realized gains and losses on investments sold are computed on a
specific identification basis.

     Cash Flows - For purposes of the Statements of Cash Flows, the Fund
considers all highly liquid temporary cash investments purchased with an
original maturity of three months or less to be cash equivalents.

     Income Taxes - No provision for federal income taxes has been made in the
accompanying financial statements as the Fund has qualified for pass-through
treatment as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986. As such, all net income is allocable to the stockholders
for inclusion in their respective tax returns.  Net capital losses are not
allocable to the shareholders but can be carried over to offset future earnings
of the Fund.

(4)  Book to Tax Reconciliation

     The Fund accounts for dividends in accordance with Statement of Position
93-2 which relates to the amounts distributed by the Fund as net investment
income or net capital gains, which are often not equal to the corresponding
income or gains shown in the Fund's financial statements.  The Internal Revenue
Service approved the Fund's request, effective October 31, 1998, to change its
year-end for determining capital gains for purposes of Section 4982 of the
Internal Revenue Code from December 31 to October 31, which allows current year
dividends to be paid prior to the end of the calendar year.  The Fund realized
net capital gains (losses) of $(3,757,960) and $1,346,635 for the six months
ended June 30, 2001 and 2000, respectively.  For the tax year ended December 31,
2000, the Fund had a net capital loss carryover of $1,936,520 that will be
applied to future years.  The Fund had net investment income for tax purposes of
$329,210 and $936,279 for the six months ended June 30, 2001 and 2000,
respectively.

                                       14
<PAGE>

     The following is a reconciliation of the difference in the Fund's net
realized gain or loss on the sale of portfolio securities for book and tax
purposes.


<TABLE>

                                                     2001                      2000
                                                 -----------               -----------
<S>                                                   <C>                      <C>
Net realized gain (loss) on the sale
  of portfolio securities, book                  $(3,757,960)              $ 1,346,635
Post October 31, 1999 losses                               -                (4,595,416)
                                                 -----------               -----------
Net realized loss on the sale
  of portfolio securities, tax                   $(3,757,960)              $(3,248,781)
                                                 ===========               ===========
</TABLE>


(5)  Dividends

     The Fund declared no dividends during the six months ended June 30, 2001
and 2000, respectively.  The Fund has adopted a policy to make dividend
distributions of at least $0.60 per share on an annual basis.  In the event that
taxable income, including realized capital gains, exceeds $0.60 per share in any
year, additional dividends may be declared to distribute such excess.

(6)  Temporary Cash Investments

     Temporary cash investments, which represent the short-term utilization of
cash prior to investment in securities of portfolio companies, distributions to
the shareholders or payment of loans and expenses, consist of $65,117,268 in
money market accounts with Bank of America, N.A. earning interest at rates
ranging from 1.88% to 2.10% per annum at June 30, 2001.

(7)  Portfolio Securities

     During the six months ended June 30, 2001, the Fund invested $1,120,236 in
two new companies and made follow-on investments of $4,868,209 in eight
companies, including $1,414,571 in accrued interest and dividends received in
the form of additional portfolio securities and accretion of original issue
discount on a promissory note.  In addition, the Fund realized a net capital
loss of $3,757,960 during the six months ended June 30, 2001.

     During the six months ended June 30, 2000, the Fund invested $7,435,001 in
four new companies and made follow-on investments of $3,185,228 in eight
companies, including $724,166 in accrued interest and dividends received in the
form of additional portfolio securities and accretion of original issue discount
on a promissory note.   In addition, the Fund realized a net capital gain of
$1,346,635 during the six months ended June 30, 2000.

(8)  Notes Payable to Bank

     The Fund has a $100,000,000 line of credit promissory note with Bank of
America N.A., with interest payable at 1/2% over the rate earned in its money
market account.  The Fund had $65,000,000 and $77,000,000 outstanding on such
notes at June 30, 2001 and December 31, 2000, respectively, that was secured by
$65,000,000 and $77,000,000 of the Fund's temporary cash investments.  The line
of credit promissory note expires July 1, 2002.

     The Fund has a $32,500,000 revolving line of credit with Bank of America,
N.A. that expires on July 1, 2001.  The Fund had $4,750,000 and $7,300,000
outstanding under such line of credit at June 30, 2001 and December 31, 2000,
respectively, which is secured by the Fund's investments in portfolio

                                       15
<PAGE>

securities.  The interest rate ranges from prime -1/2% to prime +1/4% or LIBOR +
1.65%.  The Fund also pays interest at the rate of 1/4% per annum on the unused
portion of the revolving line of credit.  On July 1, 2001, the line of credit
was extended to July 27, 2001.

     On July 27, 2001, the revolving line of credit was amended and reduced to
$22,500,000 and the maturity date was extended to July 1, 2002.  The new
interest rate ranges from prime-1/4% to prime+1/2% or LIBOR+1.75% to
LIBOR+2.50%.  The interest rate at which the Fund can borrow is determined
quarterly based on the Fund's ratio of publicly held securities.

     The average daily balances outstanding on the Fund's notes payable during
the six months ended June 30, 2001 and 2000, were $6,466,851 and $18,450,650,
respectively.

(9)  Stock Option Plan

     Shareholders have approved the Equus II Incorporated 1997 Stock Incentive
Plan ("Stock Incentive Plan"), which authorizes the Fund to issue options to the
directors and officers of the Fund in an aggregate amount of up to 20% of the
outstanding shares of common stock of the Fund.  Implementation of this plan was
subject to the receipt of an exemptive order from the Securities and Exchange
Commission ("SEC"), which was received on May 8, 1997.    The Stock Incentive
Plan also provides that each director who is not an officer of the Fund is, on
the first business day following each annual meeting, granted an incentive stock
option to purchase 2,000 shares of the Fund's common stock.

     Under the Stock Incentive Plan, options to purchase 76,000 and 306,773
shares of the Fund's common stock with a weighted average exercise price of
$18.89 and $18.71 per share were outstanding at June 30, 2001 and 2000,
respectively.  Outstanding options at June 30, 2001 have exercise prices ranging
from $9.29 to $27.44 and expire in May 2007 through May 2010.  No options were
exercised during the six months ended June 30, 2001 and 2000.  On April 1, 2001,
officers of the Fund surrendered options to acquire 224,616 shares of common
stock pursuant to the Stock Incentive Plan back to the Fund, and such options
have been cancelled.  On September 30, 1999, options to purchase 654,358 shares
of common stock of the Fund were exercised by the officers of the Fund for $17
per share. The exercise price of $11,124,086 was paid in the form of promissory
notes from the officers to the Fund. The notes bear interest at 5.42% per annum,
have limited recourse and are due on or before September 30, 2008.  The notes
are secured by the 654,358 shares, including any proceeds or dividends paid
thereon.  As a result of dividends paid since the issuance of the notes, 178,331
additional shares were issued to the officers and pledged to the Fund.  In
addition, in 2000, principal payments of $991,161 were made on the notes.  In
2001, interest payments of $92,531 were made on the notes.  On April 1, 2001, an
officer surrendered 37,701 shares in payment of his note receivable and accrued
interest aggregating $548,542.  The Fund released 5,877 shares to the officer
relating to this payment.  As a result of the additional shares issued, payments
made, and shares surrendered and released, the notes are secured by 789,111 and
832,689 shares of common stock and the outstanding note balance is $10,386,345
and $10,132,925 at June 30, 2001 and December 31, 2000, respectively.

     The notes receivable and related accrued interest, as well as 789,111 and
771,927 shares of pledged common stock, are not included in the Fund's net asset
value per share at June 30, 2001 and December 31, 2000, respectively.  The
shares of stock financed by the notes from the officers will be included in the
net asset value per share as the shares are released from collateral.  Shares
may be released as payments on the notes are made or as the value of the
collateral increases. Generally accepted accounting principles require that the
options issued to the officers be accounted for using variable plan accounting
due to the limited recourse provision of such notes.  As a result, compensation
expense is adjusted to reflect the change in benefit based on the net asset
value of the Fund that the officers would receive assuming that their notes were
settled with their pledged common stock at the end of the reporting

                                       16
<PAGE>

period. Non-cash compensation expense recorded under this arrangement was
$(1,356,819) for the six months ended June 30, 2001. Interest earned on the
notes receivable of $265,181 and $223,943 was recorded as an increase to
additional paid in capital for the six months ended June 30, 2001 and 2000,
respectively. If the notes and the shares were included in the Fund's balance
sheet, the net asset value would have been $14.31 and $16.59 per share at June
30, 2001 and 2000, respectively.

     As of June 30, 2001 and 2000, all outstanding options were "out of the
money" and would not have had a dilutive effect on net assets per share if
exercised, assuming the Fund would use the proceeds from the exercise of such
options to purchase shares at the market price pursuant to the treasury stock
method.

(10) Commitments and Contingencies

     The Fund has made commitments to invest, under certain circumstances, up to
an additional $2,000,000 in Container Care International, Inc., $37,000 in
Equicom, Inc., $2,500,000 in FS Strategies, Inc. $5,246,300 in Reliant Building
Products, Inc., $1,800,000 in Sternhill Partners I L.P. and $2,100,000 in
Vanguard VII, L.P.

     The Fund and certain of the portfolio companies are involved in asserted
claims and have the possibility for unasserted claims which may ultimately
affect the fair value of the Fund's portfolio investments.  In the opinion of
Management, the financial position or operating results of the Fund will not be
materially affected by these claims.

     On March 2, 2001, the Fund announced it would purchase up to 5% of its
outstanding shares of common stock in open market transactions, subject to
market conditions and limitations.  As of June 30, 2001, the Fund had
repurchased 135,900 shares for $1,249,092.  The stock was repurchased at an
average discount of 38.2% from its net asset value.

(11) Subsequent Events

     Subsequent June 30, 2001, the Fund repaid a net $63,300,000 of notes
payable to the bank.

     Subsequent to June 30, 2001, the Fund repurchased an additional 28,700
shares of common stock for $267,826.

     In July 2001, the Fund advanced $1,487,500 to FS Strategies, Inc. in
exchange for a 12% junior participation note.

     On July 31, 2001, the Fund entered into a Settlement Agreement and Plan of
Reorganization with Petrocon Engineering, Inc. ("Petrocon") whereby the Fund
will restructure its existing investment in Petrocon in order to facilitate
Petrocon's merger into Industrial Data Systems Corporation ("IDS") (AMEX: IDS).
IDS provides consulting services to the pipeline and process industries for the
development, management and turnkey execution of engineering projects.  Upon
completion of the transaction, the Fund will receive, in exchange for its
subordinated notes, warrant to purchase common stock and common stock of
Petrocon, the following IDS securities:  (i) $2.0 million in cash, (ii) a $3.0
million 9% promissory note, (iii) 2.5 million shares of 8% Series A Convertible
Redeemable Preferred Stock, (iv) 958,000 shares of common stock and (v) a
warrant to purchase an additional 200,000 shares of common stock at various
prices and under certain conditions.  The estimated fair market value of the
securities to be received by the Fund does not differ materially from the
recorded value at June 30, 2001.

     Subsequent to June 30, 2001, Tulsa Industries, Inc. ("Tulsa") completed the
sale of substantially all of its assets to Weatherford International, Inc.
("Weatherford") (NYSE: WFT) in a stock for asset

                                       17
<PAGE>

transaction. Accordingly, Tulsa plans to begin the process of an orderly
liquidation. In connection with the liquidation, the Fund will receive its pro-
rata share of the Weatherford stock along with cash and other securities. The
estimated liquidation value of the Fund's investment in Tulsa as a result of
this transaction does not differ materially from the recorded value at June 30,
2001.



                                       18
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

Liquidity and Capital Resources

     At June 30, 2001, the Fund had $83,521,194 of its assets invested in
portfolio securities of 24 companies, and has committed to invest up to an
additional $13,683,300 in six of such companies.  Current temporary cash
investments, anticipated future investment income, proceeds from borrowings, and
proceeds from the sale of existing portfolio securities are believed to be
sufficient to finance these commitments.  At June 30, 2001, the Fund had
$4,750,000 outstanding on a $32,500,000 revolving line of credit loan from a
bank.  On July 1, 2001, the loan was extended and then subsequently amended and
renewed for $22,500,000 and the due date was extended until July 1, 2002.

     Net cash used by operating activities was $1,634,299 and $756,983 for the
six months ended June 30, 2001 and 2000, respectively.

     At June 30, 2001, the Fund had $65,117,268 of its total assets of
$152,921,134 invested in temporary cash investments consisting of money market
securities.  This amount includes proceeds of $65,000,000 from a $100,000,000
note payable to a bank that is utilized to enable the Fund to achieve adequate
diversification to maintain its pass-through tax status as a regulated
investment company.  Such amount was repaid to the bank on July 2, 2001.

     The Fund has the ability to borrow funds and issue forms of senior
securities representing indebtedness or stock, such as preferred stock, subject
to certain restrictions.  Net investment income and net realized gains from the
sales of portfolio investments are intended to be distributed at least annually,
to the extent such amounts are not reserved for payment of contingencies or to
make follow-on or new investments.  Management believes that the availability
under its line of credit, as well as the ability to sell its investments in
publicly traded securities, are adequate to provide payment for any expenses and
contingencies of the Fund.

     The Fund reserves the right to retain net long-term capital gains in excess
of net short-term capital losses for reinvestment or to pay contingencies and
expenses.  Such retained amounts, if any, will be taxable to the Fund as long-
term capital gains and stockholders will be able to claim their proportionate
share of the federal income taxes paid by the Fund on such gains as a credit
against their own federal income tax liabilities.  Stockholders will also be
entitled to increase the adjusted tax basis of their Fund shares by the
difference between their undistributed capital gains and their tax credit.

     The Fund may repurchase its shares, subject to the restrictions of the
Investment Company Act.  On February 6, 2001, the Board of Directors approved a
program to purchase up to 5% of the outstanding shares of the Fund's common
stock, pursuant to which the Fund repurchased 135,900 shares for $1,249,092
through June 30, 2001.  Such stock was repurchased at an average discount of
38.2% from its net asset value.

RESULTS OF OPERATIONS

INVESTMENT INCOME AND EXPENSE

     Net investment income after all expenses amounted to $1,420,848 and
$712,335 for the six months ended June 30, 2001 and 2000, respectively.  The
increase in net investment income in 2001 is primarily due to a credit charged
to compensation expense in accordance with variable plan accounting required for
the stock options issued to the officers.  This credit is offset by a decrease
in income from

                                       19
<PAGE>

portfolio securities. Income from portfolio securities was $1,527,864 for the
six months ended June 30, 2001 and $2,489,061 for the comparable period in 2000.
The decrease is attributable to the interest received upon the repayment of the
notes from Video Rental of Pennsylvania, Inc. during the first quarter of 2000
and from interest no longer being accrued on notes receivable from certain
portfolio companies in 2001. Other income is $55,000 for the six months ended
June 30, 2001 and $293,389 for the comparable period in 2000. The decrease in
2001 is primarily related to a fee received in conjunction with the Fund's
investment in FS Strategies, Inc. in the six months ended June 30, 2000.
Professional fees increased to $259,167 in 2001 from $40,160 in 2000 due to an
increase in the 2001 annual fee paid to the New York Stock Exchange and legal
fees incurred in 2001 related to the sale of the Fund's investment in Stephen L.
LaFrance Holdings, Inc. and a potential purchase of a portfolio company that did
not occur. Director fees and expenses increased to $136,047 in 2001 from
$118,651 in 2000 due to additional meetings held in the first quarter of 2001.
Interest expense decreased to $158,200 in 2001 from $793,969 in 2000 due to a
decrease in the average daily balances outstanding on the lines of credit to
$6,466,851 during the six months ended June 30, 2001 from $18,450,650 during the
comparable period in 2000.

    The Management Company receives management fee compensation at an annual
rate of 2% of the net assets of the Fund paid quarterly in arrears.  Such fees
amounted to $842,465 and $1,004,044 during the six months ended June 30, 2001
and 2000, respectively.  The decrease in management fees during the six months
ended June 30, 2001 was due to the decrease in net assets.

     Shareholders have approved the Equus II Incorporated 1997 Stock Incentive
Plan ("Stock Incentive Plan") which authorizes the Fund to issue options to the
directors and officers of the Fund in an aggregate amount of up to 20% of the
outstanding shares of common stock of the Fund. Implementation of this plan was
subject to the receipt of an exemptive order from the SEC, which was received on
May 8, 1997.  The Stock Incentive Plan also provides that each director who is
not an officer of the Fund is, on the first business day following each annual
meeting, granted an incentive stock option to purchase 2,000 shares of the
Fund's common stock.

     Under the Stock Incentive Plan, options to purchase 76,000 and 306,773
shares of the Fund's common stock with a weighted average exercise price of
$18.89 and $18.71 per share were outstanding at June 30, 2001 and 2000,
respectively.  Outstanding options at June 30, 2001 have exercise prices ranging
from $9.29 to $27.44 and expire in May 2007 through May 2010.  On April 1, 2001,
officers of the Fund surrendered options to acquire 224,616 shares of common
stock pursuant to the Stock Incentive Plan back to the Fund, and such options
have been cancelled.  On September 30, 1999, options to purchase 654,358 shares
of common stock of the Fund were exercised by the officers of the Fund for $17
per share.  The exercise price of $11,124,086 was paid in the form of promissory
notes from the officers to the Fund.  The notes bear interest at 5.42% per
annum, have limited recourse and are due on or before September 30, 2008.  The
notes are secured by the 654,358 shares, including any proceeds or dividends
paid thereon.  As a result of the dividends paid since issuance of the notes,
178,331 additional shares were issued to the officers and pledged to the Fund.
In addition, in 2000, principal payments of $991,161 were made on the notes.  In
2001, interest payments of $92,531 were made on the notes.  On April 1, 2001, an
officer surrendered 37,701 shares in payment of his note receivable and accrued
interest.  The Fund released 5,877 shares to the officer relating to this
payment.  As a result of the additional shares issued, shares surrendered,
shares released and payments made, the notes are secured by 789,111 and 832,689
shares of common stock and the outstanding note balance is $10,386,345 and
$10,132,925 at June 30, 2001 and December 31, 2000, respectively.

     The notes receivable and related accrued interest, as well as 789,111 and
771,927 shares of common stock, are not included in the Fund's net asset value
per share at June 30, 2001 and December 31, 2000. The shares of stock financed
by the notes from the officers will be included in the net asset value per share
as the shares are released from collateral. Shares may be released as payments
on the notes are made or as the value of the collateral increases. Generally
accepted accounting principles

                                       20
<PAGE>

require that the options issued to the officers be accounted for using variable
plan accounting due to the limited recourse provision of such notes. As a
result, compensation expense is adjusted to reflect the change in benefit based
on the net asset value of the Fund that the officers would receive assuming that
their notes were settled with their pledged common stock at the end of the
reporting period. Non-cash compensation expense recorded for the six months
ended June 30, 2001 and 2000 was $(1,356,819) and $0, respectively. Interest
earned on the notes receivable of $265,181 and $223,943 was recorded as an
increase to additional paid in capital for the six months ended June 30, 2001
and 2000, respectively. If the notes and the shares were included in the Fund's
balance sheet, the net asset value would have been $14.31 and $16.59 per share
at June 30, 2001 and 2000, respectively.

     As of June 30, 2001 and 2000, all outstanding options were "out of the
money" and would not have had a dilutive effect on net assets per share if
exercised, assuming the Fund would use the proceeds from the exercise of such
options to repurchase shares at the market price pursuant to the treasury stock
method.

REALIZED GAINS AND LOSSES ON SALES OF PORTFOLIO SECURITIES

     During the six months ended June 30, 2001, the Fund realized net capital
losses of $3,757,960 from the sale of securities of one Portfolio Company and
realized losses on three Portfolio Companies.  The Fund sold its investment in
Stephen L. LaFrance Holdings, Inc. for $10,000,000, realizing a capital gain of
$7,501,548.  In addition, the Fund wrote off its remaining shares of Paracelsus
Healthcare Corporation, realizing a capital loss of $4,299,450.  The Fund also
wrote off its remaining investment in Hot & Cool Holdings, Inc. realizing a
capital loss of $5,775,000.  Also, the Fund wrote off its remaining investment
in CRC Holdings, Corp., realizing a capital loss of $1,192,114.  Also, the Fund
received proceeds from the sale of an investment in Sternhill Partners, L.P.,
realizing a capital gain of $7,056.

     During the six months ended June 30, 2000, the Fund realized net capital
gains of $1,346,635 as a result of additional compensation related to the
previous sale of three Portfolio Companies.  The Fund realized a capital gain of
$680,636 as a result of additional compensation from the escrow account related
to the 1998 sale of WMW Industries.  The Fund realized a capital gain of
$680,258 as a result of additional compensation from the escrow account related
to the 1999 sale of HTD Corporation.  The Fund also wrote off a receivable from
Restaurant Development Group realizing a capital loss of $8,315.  In addition,
during the quarter, the Fund received proceeds from Video Rental of
Pennsylvania, Inc. in the amount of $3,722,349 for repayment of the outstanding
notes payable and $250,000 for redemption of the common and preferred stock and
did not realize a capital gain or loss.  The Fund also received proceeds from
Equus Video Corporation and realized a capital loss of  $5,944.

DEPRECIATION OF PORTFOLIO SECURITIES

     Net unrealized depreciation on investments increased $2,791,752 during the
six months ended June 30, 2001, from $818,963 to $3,610,715.  Such increase
resulted from increases in the estimated fair value of securities of two of the
Fund's Portfolio Companies aggregating $3,040,000, decreases in the estimated
fair value of securities of eight of the Fund's Portfolio Companies aggregating
$10,079,252 and the transfer of $4,247,500 in net unrealized appreciation to net
realized gains from the sale or disposition of investments in five of the Fund's
Portfolio Companies.

     Net unrealized depreciation on investments decreased $1,773,152 during the
six months ended June 30, 2000, from $1,100,588 to $2,873,740.  Such net
decrease resulted from increases in the estimated fair value of securities of
eight of the Fund's Portfolio Companies aggregating $11,457,774, decreases in
the estimated fair value of securities of eight of the Fund's Portfolio
Companies aggregating $13,235,926 and the transfer of $5,000 in net unrealized
depreciation to net realized loss from the sale of securities of one Portfolio
Company.

                                       21
<PAGE>

DIVIDENDS

     The Fund declared no dividends for the six months ended June 30, 2001 and
2000.

PORTFOLIO INVESTMENTS

     During the six months ended June 30, 2001, the Fund invested $1,120,236 in
two new companies and made follow-on investments of $4,868,209 in eight
portfolio companies, including $1,414,571 in accrued interest and dividends
received in the form of additional portfolio securities and accretion of
original issue discount on a promissory note.

     During the six months ended June 30, 2001, the Fund received an additional
4,927 and 729 shares of preferred stock of Container Acquisition, Inc and
Sovereign Business Forms, Inc. ("Sovereign") in payment of $492,700 and $72,900
in dividends, respectively.  In addition, Sovereign elected to convert $215,236
of accrued interest into the balance of the 15% promissory notes due to the
Fund.

     On February 7, 2001, the Fund invested an additional $300,000 in Sternhill
Partners I, L.P. pursuant to a $3,000,000 commitment made in March 2000.
$1,200,000 of such commitment has been funded through June 30, 2001.

     On February 9, 2001, the Fund invested $1,116,550 in American Trenchless
Technology, LLC, a company formed to acquire the stock of H&I Boring and
Tunneling, a Houston-based regional provider of infrastructure services
utilizing boring, tunneling and directional drilling technologies.  The company
services the water, sewer, electrical and telecommunications industries.  The
Fund's investment consists of 1,934,532 shares of common stock and 100,000
shares of preferred stock.

     On February 9, 2001, the Fund invested $3,686 in Reliant Window Holdings,
LLC, ("RWH") a company formed to acquire 87.5% of Alenco Window Holdings, LLC
("AWH").  AWH acquired 73% of the fully-diluted stock of Alenco Holding
Corporation ("Alenco"), a company formed to purchase certain assets of Reliant
Building Products, Inc. ("RBPI") pursuant to a plan of reorganization confirmed
in bankruptcy court.  The Fund's investment consisted of a 36.86% interest in
RWH.  In addition, the Fund committed to invest up to an additional $5.2 million
in RWH under certain circumstances.

     On March 26, 2001, the Fund invested an additional $1,805,556 in Summit/DPC
Partners to allow the partnership to provide a working capital loan to Doane Pet
Care Enterprises ("Doane").  Summit/DPC Partners received a promissory note and
warrants to acquire common stock of Doane in exchange for the loan.  In April
2001, Summit/DPC Partners was liquidated and the fund received 1,120,951 shares
of Doane common stock, a 15% promissory note valued at $1,203,704, with a face
value at maturity of $1,805,556, and a warrant to acquire 822,647 shares of
common stock for $0.01 through March 2006.  During the first six months of 2001,
the original issue discount accretion on the promissory note amounted to
$71,699.

     On April 5, 2001, the Fund advanced $56,500 to Equicom, Inc. pursuant to a
10% promissory note.

     On April 24, 2001, the Fund advanced $222,945 to The Bradshaw Group in
exchange for a 15% promissory note.

                                       22
<PAGE>

     On June 5, 2001, the Fund invested an additional $300,000 in Vanguard VII,
L.P. pursuant to a $3,000,000 commitment made in June 2000.  $900,000 of such
commitment has been funded through June 30, 2001.

     During the six months ended June 30, 2001, the Fund purchased 1,507,226
shares of preferred stock in Turfgrass America, Inc. ("Turfgrass") for $768,638.
In addition, the Fund received a warrant to purchase 250,412 shares of Turfgrass
common stock at $0.51 through April 2010.  Also, a 12% promissory note in the
amount of $502,035 was issued in payment of the accrued interest receivable on
the 1999 note through March 31, 2001.  For the six months ended June 30, 2001,
the original issue discount accretion on the discounted 12% subordinated
promissory note due from Turfgrass amounted to $60,000, bringing the balance of
the note to $3,655,000 at June 30, 2001.  The original issue discount is being
accreted over the life of the note.

SUBSEQUENT EVENTS

     Subsequent to June 30, 2001, the Fund repaid a net $63,300,000 of notes
payable to the bank.

     Subsequent to June 30, 2001, the Fund repurchased an additional 28,700
shares of common stock for $267,826.

     In July 2001, the Fund advanced $1,487,500 to FS Strategies, Inc. in
exchange for a 12% junior participation note.

     On July 31, 2001, the Fund entered into a Settlement Agreement and Plan of
Reorganization with Petrocon Engineering, Inc. ("Petrocon") whereby the Fund
will restructure its existing investment in Petrocon in order to facilitate
Petrocon's merger into Industrial Data Systems Corporation ("IDS") (AMEX: IDS).
IDS provides consulting services to the pipeline and process industries for the
development, management and turnkey execution of engineering projects.  Upon
completion of the transaction, the Fund will receive, in exchange for its
subordinated notes, warrant to purchase common stock and common stock of
Petrocon, the following IDS securities:  (i) $2.0 million in cash, (ii) a $3.0
million 9% promissory note, (iii) 2.5 million shares of 8% Series A Convertible
Redeemable Preferred Stock, (iv) 958,000 shares of common stock and (v) a
warrant to purchase an additional 200,000 shares of common stock at various
prices and under certain conditions.  The estimated fair market value of the
securities to be received by the Fund does not differ materially from the
recorded value at June 30, 2001.

     Subsequent to June 30, 2001, Tulsa Industries, Inc. ("Tulsa") completed the
sale of substantially all of its assets to Weatherford International, Inc.
("Weatherford") (NYSE: WFT) in a stock for asset transaction.  Accordingly,
Tulsa plans to begin the process of an orderly liquidation.  In connection with
the liquidation, the Fund will receive its pro-rata share of the Weatherford
stock along with cash and other securities.  The estimated liquidation value of
the Fund's investment in Tulsa as a result of this transaction does not differ
materially from the recorded value at June 30, 2001.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK


     The Fund is subject to financial market risks, including changes in
interest rates with respect to its investments in debt securities and its
outstanding debt payable, as well as changes in marketable equity security
prices. The Fund does not use derivative financial instruments to mitigate any
of these risks. The return on the Fund's investments is generally not affected
by foreign currency fluctuations.

     The Fund's investment in portfolio securities consists of some fixed rate
debt securities. Since the debt securities are generally priced at a fixed rate,
changes in interest rates do not directly impact interest

                                       23
<PAGE>

income. In addition, changes in market interest rates are not typically a
significant factor in the Fund's determination of fair value of these debt
securities. The Fund's debt securities are generally held to maturity and their
fair values are determined on the basis of the terms of the debt security and
the financial condition of the issuer.

     The Fund's liabilities consist of debt payable to a financial institution.
The revolving credit facilities are priced at floating rates of interest, with a
basis of LIBOR or prime rate at the Fund's option. As a result of the floating
rate, a change in interest rates could result in either an increase or decrease
in the Fund's interest expense.

     A portion of the Fund's investment portfolio consists of debt and equity
investments in private companies. The Fund would anticipate no impact on these
investments from modest changes in public market equity prices. However, should
significant changes in market equity prices occur, there could be a longer-term
effect on valuations of private companies, which could affect the carrying value
and the amount and timing of gains realized on these investments. A portion of
the Fund's investment portfolio also consists of common stocks in publicly
traded companies. These investments are directly exposed to equity price risk,
in that a hypothetical ten percent change in these equity prices would result in
a similar percentage change in the fair value of these securities.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     The Fund held its annual meeting of shareholders on May 3, 2001.  At the
meeting, shareholders voted on (i) the election of the persons named in the
Proxy Statement as Directors of the Fund for the terms described therein; (ii)
the ratification of the selection of Arthur Andersen LLP as the Fund's
independent auditors for the fiscal year ending December 31, 2001; (iii) the
approval of the amendment of the 1997 Stock Incentive Plan; (iv) the approval of
the shareholder proposal for the Board of Directors to take action to ensure
that the Fund shares trade at less than a 5% discount to net asset value
("Shareholder Proposal #1); and (v) the approval of the shareholder proposal for
the Board of Directors to hire a proxy advisory firm, chosen by shareholder vote
(Shareholder Proposal #2).

     The table set forth below shows, with respect to each nominee, the number
of shares voted for such nominee and shares for which authority was withheld:



            Name of Nominee               For      Withheld
            ---------------               ---      --------

           Sam P. Douglass             5,627,946    288,438
           Gregory J. Flanagan         5,628,281    288,103
           Robert L. Knauss            5,626,751    289,633
           Nolan Lehmann               5,627,946    288,438
           Gary R. Petersen            5,627,929    288,455
           John W. Storms              5,628,281    288,103
           Dr. Francis D. Tuggle       5,627,929    288,455
           Dr. Edward E. Williams      5,628,281    288,103

                                       24
<PAGE>

     The table below sets forth, as to the other matter voted upon, the number
of shares voted for the proposal, against the proposal and shares that
abstained.

          Proposal              For       Against    Abstain   Broker Non-Votes
          --------              ---       -------    -------   ----------------
Ratification of auditors       5,772,664      79,916    63,803
Amendment of the 1997 Stock
  Incentive Plan               3,111,786     597,510    94,872        2,112,216
Shareholder Proposal #1        1,025,585   2,651,691   126,892        2,112,216
Shareholder Proposal #2          656,475   3,022,050   125,646        2,112,213


     All nominees to the Registrant's Board of Directors were elected, the
Fund's selection of independent auditors was ratified and the amendment of the
1997 Stock Incentive Plan was approved. Shareholder proposal #1 and #2 were not
approved.


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  Exhibits

     10.  Material Contracts

     (b)  Reports on Form 8-K

            No reports on Form 8-K were filed by the Fund during the period for
which this report is filed.

                                   SIGNATURE

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed by the
undersigned, thereunto duly authorized.


Date:  August 14, 2001                     EQUUS II INCORPORATED

                                           /s/ Nolan Lehmann
                                           ------------------------------
                                           Nolan Lehmann
                                           President and Principal Financial
                                           and Accounting Officer

                                       25