<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, 2002

                                       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: $37,676,250 computed on the basis of $6.88 per share, closing price
of the common stock on the New York Stock Exchange Inc. on August 13, 2002. For
the purpose of calculating this amount only, all directors and executive
officers of the registrant have been treated as affiliates. There were 6,233,021
shares of the registrant's common stock, $.001 par value, outstanding, as of
August 13, 2002. The net asset value of a share at June 30, 2002 was $12.26.

Documents incorporated by reference:  None

<PAGE>

                              EQUUS II INCORPORATED
                            (A Delaware Corporation)

                                      INDEX

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

               Balance Sheets

               - June 30, 2002 and December 31, 2001........................................................      1

               Statements of Operations

               - For the three months ended June 30, 2002 and 2001..........................................      2

               - For the six months ended June 30, 2002 and 2001............................................      3

               Statements of Changes in Net Assets

               - For the six months ended June 30, 2002 and 2001............................................      4

               Statements of Cash Flows

               - For the six months ended June 30, 2002 and 2001............................................      5

               Selected Per Share Data and Ratios

               - For the six months ended June, 2002 and 2001 ..............................................      7

               Schedule of Portfolio Securities

               - June 30, 2002..............................................................................      8

               Notes to Financial Statements................................................................     14

     Item 2.   Management's Discussion and Analysis of Financial
               Condition and Results of Operations .........................................................     20


     Item 3.   Quantitative and Qualitative Disclosure about Market Risk....................................     26

PART II.     OTHER INFORMATION

     Item 4.   Submission of Matters to a Vote of Security Holders..........................................     27

     Item 6.   Exhibits and Reports on Form 8-K ............................................................     27

SIGNATURE ..................................................................................................     28
</TABLE>

                                       ii

<PAGE>

1Part I.   Financial Information

Item 1.   Financial Statements

                              EQUUS II INCORPORATED
                                 BALANCE SHEETS
                       JUNE 30, 2002 AND DECEMBER 31, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                               2002                   2001
                                                                               ----                   ----
Assets
------
<S>                                                                      <C>                      <C>
Investments in portfolio securities at fair value
     (cost $90,382,855 and $90,371,825, respectively)                    $  84,376,388            $  85,878,831
Temporary cash investments, at cost which
     approximates fair value                                                61,014,739               62,010,212
Cash                                                                               726                   23,465
Accounts receivable                                                             15,298                   15,061
Accrued interest receivable                                                  3,049,883                2,891,107
                                                                         -------------            -------------

          Total assets                                                     148,457,034              150,818,676
                                                                         -------------            -------------

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

Liabilities:
     Accounts payable                                                          126,981                  267,011
     Due to management company                                                 381,941                  384,834
     Notes payable to bank                                                  71,559,900               73,200,000
                                                                         -------------            -------------

          Total liabilities                                                 72,068,822               73,851,845
                                                                         -------------            -------------

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, 6,233,021 shares outstanding                                 6,233                    6,233
     Additional paid-in capital                                             85,399,319               84,863,766
     Undistributed net capital losses                                       (3,010,873)              (3,410,174)
     Unrealized depreciation of portfolio securities, net                   (6,006,467)              (4,492,994)
                                                                         -------------            -------------

          Total net assets                                               $  76,388,212            $  76,966,831
                                                                         =============            =============

          Net assets per share                                           $       12.26            $       12.35
                                                                         =============            =============
</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, 2002 AND 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              2002                2001
                                                                              ----                ----
<S>                                                                       <C>                 <C>
Investment income:
     Income from portfolio securities                                     $   620,355         $   684,441
     Interest from temporary cash investments                                   6,721              14,968
     Other income                                                              50,000              31,551
                                                                          -----------         -----------

          Total investment income                                             677,076             730,960
                                                                          -----------         -----------

Expenses:
     Management fees                                                          381,941             413,266
     Non-cash compensation (benefit)                                          (56,293)         (1,356,819)
     Director fees and expenses                                                60,613              59,722
     Professional fees                                                         58,613             181,532
     Administrative fees                                                       12,500              12,500
     Mailing, printing and other expenses                                      18,504              36,417
     Interest expense                                                         106,359             118,295
     Excise tax                                                                36,832                   -
     Franchise taxes                                                           14,104              73,090
                                                                          -----------         -----------

          Total expenses                                                      633,173            (461,997)
                                                                          -----------         -----------

Net investment income                                                          43,903           1,192,957
                                                                          -----------         -----------

Realized gain (loss) on sales of portfolio securities, net                  1,066,223          (6,960,059)
                                                                          -----------         -----------

Unrealized depreciation of portfolio securities, net:
     End of period                                                         (6,006,467)         (3,610,715)
     Beginning of period                                                   (2,710,696)         (9,419,333)
                                                                          -----------         -----------

     (Increase) decrease in unrealized depreciation, net                   (3,295,771)          5,808,618
                                                                          -----------         -----------

     Total increase (decrease) in net assets from operations              $(2,185,645)        $    41,516
                                                                          ===========         ===========
</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, 2002 AND 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                         2002            2001
                                                                         ----            ----
<S>                                                                  <C>             <C>
Investment income:
   Income from portfolio securities                                  $ 1,867,340     $ 1,527,864
   Interest from temporary cash investments                               16,787          41,089
   Other income                                                           50,000          55,000
                                                                     -----------     -----------

     Total investment income                                           1,934,127       1,623,953
                                                                     -----------     -----------

Expenses:
     Management fees                                                     775,092         842,465
     Non-cash compensation (benefit)                                     (14,434)     (1,356,819)
     Director fees and expenses                                          122,169         136,047
     Professional fees                                                    99,566         259,167
     Administrative fees                                                  25,000          25,000
     Mailing, printing and other expenses                                 28,278          62,095
     Interest expense                                                    260,672         158,200
     Excise tax                                                           36,832               -
     Franchise taxes                                                      50,964          76,950
                                                                     -----------     -----------

     Total expenses                                                    1,384,139         203,105
                                                                     -----------     -----------

Net investment income                                                    549,988       1,420,848
                                                                     -----------     -----------

Realized gain (loss) on sales of portfolio securities, net               399,300      (3,757,960)
                                                                     -----------     -----------

Unrealized depreciation of portfolio securities, net:
     End of period                                                    (6,006,467)     (3,610,715)
     Beginning of period                                              (4,492,994)       (818,963)
                                                                     -----------     -----------

     Increase in unrealized depreciation, net                         (1,513,473)     (2,791,752)
                                                                     -----------     -----------

     Total decrease in net assets from operations                    $  (564,185)    $(5,128,864)
                                                                     ===========     ===========
</TABLE>

                         The accompanying notes are an
                   integral part of these financial statements

                                        3

<PAGE>

                              EQUUS II INCORPORATED
                            STATEMENTS OF OPERATIONS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          2002             2001
                                                          ----             ----
<S>                                                   <C>              <C>
Operations:

  Net investment income                               $    549,988     $  1,420,848
  Realized gain (loss) on sales of portfolio
   securities, net                                         399,300       (3,757,960)
  Increase in unrealized depreciation of portfolio
   securities, net                                      (1,513,473)      (2,791,752)
                                                      ------------     ------------

Decrease in net assets from operations                    (564,185)      (5,128,864)
                                                      ------------     ------------

Capital Transactions:

   Non-cash compensation expense                           (14,434)      (1,356,819)
   Increase from officer notes, net                              -         (536,781)
   Repurchase shares of common stock                             -       (1,249,092)
                                                      ------------     ------------

Decrease in net assets from capital transactions           (14,434)      (3,142,692)
                                                      ------------     ------------

Decrease in net assets                                    (578,619)      (8,271,556)

Net assets at beginning of period                       76,966,831       90,924,765
                                                      ------------     ------------

Net assets at end of period                           $ 76,388,212     $ 82,653,209
                                                      ============     ============
</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, 2002 AND 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     2002                2001
                                                                     ----                ----
<S>                                                             <C>                  <C>
Cash flows from operating activities:
     Interest and dividends received                            $     821,869        $     199,061
     Cash paid to management company, directors,
        bank and suppliers                                         (1,541,496)          (1,833,360)
                                                                -------------        -------------

        Net cash used by operating activities                        (719,627)          (1,634,299)
                                                                -------------        -------------

Cash flows from investing activities:
     Purchase of portfolio securities                              (5,199,473)          (4,573,874)
     Proceeds from sales of portfolio securities                    6,541,225           10,035,451
     Advances to portfolio companies                                     (237)             (13,516)
                                                                -------------        -------------

        Net cash provided by investing activities                   1,341,515            5,448,061
                                                                -------------        -------------

Cash flows from financing activities:
     Advances from bank                                           128,985,000          136,300,000
     Repayments to bank                                          (130,625,100)        (150,850,000)
     Repurchase of common stock                                             -           (1,249,092)
     Payments received on officer notes                                     -               92,531
     Dividend payments                                                      -               (1,442)
                                                                -------------        -------------

        Net cash used by financing activities                      (1,640,100)         (15,708,003)
                                                                -------------        -------------

Net decrease in cash and cash equivalents                          (1,018,212)         (11,894,241)

Cash and cash equivalents at beginning of period                   62,033,677           77,043,532
                                                                -------------        -------------

Cash and cash equivalents at end of period                      $  61,015,465        $  65,149,291
                                                                =============        =============
</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, 2002 AND 2001
                                   (Unaudited)
                                   (Continued)

<TABLE>
<CAPTION>
                                                                           2002             2001
                                                                           ----             ----
<S>                                                                   <C>                <C>
Reconciliation of decrease in net assets from operations
     to net cash used by operating activities:

Decrease in net assets from operations                                $  (564,185)       $(5,128,864)

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

     Realized (gain) loss on sales of portfolio securities, net          (399,300)         3,757,960
     Decrease in unrealized depreciation, net                           1,513,473          2,791,752
     Accrued interest and dividends exchanged for
         portfolio securities                                            (953,482)        (1,414,571)
     Increase in accrued interest receivable                             (158,776)           (10,321)
     Non-cash compensation expense                                        (14,434)        (1,356,819)
     Decrease in accounts payable                                        (140,030)          (232,078)
     Decrease in due to management company                                 (2,893)           (41,358)
                                                                      -----------        -----------

Net cash used by operating activities                                 $  (719,627)       $(1,634,299)
                                                                      ===========        ===========
</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, 2002 AND 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            2002             2001
                                                                            ----             ----
<S>                                                                     <C>                <C>
Investment income                                                       $    0.31          $    0.25

Expenses                                                                     0.22               0.03
                                                                        ---------          ---------

Net investment income                                                        0.09               0.22

Realized gain (loss) on sale of portfolio securities, net                    0.06              (0.58)

Increase in unrealized depreciation of portfolio securities, net            (0.24)             (0.44)
                                                                        ---------          ---------

Decrease in net assets from operations                                      (0.09)             (0.80)
                                                                        ---------          ---------

Capital Transactions:

Decrease related to officers' notes                                             -               0.06

Non-cash compensation expense                                                   -              (0.21)

Effect of common stock repurchase                                               -               0.10
                                                                        ---------          ---------

Decrease in net assets from capital transactions                                -              (0.05)
                                                                        ---------          ---------

Net decrease in net assets                                                  (0.09)             (0.85)

Net assets at beginning of period                                           12.35              14.00
                                                                        ---------          ---------

Net assets at end of period                                             $   12.26          $   13.15
                                                                        =========          =========

Weighted average number of shares outstanding during year,
     in thousands                                                           6,233              6,388

Market value per share                                                  $    7.42          $    8.50

Ratio of expenses to average net assets                                      1.81%              0.23%

Ratio of expenses before interest and non-cash compensation
     expense to average net assets                                           1.48%              1.62%

Ratio of net investment income to average net assets                         0.72%              1.64%

Ratio of net investment income to average net assets, exclusive
     of non-cash compensation expense                                        0.70%              0.07%

Ratio of decrease in net assets from operations to average
     net assets                                                             (0.74)%            (5.91)%

Ratio of decrease in net assets from operations to average net assets,
     exclusive of non-cash compensation expense                             (0.75)%            (7.47)%

Total return on market price                                                (4.75)%             6.12%
</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       7

<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                  JUNE 30, 2002
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                            Date of
                Portfolio Company                      Inital Investment                Cost           Fair Value
                -----------------                      -----------------                ----           ----------
<S>                                                    <C>                            <C>              <C>
A.C. Liquidating Corporation                             February 1985
Asset held for liquidation
   -10% secured promissory notes *                                                    $  188,014       $        -

Alenco Window Holdings II, LLC                           January 2002
Manufacturer of residential windows
   -24% membership interest                                                              483,749        1,800,000

American Trenchless Technology, LLC                      February 2001
Boring, tunneling and directional drilling
   -100,000 shares of preferred stock                                                  1,208,144        1,000,000
   -1,934,532 shares of common stock                                                     116,550                -

The Bradshaw Group                                       May 2000
Sells and services midrange and high-speed
   printing equipment
   -Prime + 2% promissory note *                                                               -          398,382
   -15% promissory note *                                                                459,545                -
   -1,335,000 shares of preferred stock                                                1,335,000                -
   -Warrant to buy 2,229,450 shares of common
    stock for $0.01 through May 2008                                                           1                -

Champion Window, Inc.                                    March 1999
Manufacturer & distributor of residential windows
   -1,400,000 shares of common stock                                                   1,400,000       10,250,000

CMC Investments, LLC                                     December 2001
Manufacturer of oil and gas drilling rigs
   -21% membership interest                                                              525,000          525,000

Container Acquisition, Inc.                              February 1997
Shipping container repair & storage
   -76,393 shares of preferred stock                                                   7,639,300        7,500,000
   -Conditional warrant to buy up to 370,588 shares
    of common stock at $0.01 through February 2007                                         1,000                -
   -1,370,000 shares of common stock                                                   1,370,000                -
   -Member interest in CCI-ANI Finance, LLC                                            1,571,000        1,571,000
</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       8

<PAGE>

                             EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 JUNE 30, 2002
                                  (Unaudited)
                                  (Continued)

<TABLE>
<CAPTION>
                                                            Date of
             Portfolio Company                         Initial Investment               Cost          Fair Value
             -----------------                         ------------------               ----          ----------
<S>                                                    <C>                            <C>              <C>
Doane PetCare Enterprises, Inc.                           October 1995
 (formerly Summit/DPC Partners, L.P.)
 Manufacturer of private label pet food
   -15% promissory note with a face amount
    of $1,805,556, including amortized discount                                      $ 1,596,503      $ 1,596,503
   -1,943,598 shares of common stock                                                   3,936,643        5,000,000

The Drilltec Corporation                                  August 1998
 Provides protection & packaging for pipe & tubing
   -Prime + 9.75% promissory note *                                                    1,000,000          500,000
   -Warrant to buy 10% of the common
    equity for $100 through September 2002                                                     -                -

ENGlobal, Inc.                                            December 2001
   (AMEX: ENG)
 (formerly Industrial Data Systems Corporation)
 Engineering and consulting services
   -9.5% promissory note                                                               3,000,000        3,000,000
   -2,588,000 shares of convertible preferred stock                                    2,588,000        2,588,000
   -1,225,758 shares of common stock                                                     716,461          842,250

Equicom, Inc.                                             July 1997
 Radio stations
   -10% promissory note *                                                              1,638,500        1,638,500
   -10% promissory note                                                                1,262,750        1,262,750
   -657,611 shares of preferred stock                                                  6,576,110          500,000
   -452,000 shares of common stock                                                       141,250                -

Equipment Support Services, Inc.                          December 1999
 Equipment rental
   -8% promissory note *                                                               1,138,000          500,000
   -35,000 shares of preferred stock                                                   1,929,000                -
   -35,000 shares of common stock                                                        101,500                -

FS Strategies, Inc.                                       June 2000
 Temporary staffing and web-based human
 resources services
   -1,667 shares of preferred stock                                                    1,667,000        1,667,000
   -110,000 shares of common stock                                                     7,591,667        1,833,000
</TABLE>

                         The accompanying notes are an
                  integral part of these financial statements

                                       9

<PAGE>

                             EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 JUNE 30, 2002
                                  (Unaudited)
                                  (Continued)

<TABLE>
<CAPTION>
                                                            Date of
             Portfolio Company                         Initial Investment                Cost         Fair Value
             -----------------                         ------------------                ----         ----------
<S>                                                    <C>                           <C>              <C>
GCS RE, Inc.                                              February 1989
Investment in real estate
   -1,000 shares of common stock                                                     $   132,910      $   800,000

Jones Industrial Holdings, Inc.                           July 1998
(formerly United Industrial Services, Inc.)
Field service for petrochemical & power
   generation industries
   -35,000 shares of preferred stock                                                   3,500,000        2,500,000
   -Warrant to buy 63,637 shares of common stock
    at $0.01 through June 2008                                                               100              100

Milam Enterprises, LLC                                    December 1986
(formerly Travis International, Inc.)
Specialty distribution
   -Member interest                                                                        1,912          500,000

NCI Building Systems, Inc. (NYSE: NCS)                    April 1989
Design & manufacture metal buildings
   -200,000 shares of common stock                                                       159,784        3,560,000

PalletOne, Inc.                                           October 2001
Wooden pallet manufacturer
   -3,150,000 shares of preferred stock                                                3,150,000        3,150,000
   -350,000 shares of common stock                                                       350,000          350,000

Reliant Window Holdings, LLC                              February 2001
Manufacturer & distributor of aluminum & vinyl windows
   -36.86% membership interest                                                           372,256        2,300,000

Sovereign Business Forms, Inc.                            August 1996
Business forms manufacturer
   -15% promissory notes                                                               3,494,256        3,494,256
   -18,298 shares of preferred stock                                                   1,829,800        1,829,800
   -Warrant to buy 551,894 shares of common stock
    at $1 per share through August 2006                                                        -          263,750
   -Warrant to buy 25,070 shares of common stock
    at $1.25 per share through October 2007                                                    -            5,565
   -Warrant to buy 273,450 shares of common stock
    at $1 per share through October 2009                                                       -          130,685
</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       10

<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                  JUNE 30, 2002
                                   (Unaudited)
                                   (Continued)

<TABLE>
<CAPTION>
                                                            Date of
              Portfolio Company                        Initial Investment          Cost         Fair Value
              -----------------                        ------------------          ----         ----------
<S>                                                    <C>                      <C>            <C>
Spectrum Management, LLC                                  December 1999
  Business & personal property protection
   -285,000 units of Class A equity interest                                    $ 3,000,000    $ 3,000,000

Sternhill Partners I, LP                                   March 2000
  Venture capital fund
   -3% limited partnership interest                                               1,651,604      1,200,000

Strategic Holdings, Inc.                                 September 1995
  Processor of recycled glass
   -15% promissory note *                                                         6,750,000      6,750,000
   -3,822,157 shares of Series B preferred stock                                  3,820,624      3,250,000
   -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                                        -              -
   -3,089,751 shares of common stock                                              3,088,389              -
   -15% promissory note of SMIP, Inc. *                                             175,000        175,000
   -1,000 shares of SMIP, Inc. common stock                                         150,000              -

Turfgrass America, Inc.                                    May 1999
  Grows, sells & installs warm season turfgrasses
   -12% subordinated promissory note                                                288,580        288,580
   -12% subordinated promissory note                                                502,035        502,035
   -12% subordinated promissory note
    with a face amount of $4,000,000                                              3,702,669      3,702,669
   -1,507,226 shares of convertible preferred stock                                 768,638        768,638
   -Warrants to buy 250,412 shares of common
    stock at $0.51 through April 2010                                                     -              -
   -211,184 shares of common stock                                                  600,000        600,000

Vanguard VII, L.P.                                         June 2000
  Venture capital fund
   -1.3% limited partnership interest                                             1,200,000        900,000
</TABLE>

                          The accompanying Notes are an
                   integral part of these financial statements

                                       11

<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                  JUNE 30, 2002
                                   (Unaudited)
                                   (Continued)

<TABLE>
<CAPTION>
                                                            Date of
              Portfolio Company                        Initial Investment       Cost           Fair Value
              -----------------                        ------------------       ----           ----------
<S>                                                    <C>                    <C>              <C>
Weatherford International (NYSE - WFT)                     July 2001
  Provides equipment & services used for the
   drilling, completion, and production of oil and
   natural gas wells
   -8,863 shares of common stock                                              $    513,611     $    382,925
                                                                              ------------     ------------

          Total                                                               $ 90,382,855     $ 84,376,388
                                                                              ============     ============
</TABLE>

* The Fund has discontinued recognizing any additional interest income on these
notes due to conditions specific to the respective Portfolio Companies. However,
the Portfolio Companies are still liable for such interest and it may be
collected in the future. As of June 30, 2002, the aggregate amount of accrued
interest receivable on and estimated fair value of these notes, which are
reflected in the accompanying balance sheet, is $2,317.992 and $9,961,882,
respectively. Management believes that the recorded interest receivable and the
value assigned to the related notes will be realized.

     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 American Trenchless Technology, LLC,
Champion Window, Inc., Container Acquisition, Inc., The Drilltec Corporation,
Jones Industrial Holdings, Inc., Sovereign Business Forms, Inc., Strategic
Holdings, Inc. and Turfgrass America, 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.

     As defined in the Investment Company Act of 1940, at June 30, 2002, the
Fund was considered to have a controlling interest in Champion Window, Inc.,
Container Acquisition, Inc., The Drilltec Corporation, Equicom, Inc., Jones
Industrial Holdings, Inc., PalletOne, Inc., Reliant Window Holdings, LLC,
Sovereign Business Forms, Inc., Spectrum Management LLC and Strategic Holdings,
Inc.

     Income was earned in the amount of $1,323,062 and $908,881 for the six
months ended June 30, 2002 and 2001, 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 except Sternhill Partners I,
L.P. and Vanguard VII, L.P. 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., Milam
Enterprises, LLC, Sternhill Partners I, L.P., Vanguard VII, L.P. and Weatherford
International. The Fund provides significant managerial assistance to portfolio
companies that comprise 88% of the total value of the investments in portfolio
companies at June 30, 2002.

                          The accompanying Notes are an
                   integral part of these financial statements

                                       12

<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                  JUNE 30, 2002
                                   (Unaudited)
                                   (Continued)

         The investments in portfolio securities held by the Fund are not
geographically diversified. All of the Fund's portfolio companies (except for
Doane and PalletOne, Inc. 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, 2002:

                                                                     Percentage
              Type of Securities            Cost       Fair Value  of Fair Value
              ------------------            ----       ----------  -------------
Preferred Stock                          $36,011,616   $24,753,438        29.3%
Secured and Subordinated Debt             25,195,852    23,808,675        28.2%
Common Stock                              20,368,765    23,618,175        28.0%
Limited Liability Company Investments      5,953,917     9,696,000        11.5%
Limited Partnership Investments            2,851,604     2,100,000         2.5%
Options and Warrants                           1,101       400,100         0.5%
                                         -----------   -----------     -------
                    Total                $90,382,855   $84,376,388       100.0%
                                         ===========   ===========     =======



         The following is a summary by industry of the Fund's investments as of
June 30, 2002:

                  Industry                     Fair Value       Percentage
                  --------                     ----------       ----------

Business Products and Services                $25,193,438            29.9%
Building Products                              23,771,922            28.2%
Industrial                                     20,605,350            24.4%
Consumer Goods and Services                     6,596,503             7.8%
Media                                           3,401,250             4.0%
Venture Funds and other                         2,900,000             3.4%
Energy                                          1,407,925             1.7%
Wholesale distribution                            500,000             0.6%
                                              -----------           ------
Total                                         $84,376,388           100.0%
                                              ===========           ======

                         The accompanying notes are an
                  integral part of these financial statements

                                       13

<PAGE>

                             EQUUS II INCORPORATED
                         NOTES TO FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                                  (Unaudited)

(1)      Organization and Business Purpose

         Equus II Incorporated (the "Fund"), a Delaware corporation, 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 has elected
to be treated as a business development company under the Investment Company Act
of 1940.

(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, 2002 and
2001.

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

         As compensation for services provided 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). Officers of the Fund serve as directors of certain
Portfolio Companies, and may receive and retain fees, including non-employee
director stock options, from such Portfolio Companies in consideration for such
service. The aggregate amount of fees amounted to $141,125 and $150,652 for the
six months ended June 30, 2002 and 2001, respectively. Additionally, two
officers of the Management Company serve as officers and directors of the Fund.

                                       14

<PAGE>

         The Management Agreement will continue in effect until June 30, 2003,
and from year-to-year thereafter provided such continuance is approved at least
annually by (i) a vote of a majority of the outstanding shares of the Fund or
(ii) a majority of the directors who are not "interested persons" of the Fund,
at a meeting called for the purpose of voting on such approval. The Management
Agreement may be terminated at any time, without the payment of any penalty, by
a vote of the Board of Directors of the Fund or the holders of a majority of the
Fund's shares on 60 days' written notice to the Management Company, and would
automatically terminate in the event of its "assignment" (as defined in the
Investment Company Act).

(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. Valuations of portfolio securities are
performed in accordance with accounting principles generally accepted in the
United States and the financial reporting policies of the Securities and
Exchange Commission ("SEC"). The applicable methods prescribed by such
principles and policies are described below:

         Publicly-traded portfolio securities - Investments in companies whose
securities are publicly traded are valued at their quoted market price at the
close of business on the valuation date, less a discount to reflect the
estimated effects of restrictions on the sale of such securities ("Valuation
Discount"), if applicable.

         Privately-held portfolio securities - The fair value of investments for
which no market exists (including 95% of the investments of the Fund at June 30,
2002) is determined on the basis of procedures established in good faith by the
Board of Directors of the Fund. As a general principle, the current "fair value"
of an investment would be the amount the Fund might reasonably expect to receive
for it upon its current sale. Appraisal valuations are necessarily subjective
and the Management Company's estimate of values may differ materially from
amounts actually received upon the disposition of portfolio securities.

         Generally, cost is the primary factor used to determine fair value
until significant developments affecting the Portfolio Company (such as results
of operations or changes in general market conditions) 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. Appraisal valuations are based upon such
factors as a Portfolio Company's earnings, cash flow and net worth, the market
prices for similar securities of comparable companies, an assessment of the
company's current and future financial prospects and various other factors and
assumptions. In the case of unsuccessful operations, the appraisal may be based
upon liquidation value.

         Most of the Fund's common equity investments are appraised at a
multiple of historical free cash flow generated by the Portfolio Company, less
outstanding funded indebtedness and other senior securities such as preferred
stock. Projections of current year free cash flow may be utilized and
adjustments for non-recurring items are considered. Multiples utilized are
estimated based on the Management Company's experience in the private company
marketplace, and are necessarily subjective in nature.

         Many of the Portfolio Companies utilize a high degree of leverage. In
the event a Portfolio Company cannot generate adequate cash flow to meet the
principal and interest payments on such indebtedness or is not successful in
refinancing the debt upon its maturity, the Fund's investment could be reduced
or eliminated through foreclosure on the Portfolio Company's assets or the
Portfolio Company's reorganization or bankruptcy. The banking environment
currently has resulted in pressure on several of these Companies to reduce the
amount of leverage in order to maintain such financing. From time to

                                       15

<PAGE>

time, Portfolio Companies may be in default of certain covenants in their loan
agreements. When the Management Company has a reasonable belief that the
Portfolio Company will be able to restructure the loan agreements to adjust for
any defaults, the Portfolio Company's securities continue to be valued assuming
that the company is a going concern.

         The Fund may also use, when available, third-party transactions in a
Portfolio Company's securities as the basis of valuation (the "private market
method"). The private market method will be used only with respect to completed
transactions or firm offers made by sophisticated, independent investors.

         The fair 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. Certificates of deposit purchased by the
Fund generally will be valued at their face value, plus interest accrued to the
date of valuation.

         Because of the inherent uncertainty of the valuation of portfolio
securities which do not have readily ascertainable market values, amounting to
$80,433,464 (including $842,250 in publicly-traded securities, net of a $285,448
Valuation Discount) and $79,750,789 (including $605,860 in publicly-traded
securities, net of a $276,686 Valuation Discount) at June 30, 2002 and December
31, 2001, respectively, the Fund's estimate of fair value may significantly
differ from the 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. The reported net asset values also appear in various
publications, including Barron's and The Wall Street Journal.

         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 $399,300 and $(3,757,960) for
the six months ended June 30,

                                       16

<PAGE>

2002 and 2001, respectively. The Fund had net investment income for tax purposes
of $535,553 and $329,210 for the six months ended June 30, 2002 and 2001,
respectively.

         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 for the six months ended June 30, 2002 and 2001, respectively.

                                                  2002            2001
                                                  ----            ----

Net realized gain (loss) on the sale
  of portfolio securities, book               $   399,300      $ (3,757,960)
Book/tax differences                            1,985,530           156,468
                                              -----------      ------------
Net realized gain on the sale of
  portfolio securities, tax                   $ 2,384,830      $ (3,601,492)
                                              ============     =============

(5)      Dividends

         The Fund declared no dividends during the six months ended June 30,
2002 and 2001, respectively.

(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 $61,014,739 in
money market accounts with Bank of America, N.A. earning interest ranging in
rates of 0.94% to 1.30% per annum at June 30, 2002.

(7)      Portfolio Securities

         During the six months ended June 30, 2002, the Fund invested $483,749
in one new limited liability company which invested in an existing Portfolio
Company, and made follow-on investments of $5,669,206 in eleven companies,
including $953,482 in accrued interest and dividends in the form of additional
portfolio securities and accretion of original issue discount on promissory
notes. In addition, the Fund realized a net capital gain of $399,300 during the
six months ended June 30, 2002.

         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.

(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 line of credit promissory note is utilized to enable the
Fund to achieve adequate diversification to maintain its pass-through tax status
as a regulated investment company. The Fund had $61,000,000 and $62,000,000
outstanding on such notes at June 30, 2002 and December 31, 2001, respectively,
that was secured by $61,000,000 and $62,000,000 of the Fund's temporary cash
investments. The line of credit promissory note expires October 1, 2002 and the
Fund is currently attempting to arrange a new line of credit.

                                       17

<PAGE>

         The Fund has a $22,500,000 revolving line of credit with Bank of
America, N.A. that expires on October 1, 2002. The Fund had $10,559,900 and
$11,200,000 outstanding under such line of credit at June 30, 2002 and December
31, 2001, respectively, which is secured by the Fund's investments in portfolio
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 line of credit. The Fund is attempting to establish a new line of
credit to replace this line upon expiration.

         The average daily balances outstanding on the Fund's notes payable
during the six months ended June 30, 2002 and 2001, were $12,164,481 and
$6,466,851, 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. The Stock
Incentive Plan 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. Options are
issued to the officers of the Fund at the discretion of the compensation
committee in accordance with the Stock Incentive Plan. The options have a ten
year life and vest 50% six months after the grant date with the remaining 50%
vesting equally on the first, second and third anniversaries of the date of the
grant.

         Under the Stock Incentive Plan, options to purchase 1,085,600 and
83,600 shares of the Fund's common stock with a weighted average exercise price
of $8.42 and $17.17 per share were outstanding at June 30, 2002 and 2001,
respectively. Of these options, 571,988 and 63,793 shares, with a weighted
average exercise price per share of $9.07 and $19.64 were exercisable at June
30, 2002 and 2001, respectively. Of the outstanding options at June 30, 2002,
1,039,400 have exercise prices ranging from $7.69 to $14.15 and the remaining
options have exercise prices ranging from $21.82 to $24.95. These options expire
in May 2007 through May 2012.

         On September 30, 1999, options to purchase 719,794 shares of common
stock of the Fund were exercised by the officers of the Fund for $15.45 per
share. The exercise price of $11,124,086 was paid in the form of promissory
notes from the officers to the Fund. On April 1, 2001, a former officer of the
Fund surrendered 41,471 shares in payment of his note receivable and accrued
interest aggregating $548,542. In September 2001, the current officers of the
Fund surrendered 802,662 shares in payment of their notes receivable and accrued
interest aggregating $10,505,551. These payments were recorded as decreases in
common stock and additional paid in capital. The Fund released 71,824 shares to
the officers relating to these payments. As a result of these payments, there
were no outstanding notes at December 31, 2001. There was no change in total net
assets as a result of the note repayment and surrendering of the shares. In
April 2001, officers of the Fund surrendered options to acquire 247,077 shares
of common stock pursuant to the Stock Incentive Plan back to the Fund, and such
options were cancelled.

         The notes receivable, as well as 849,120 shares of common stock pledged
as collateral, were not included in the Fund's reported net asset value per
share in 2001 or 2000. Under variable plan accounting applicable to these
transactions, compensation expense was recorded to reflect the change in benefit
that the officers would have received assuming that their notes were settled
with their pledged common stock at the end of each reporting period, based on
the net asset value of the Fund. Interest earned on the notes receivable of
$265,181 was recorded as an increase to additional paid in capital for the six
months ended June 30, 2001.

                                       18

<PAGE>

         On May 7, 2002 and May 4, 2001, options to acquire a total of 12,000
and 13,200 shares at $7.80 and $8.4455 per share were issued to the non-officer
directors, respectively. In addition, on November 14, 2001, options to acquire a
total of 990,000 shares at $7.69 per share (market price on date of grant) were
issued to officers of the Fund. These options include dividend equivalent rights
which effectively reduce the option price by dividends paid during the option
period. Generally accepted accounting principles require that the options be
accounted for using variable plan accounting as a result of the terms of the
dividend equivalent rights. Such accounting resulted in additional non-cash
compensation (benefit) of $(14,434) during the six months ended June 30, 2002,
related to the 990,000 options issued in 2001.

         As of June 30, 2002 and 2001, 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 had used the proceeds from the exercise of such
options to repurchase 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 $974,000 in Equicom, Inc., $408,334 in FS Strategies, Inc.,
$5,527,000 in Reliant Building Products, Inc., $1,500,000 in Spectrum
Management, LLC, $1,320,000 in Sternhill Partners I, L.P. and $1,800,000 in
Vanguard VII, L.P. The Fund has provided irrevocable letters of credit in the
aggregate amount of $3,719,584 for the benefit of one portfolio company. If such
letters of credit were called, co-investors in the portfolio company are
required to reimburse the Fund for 63% of the amount called.

         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 any claims that have been asserted.

(11)     Subsequent Events

         From July 1, 2002 through August 14, 2002, the Fund repaid a net
$61,059,900 of notes payable to the bank.

         On July 8, 2002, the Fund advanced $35,000 to Equicom, Inc. pursuant to
a 10% promissory note.

         On August 7, 2002, the Fund received $150,000 from Spectrum Management,
LLC as repayment of an advance.

                                       19

<PAGE>

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

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. Valuations of portfolio securities are
preformed in accordance with accounting principles generally accepted in the
United States and the financial reporting policies of the Securities and
Exchange Commission ("SEC"). The applicable methods prescribed by such
principles and policies are described below:

         Publicly-traded portfolio securities - Investments in companies whose
securities are publicly traded are valued at their quoted market price at the
close of business on the valuation date, less a discount to reflect the
estimated effects of restrictions on the sale of such securities ("Valuation
Discount"), if applicable.

         Privately-held portfolio securities - The fair value of investments for
which no market exists (95% of the investments held by the Fund at June 30,
2002) is determined on the basis of procedures established in good faith by the
Board of Directors of the Fund. As a general principle, the current "fair value"
of an investment would be the amount the Fund might reasonably expect to receive
for it upon its current sale. Appraisal valuations are necessarily subjective
and the Management Company's estimate of values may differ materially from
amounts actually received upon the disposition of portfolio securities.

         Generally, cost is the primary factor used to determine fair value
until significant developments affecting the Portfolio Company (such as results
of operations or changes in general market conditions) 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. Appraisal valuations are based upon such
factors as a Portfolio Company's earnings, cash flow and net worth, the market
prices for similar securities of comparable companies, an assessment of the
company's current and future financial prospects and various other factors and
assumptions. In the case of unsuccessful operations, the appraisal may be based
upon liquidation value.

         Most of the Fund's common equity investments are appraised at a
multiple of historical free cash flow generated by the Portfolio Company, less
outstanding funded indebtedness and other senior securities such as preferred
stock. Projections of current year free cash flow may be utilized and
adjustments for non-recurring items are considered. Multiples utilized are
estimated based on the Management Company's experience in the private company
marketplace, and are necessarily subjective in nature.

         Many of the Portfolio Companies utilize a high degree of leverage. In
the event a Portfolio Company cannot generate adequate cash flow to meet the
principal and interest payments on such indebtedness or is not successful in
refinancing the debt upon its maturity, the Fund's investment could be reduced
or eliminated through foreclosure on the Portfolio Company's assets or the
Portfolio Company's reorganization or bankruptcy. The banking environment
currently has resulted in pressure on several of these Companies to reduce the
amount of leverage in order to maintain such financing. From time to time,
Portfolio Companies may be in default of certain covenants in their loan
agreements. When the Management Company has a reasonable belief that the
Portfolio Company will be able to restructure the loan agreements to adjust for
any defaults, the Portfolio Company's securities continue to be valued assuming
that the company is a going concern.

                                       20

<PAGE>

         The Fund may also use, when available, third-party transactions in a
Portfolio Company's securities as the basis of valuation (the "private market
method"). The private market method will be used only with respect to completed
transactions or firm offers made by sophisticated, independent investors.

         The fair 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. Certificates of deposit purchased by the
Fund generally will be valued at their face value, plus interest accrued to the
date of valuation.

         Because of the inherent uncertainty of the valuation of portfolio
securities which do not have readily ascertainable market values, the Fund's
estimate of fair value may significantly differ from the value that would have
been used had a ready market existed for the securities.

         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. The reported net asset values also appear in various
publications, including Barron's and The Wall Street Journal.

         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.

Liquidity and Capital Resources

         At June 30, 2002, the Fund had $84,376,388 of its assets invested in
portfolio securities of 26 companies and has committed to invest up to an
additional $11,529,334 in six of such companies under certain circumstances. The
follow-on commitments include $3,719,584 in stand-by letters of credit to enable
a Portfolio Company to maintain its insurance program. Of the current
commitments, the Fund expects to advance or invest no more than $1.6 million in
2002. 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, 2002, the Fund had $10,559,900 in borrowings plus $3,719,584 in letters of
credit outstanding on a $22,500,000 revolving line of credit loan from a bank.
The revolving credit loan agreement was scheduled to expire on July 1, 2002.
However, it has been extended until October 1, 2002, and the Fund is attempting
to replace it with a new loan with a longer maturity. If the Fund is unable to
maintain its revolving line of credit it may be required to sell a portion of
its investment portfolio when it may be disadvantageous to do so. Also, the
$100,000,000 line of credit promissory note was scheduled to expire on July 1,
2002 and has been extended until October 1, 2002. If the Fund is unable to
maintain its line of credit it may lose its pass-through tax status as a
regulated investment company under Subchapter M of the Internal Revenue Code.
Management believes that these lines of credit will be successfully refinanced,
however, no assurances can be given.

                                       21

<PAGE>

     Net cash used by operating activities was $719,627 and $1,634,299 for the
six months ended June 30, 2002 and 2001, respectively. Approximately $23.8
million in estimated value of the Fund's investments are in the form of notes
receivable from Portfolio Companies. At June 30, 2002, the Fund has elected not
to continue accruing interest receivable on notes with an aggregate fair value
of $9,961,882, and an additional $5,090,759 of such notes are paying interest in
kind, by adding the interest to the face of the note. Management believes that
the Fund will ultimately realize the carrying value of such notes plus the
recorded interest receivable.

     At June 30, 2002, the Fund had $61,014,739 of its total assets of
$148,457,034 invested in temporary cash investments consisting of money market
securities. This amount includes proceeds of $61,000,000 from a $100,000,000
line of credit promissory note 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 1,
2002.

     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.

Results of Operations

Investment Income and Expense

     Net investment income after all expenses amounted to $549,988 and
$1,420,848 for the six months ended June 30, 2002 and 2001, respectively. The
decrease in investment income is primarily due to a decrease in the credit to
non cash compensation expense in accordance with variable plan accounting
required in connection with the Fund's stock option plan. Income from portfolio
securities was $1,867,340 for the six months ended June 30, 2002 and $1,527,864
for the comparable period in 2001. The increase is attributable to dividends
received during 2002 on the redemption of Champion Window, Inc.'s preferred
stock. Professional fees decreased to $99,566 in 2002 from $259,167 in 2001 due
to 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 decreased to $122,169 in
2002 from $136,047 in 2001 due to additional meetings held in the first quarter
of 2001. Interest expense increased to $260,672 in 2002 from $158,200 in 2001
due to an increase in the average daily balances outstanding on the lines of
credit to $12,164,481 during the six months ended June 30, 2002 from $6,466,851
during the comparable period in 2001.

     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 $775,092 and $842,465 during the six months ended June 30, 2002 and
2001, respectively. The decrease in management fees during the six months ended
June 30, 2002 was due to the decrease in net assets.

                                       22

<PAGE>

     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. The Stock Incentive Plan
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. Options are issued to the
officers of the Fund at the discretion of the compensation committee in
accordance with the Stock Incentive Plan. The options have a ten year life and
vest 50% six months after the grant date with the remaining 50% vesting equally
on the first, second and third anniversaries of the date of the grant.

     Under the Stock Incentive Plan, options to purchase 1,085,600 and 83,600
shares of the Fund's common stock with a weighted average exercise price of
$8.42 and $17.17 per share were outstanding at June 30, 2002 and 2001,
respectively. Of these options, 571,988 and 63,793 shares, with a weighted
average exercise price per share of $9.07 and $19.64 were exercisable at June
30, 2002 and 2001, respectively. Of the outstanding options at June 30, 2002,
1,039,400 have exercise prices ranging from $7.69 to $14.15 and the remaining
options have exercise prices ranging from $21.82 to $24.95. These options expire
in May 2007 through May 2012.

     On September 30, 1999, options to purchase 719,794 shares of common stock
of the Fund were exercised by the officers of the Fund for $15.45 per share. The
exercise price of $11,124,086 was paid in the form of promissory notes from the
officers to the Fund. On April 1, 2001, a former officer of the Fund surrendered
41,471 shares in payment of his note receivable and accrued interest aggregating
$548,542. In September 2001, the current officers of the Fund surrendered
802,662 shares in payment of their notes receivable and accrued interest
aggregating $10,505,551. These payments were recorded as decreases in common
stock and additional paid in capital. The Fund released 71,824 shares to the
officers relating to these payments. As a result of these payments, there were
no outstanding notes at December 31, 2001. There was no change in total net
assets as a result of the note repayment and surrendering of the shares. In
April 2001, officers of the Fund surrendered options to acquire 247,077 shares
of common stock pursuant to the Stock Incentive Plan back to the Fund, and such
options were cancelled.

     The notes receivable, as well as 849,120 shares of common stock pledged as
collateral, were not included in the Fund's reported net asset value per share
in 2001 or 2000. Under variable plan accounting applicable to these
transactions, compensation expense was recorded to reflect the change in benefit
that the officers would have received assuming that their notes were settled
with their pledged common stock at the end of each reporting period, based on
the net asset value of the Fund. Interest earned on the notes receivable of
$265,181 was recorded as an increase to additional paid in capital for the six
months ended June 30, 2001.

     On May 7, 2002 and May 4, 2001, options to acquire a total of 12,000 and
13,200 shares at $7.80 and $8.4455 per share were issued to the non-officer
directors, respectively. In addition, on November 14, 2001, options to acquire a
total of 990,000 shares at $7.69 per share (market price on date of grant) were
issued to officers of the Fund. These options include dividend equivalent rights
which effectively reduce the option price by dividends paid during the option
period. Generally accepted accounting principles require that the options be
accounted for using variable plan accounting as a result of the terms of the
dividend equivalent rights. Such accounting resulted in additional non-cash
compensation (benefit) of $(14,434) during the six months ended June 30, 2002,
related to the 990,000 options issued in 2001.

     As of June 30, 2002 and 2001, 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 had used the proceeds from the exercise of such
options to repurchase shares at the market price pursuant to the treasury stock
method.

                                       23

<PAGE>

     The following is a reconciliation of the stock options issued and exercised
for the six months ended June 30, 2002 and the year ended December 31, 2001:

                                                      2002             2001
                                                      ----             ----
        Options outstanding at the                 1,073,600          337,450
          beginning of the period

        Options granted during the period             12,000        1,003,200

        Options exercised during the period                -                -

        Options surrendered during the period              -         (247,077)

        Options expired during the period                  -          (19,973)
                                                  ----------       ---------
        Options outstanding at the end
          of the period                            1,085,600        1,073,600
                                                  ==========       ==========

        Options exercisable                          571,988           70,388
                                                  ==========       ==========

Realized Gains and Losses on Sales of Portfolio Securities

     During the six months ended June 30, 2002, the Fund realized net capital
gains of $399,300 from the sale of securities of three Portfolio Companies. The
Fund sold 60,595 shares of its investment in Weatherford International for
$2,844,558, realizing a capital loss of $666,922. In addition, the Fund sold its
investment in Travis International, Inc. for $921,577, realizing a capital gain
of $918,091. Also, the Fund received proceeds from Jones Industrial Holdings,
Inc. for the redemption of 18,667 warrants, realizing a capital gain of
$148,131.

     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
the write-off of one Portfolio Company. 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.

Depreciation of Portfolio Securities

     Net unrealized depreciation on investments increased by $1,513,473 during
the six months ended June 30, 2002 from $4,492,994 to $6,006,467. Such decrease
resulted from increases in the estimated fair value of eight of the Fund's
Portfolio Companies aggregating $5,701,116, decreases in the estimated fair
value of nine of the Fund's Portfolio Companies aggregating $6,801,206 and the
transfer of $413,383 in unrealized appreciation to net capital gain from the
sale or disposition of investments in three of the Fund's Portfolio Companies.

     Net unrealized depreciation on investments increased by $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.

                                       24

<PAGE>

Dividends

     The Fund declared no dividends for the six months ended June 30, 2002 and
2001.

Portfolio Investments

     During the six months ended June 30, 2002, the Fund invested $483,749 in
one new limited liability company, which in turn invested in an existing
Portfolio Company, and made follow-on investments of $5,669,206 in eleven
portfolio companies, including $953,482 in accrued interest and dividends
received in the form of additional portfolio securities and accretion of
original issue discount on a promissory note.

     For the six months ended June 30, 2002, the Fund received an additional
3,651 and 796 shares of preferred stock of Container Acquisition, Inc and
Sovereign Business Forms, Inc. ("Sovereign") in payment of $365,100 and $79,600
in dividends, respectively. In addition, Sovereign elected to convert $251,179
of accrued interest into the balance of the 15% promissory notes due to the
Fund.

     On January 4, 2002, the Fund invested $483,749 to acquire a 24% member
interest in Alenco Window Holdings II, LLC, which was formed to loan $2,000,000
to Alenco Holding Corporation ("AHC") in exchange for a secured promissory note
and a warrant to acquire 93,675 shares of AHC common stock for $0.01 per share.

     On January 7, 2002, the Fund invested an additional $425,000 in FS
Strategies, Inc. ("FSS") as a capital contribution. On March 29, 2002, the Fund
invested an additional $1,667,000 in FSS in exchange for 1,667 shares of
preferred stock.

     On February 27, 2002, the Fund invested an additional $150,000 in Spectrum
Management, LLC.

     On April 5, 2002, the Fund invested an additional $180,000 in Sternhill
Partners I, L.P. pursuant to a $3,000,000 commitment made in March 2000.
$1,680,000 of such commitment has been funded through June 30, 2002.

     On April 29, 2002, the Fund invested an additional $1,571,000 in a limited
liability company which acquired a subordinated promissory note of Container
Care International, Inc. ("Container Care"). The note, with a face value of
$2,000,000 plus accrued interest, was purchased for $1,850,000 from the former
owner of Container Care.

     On April 30, 2002, the Fund transferred its investment in Travis
International, Inc. ("Travis") to Milam Enterprises, LLC ("Milam"). The Fund
received $921,577 in cash and an interest in Milam, which was formed to hold
certain assets of Travis not included in the sale of its business operations.

     On May 8, 2002, the Fund received $878,667 from United Industrial Services,
Inc. for payment of a note receivable plus accrued interest and the redemption
of 18,887 warrants.

     During the six months ended June 30, 2002, the Fund advanced $226,000 to
Equicom, Inc. pursuant to a 10% promissory note.

     During the six months ended June 30, 2002, the Fund exchanged two 15%
promissory notes from The Bradshaw Group in the amount of $222,945 each for a
15% promissory note in the amount of $459,545, including $13,655 of accrued
interest.

                                       25

<PAGE>

     For the six months ended June 30, 2002, the original issue discount
accretion and interest on the discounted 15% promissory note from Doane Pet Care
Company amounted to $168,278, bringing the balance of the note to $1,596,503 at
June 30, 2002.

     For the six months ended June 30, 2002, the Fund received a 12% promissory
note from Turfgrass America, Inc. ("Turfgrass") in exchange for accrued interest
in the amount of $288,580. For the six months ended June 30, 2002, an adjustment
was made to correct the original issue discount accretion on the discounted 12%
subordinated promissory note from Turfgrass, bringing the note balance to
$3,702,669 at June 30, 2002. The original issue discount is being accreted over
the life of the note.

Subsequent Events

     From July 1, 2002 through August 14, 2002, the Fund repaid a net
$61,059,900 of notes payable to the bank.

     On July 8, 2002, the Fund advanced $35,000 to Equicom, Inc. pursuant to a
10% promissory note.

     On August 7, 2002, the Fund received $150,000 from Spectrum Management, LLC
as repayment of an advance.

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 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, since the
securities are generally held to maturity. These 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 major portion of the Fund's investment portfolio consists of debt and
equity investments in private companies. Modest changed in public market equity
process generally do not significantly impact the estimated fair value of these
investments. Significant changes in market equity prices occur, can have 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 and
warrants to purchase common stock 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.

                                       26

<PAGE>

Part II.  Other Information

Item 4.   Submission of Matter to a Vote of Security Holders

       The Fund held its annual meeting of shareholders on May 7, 2002. 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 and
(ii) the ratification of the selection of Arthur Andersen LLP as the Fund's
independent auditors for the fiscal year ending December 31, 2002.

       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                 5,186,496      239,788
           Gregory J. Flanagan             5,186,496      239,788
           Robert L. Knauss                5,185,374      240,910
           Nolan Lehmann                   5,186,496      239,788
           Gary R. Petersen                5,185,618      240,666
           John W. Storms                  5,186,496      239,788
           Dr. Francis D. Tuggle           5,186,301      239,983
           Dr. Edward E. Williams          5,183,601      239,983

       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
                                             ---        -------       -------

          Ratification of auditors        4,749,395     605,305        71,381

       All nominees to the Registrant's Board of Directors were elected and the
Fund's selection of independent auditors was ratified.

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

       (a)     Exhibits

       10.     Material Contracts

       99.1    Certification by the Chief Executive Officer

       99.2    Certification by the President and Principal Financial and
               Accounting Officer

       (b)     Reports on Form 8-K filed subsequent to quarter ended June 30,
               2002.

               July 10, 2002    Our current report on Form 8-K accepting  Arthur
                                Andersen LLP's resignation as accountants for
                                the fiscal year 2002 and appointing
                                PricewaterhouseCoopers LLP's accountants for the
                                fiscal year 2002.

                                       27

<PAGE>

                                    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, 2002                      EQUUS II INCORPORATED


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

                                       28