<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 March 31, 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: $42,725,664 computed on the basis of $7.80 per share, closing price
of the common stock on the New York Stock Exchange Inc. on May 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 May 13, 2002.
The net asset value of a share at March 31, 2002 was $12.62.

Documents incorporated by reference:  None
<PAGE>

                              EQUUS II INCORPORATED
                            (A Delaware Corporation)

                                      INDEX

PART I.     FINANCIAL INFORMATION                                      PAGE

  Item 1.   Financial Statements

            Balance Sheets

            - March 31, 2002 and December 31, 2001.....................  1

            Statements of Operations

            - For the three months ended March 31, 2002 and 2001.......  2

            Statements of Changes in Net Assets

            - For the three months ended March 31, 2002 and 2001.......  3

            Statements of Cash Flows

            - For the three months ended March 31, 2002 and 2001.......  4

            Selected Per Share Data and Ratios

            - For the three months ended March 31, 2002 and 2001 ......  6

            Schedule of Portfolio Securities

            - March 31, 2002...........................................  7

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

  Item 2.   Management's Discussion and Analysis of Financial

            Condition and Results of Operations........................ 19

  Item 3.   Quantitative and Qualitative Disclosure about Market Risk.. 25

PART II.    OTHER INFORMATION

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

SIGNATURE   ........................................................... 26

                                       i
<PAGE>

Part I.   Financial Information

Item 1.   Financial Statements

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

<TABLE>
<CAPTION>

                                                                 2002             2001
                                                                ------           ------
<S>                                                         <C>              <C>
Assets

Investments in portfolio securities at fair value
     (cost $88,390,046 and $90,371,825, respectively)       $  85,679,350    $  85,878,831
Temporary cash investments, at cost which
     approximates fair value                                   63,925,952       62,010,212
Cash                                                                  864           23,465
Accounts receivable                                                15,170           15,061
Accrued interest receivable                                     3,140,990        2,891,107
                                                            -------------    -------------
          Total assets                                        152,762,326      150,818,676
                                                            -------------    -------------
Liabilities and net assets

Liabilities:
     Accounts payable                                             214,024          267,011
     Due to management company                                    393,151          384,834
     Notes payable to bank                                     73,525,000       73,200,000
                                                            -------------    -------------
          Total liabilities                                    74,132,175       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                                85,411,710       84,863,766
     Undistributed net capital losses                          (4,077,096)      (3,410,174)
     Unrealized depreciation of portfolio securities, net      (2,710,696)      (4,492,994)
                                                            -------------    -------------
          Total net assets                                  $  78,630,151    $  76,966,831
                                                            -------------    -------------
          Net assets per share                              $       12.62    $       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 MARCH 31, 2002 AND 2001
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                  2002             2001
                                                                 ------           ------
<S>                                                            <C>            <C>
Investment income:
     Income from portfolio securities                          $ 1,246,984    $   843,424
     Interest from temporary cash investments                       10,067         26,121
     Interest on notes receivable from officers                       --           23,448
                                                               -----------    -----------
          Total investment income                                1,257,051        892,993
                                                               -----------    -----------
Expenses:
     Management fees                                               393,151        429,199
     Director fees and expenses                                     61,556         76,325
     Professional fees                                              40,953         77,635
     Administrative fees                                            12,500         12,500
     Mailing, printing and other expenses                            9,774         25,678
     Interest expense                                              154,314         39,905
     Non-cash compensation expense                                  41,859             --
     Franchise taxes                                                36,860          3,860
                                                               -----------    -----------
          Total expenses                                           750,967        665,102
                                                               -----------    -----------
Net investment income                                              506,084        227,891
                                                               -----------    -----------
Realized gain (loss) on sales of portfolio securities, net        (666,922)     3,202,098
                                                               -----------    -----------
Unrealized depreciation of portfolio securities, net:
     End of period                                              (2,710,696)    (9,419,332)
     Beginning of period                                        (4,492,995)      (818,963)
                                                               -----------    -----------
     (Increase) decrease in unrealized depreciation, net         1,782,299     (8,600,369)
                                                               -----------    -----------
     Total increase (decrease) in net assets from operations   $ 1,621,461    $(5,170,380)
                                                               ===========    ===========

</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       2
<PAGE>

                              EQUUS II INCORPORATED
                       STATEMENTS OF CHANGES IN NET ASSETS
               FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                             2002              2001
                                                            ------            ------
<S>                                                      <C>             <C>
 Operations:
     Net investment income                               $    506,084    $    227,891
     Realized gain (loss) on sales of portfolio
        securities, net                                      (666,922)      3,202,098
     (Increase) decrease in unrealized depreciation of
        portfolio securities, net                           1,782,299      (8,600,369)
                                                         ------------    ------------
Increase (decrease) in net assets from operations           1,621,461      (5,170,380)
                                                         ------------    ------------
Capital Transactions:

     Non-cash compensation expense                             41,859              --
     Increase from officer notes, net                              --         111,972
     Repurchase shares of common stock                             --         (26,456)
                                                         ------------    ------------
Increase in net assets from capital transactions               41,859          85,516
                                                         ------------    ------------
Increase (decrease) in net assets                           1,663,320      (5,084,864)
Net assets at beginning of period                          76,966,831      90,924,765
                                                         ------------    ------------
Net assets at end of period                              $ 78,630,151    $ 85,839,901
                                                         ============    ============
</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       3
<PAGE>

                              EQUUS II INCORPORATED
                            STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                2002             2001
                                                               ------           ------
<S>                                                        <C>             <C>
Cash flows from operating activities:

     Interest and dividends received                       $    591,796    $    221,551
     Cash paid to management company, directors,
        bank and suppliers                                     (753,777)       (896,390)
                                                           ------------    ------------
        Net cash used by operating activities                  (161,981)       (674,839)
                                                           ------------    ------------
Cash flows from investing activities:

     Purchase of portfolio securities                        (3,114,329)     (3,225,792)
     Proceeds from sales of portfolio securities              4,844,558      10,000,000
     Advances to portfolio companies                               (109)        (13,516)
                                                           ------------    ------------
        Net cash provided by investing activities             1,730,120       6,760,692
                                                           ------------    ------------
Cash flows from financing activities:
     Advances from bank                                      64,900,000      68,300,000
     Repayments to bank                                     (64,575,000)    (85,800,000)
                                                           ------------    ------------
        Net cash provided (used) by financing activities        325,000     (17,500,000)
                                                           ------------    ------------
Net increase (decrease) in cash and cash equivalents          1,893,139     (11,414,147)

Cash and cash equivalents at beginning of period             62,033,677      77,043,532
                                                           ------------    ------------
Cash and cash equivalents at end of period                 $ 63,926,816    $ 65,629,385
                                                           ============    ============
</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       4
<PAGE>

                              EQUUS II INCORPORATED
                            STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                                   (Unaudited)
                                   (Continued)

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

Increase (decrease) in net assets from operations                 $ 1,621,461    $(5,170,380)
Adjustments to reconcile increase (decrease) in net assets from
     operations to net cash used by operating activities:

     Realized (gain) loss on sales of portfolio securities, net       666,922     (3,202,098)
     Increase (decrease) in unrealized depreciation, net           (1,782,299)     8,600,369
     Accrued interest and dividends exchanged for
         portfolio securities                                        (415,371)      (558,567)
     Increase in accrued interest receivable                         (249,883)      (224,846)
     Interest income on non-recourse
         portion of officer notes                                          --        111,972
     Non-cash compensation expense                                     41,859             --
     Decrease in accounts payable                                     (52,987)      (205,864)
     (Increase) decrease in due to management company                   8,317        (25,425)
                                                                  -----------    -----------
Net cash used by operating activities                             $  (161,981)   $  (674,839)
                                                                  ===========    ===========
</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       5
<PAGE>

                              EQUUS II INCORPORATED
          SUPPLEMENTAL INFORMATION - SELECTED PER SHARE DATA AND RATIOS
               FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                    2002         2001
                                                                                   ------       ------
<S>                                                                              <C>           <C>
Investment income                                                                $    0.20     $    0.15

Expenses                                                                              0.12          0.11
                                                                                 ---------     ---------
Net investment income                                                                 0.08          0.04

Realized gain (loss) on sale of portfolio securities, net                            (0.11)         0.54

(Increase) decrease in unrealized depreciation of portfolio securities, net           0.29         (1.46)
                                                                                 ---------     ---------
Increase (decrease) in net assets from operations                                     0.26         (0.88)
                                                                                 ---------     ---------
Capital Transactions:

Non-cash compensation expense                                                         0.01            --

Interest on non-recourse portion of officer notes                                       --          0.02

Effect of common stock repurchase                                                       --          0.01
                                                                                 ---------     ---------

Increase in net assets from capital transactions                                      0.01          0.03
                                                                                 ---------     ---------
Net increase (decrease) in net assets                                                 0.27         (0.85)

Net assets at beginning of period                                                    12.35         15.40
                                                                                 ---------     ---------
Net assets at end of period                                                      $   12.62     $   14.55
                                                                                 =========     =========
Weighted average number of shares outstanding during year,
     in thousands                                                                    6,233         6,565

Market value                                                                     $    7.82     $    8.00

Ratio of expenses to average net assets                                               0.97%         0.75%
Ratio of expenses before interest and non-cash compensation
     expense to average net assets                                                    0.71%         0.71%

Ratio of net investment income to average net assets                                  0.65%         0.26%

Ratio of net investment income to average net assets, exclusive
     of non-cash compensation expense                                                 0.70%         0.26%

Ratio of increase (decrease) in net assets from operations
     to average net assets                                                            2.08%        (5.85)%

Ratio of increase (decrease) in net assets from operations to average
     net assets, exclusive of non-cash compensation expense                           2.14%        (5.85)%

Total return on market price                                                          0.39%        (6.54)%

</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       6
<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 MARCH 31, 2002
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                              Date of
                 Portfolio Company                       Initial Investment           Cost         Fair Value
                 -----------------                       ------------------           ----         ----------
<S>                                                      <C>                      <C>              <C>
A. C. Liquidating Corporation                                February 1985
 Asset held for liquidation

  -10% secured promissory notes *                                                 $  188,014          $     -

Alenco Window Holdings II, LLC                               January 2002
 Manufacturer of residential windows
  -24% membership interest                                                           483,749        1,500,000

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

The Bradshaw Group                                             May 2000
 Sells and services midrange and high-speed
  printing equipment
   Prime + 2% promissory note *                                                            -          398,383
  -15% promissory note *                                                             459,545          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
 Primary aluminum window manufacturer & distributor
  -1,400,000 shares of common stock                                                1,400,000        9,500,000

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

  -74,535 shares of preferred stock                                                7,453,500        7,453,500
  -Conditional warrant to buy up to 370,588 shares
   of common stock at $0.01 through February 2007                                      1,000            1,000
  -1,370,000 shares of common stock                                                1,370,000        1,000,000
</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       7
<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 MARCH 31, 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                                    $1,509,565      $ 1,509,565
   -1,943,598 shares of common stock                                                3,936,643        4,500,000

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                                                   -                -

Equicom, Inc.                                                      July 1997
 Radio stations

  -10% promissory note                                                              1,638,500        1,638,500
  -10% promissory note                                                              1,136,750        1,136,750
  -657,611 shares of preferred stock                                                6,576,110        1,000,000
  -452,000 shares of common stock                                                     141,250                -

Equipment Support Services, Inc.                                 December 1999
 Equipment rental

  -8% promissory note *                                                             1,138,000        1,069,000
  -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        2,641,667

GCS RE, Inc.                                                     February 1989
 Investment in real estate
  -1,000 shares of common stock                                                       132,910          800,000
</TABLE>

                          The accompanying notes are an
                   integral part of these financial statements

                                       8
<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 MARCH 31, 2002
                                   (Unaudited)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                Date of
                 Portfolio Company                         Initial Investment       Cost         Fair Value
                 -----------------                         ------------------       ----         ----------
<S>                                                        <C>                    <C>            <C>
Industrial Data Systems Corporation                          December 2001
  (AMEX - IDS)
 Engineering and consulting services
  -9.5% promissory note                                                           $3,000,000      $ 3,000,000
  -2,500,000 shares of convertible preferred stock                                 2,500,000        2,500,000
  -1,225,758 shares of common stock                                                  716,461          645,190

NCI Building Systems, Inc.  (NYSE - NCS)                      April 1989
 Design & manufacture metal buildings
  -200,000 shares of common stock                                                    159,784        4,450,000

PalletOne, Inc.                                              October 2001
 Operates wooden pallet manufacturing facilities
  -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
 Aluminum & vinyl window manufacturer & distributor
  -36.86% membership interest                                                        372,256        1,800,000

Sovereign Business Forms, Inc.                                August 1996
 Business forms manufacturer
  -15% promissory notes                                                            3,396,652        3,396,652
  -17,896 shares of preferred stock                                                1,789,600        1,789,600
  -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

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                                                 1,471,604        1,100,000
</TABLE>


                          The accompanying notes are an
                   integral part of these financial statements

                                       9
<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 MARCH 31, 2002
                                   (Unaudited)
                                   (Continued)
<TABLE>
<CAPTION>

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

Travis International, Inc.                                   December 1986
 Specialty distribution
  - 98,761 shares of common stock                                                      5,398        1,200,000

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                                                3,663,102        3,663,102
  -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

United Industrial Services, Inc.                               July 1998
 Field service for petrochemical & power
  generation industries
  -15% promissory note                                                               626,958          626,958
  -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
  -Warrant to buy 18,887 shares of common
   stock at $0.01 through March 2011
                                                                                           -                -
</TABLE>


                          The accompanying notes are an
                   integral part of these financial statements

                                       10
<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 MARCH 31, 2002
                                   (Unaudited)
                                   (Continued)

<TABLE>
<CAPTION>
                                                             Date of
                 Portfolio Company                       Initial Investment          Cost        Fair Value
                 -----------------                       ------------------          ----        ----------
<S>                                                      <C>                      <C>              <C>
Vanguard VII, L.P.                                             June 2000
 Venture capital fund
  - 1.3% limited partnership interest                                           $ 1,200,000       $  950,000

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          407,035
                                                                                -----------      -----------
          Total                                                                 $88,390,046      $85,679,350
                                                                                ===========      ===========
</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 March 31, 2002, the
     aggregate amount of accrued interest receivable on and estimated fair value
     of these notes is $2,522,521 and $10,990,428, respectively. Management
     believes that the recorded interest receivable and 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,
Sovereign Business Forms, Inc., Strategic Holdings, Inc., Turfgrass America,
Inc. and United Industrial Services, Inc., rights have been obtained to demand
the registration of such securities under the Securities Act of 1933, providing
certain conditions are met. The Fund does not expect to incur significant costs,
including costs of any such registration, in connection with the future
disposition of its portfolio securities.

     As defined in the Investment Company Act of 1940, at March 31, 2002, the
Fund was considered to have a controlling interest in Champion Window, Inc.,
Container Acquisition, Inc., The Drilltec Corporation, Equicom, Inc., PalletOne,
Inc., Reliant Window Holdings, LLC, Sovereign Business Forms, Inc., Spectrum
Management LLC, Strategic Holdings, Inc. and United Industrial Services, Inc.

     Income was earned in the amount of $929,273 and $539,573 for the three
months ended March 31, 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., Sternhill
Partners I, L.P., Vanguard VII, L.P. and Weatherford International. The Fund
provides significant managerial assistance to portfolio companies that comprise
89% of the total value of the investments in portfolio companies at March 31,
2002.

                          The accompanying notes are an
                   integral part of these financial statements

                                       11
<PAGE>

                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                                 MARCH 31, 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 March 31, 2002:

<TABLE>
<CAPTION>

                                                                     Percentage
             Type of Securities             Cost       Fair Value   of Fair Value
             ------------------             ----       -----------  -------------
<S>                                     <C>           <C>              <C>
Common Stock                            $20,374,163   $26,210,443      30.6%
Preferred Stock                          35,489,472    25,078,738      29.3%
Secured and Subordinated Debt            25,472,701    25,114,069      29.3%

Limited Liability Company Investments     4,381,005     6,825,000       8.0%

Limited Partnership Investments           2,671,604     2,050,000       2.4%

Options and Warrants                          1,101       401,100       0.4%
                                        -----------   -----------   -----
                   Total                $88,390,046   $85,679,350     100.0%
                                        ===========   ===========   =====
</TABLE>

     The following is a summary by industry of the Fund's investments as of
March 31, 2002:

   Industry                       Fair Value    Percentage
   --------                       ----------    ----------
Business Products and Services   $25,707,347       30.0%
Building Products                 23,072,355       26.9%
Industrial                        21,632,798       25.3%

Consumer Goods and Services        6,009,565        7.0%

Media                              3,775,250        4.4%

Venture Funds and other            2,850,000        3.3%

Energy                             1,432,035        1.7%

Wholesale distribution             1,200,000        1.4%
                                 -----------      -----
                   Total         $85,679,350      100.0%
                                 ===========      =====

                          The accompanying notes are an
                   integral part of these financial statements

                                       12
<PAGE>

                              EQUUS II INCORPORATED
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001
                                   (Unaudited)

(1)  Organization and Business Purpose

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

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

(2)  Management

     The Fund has entered into a management agreement with Equus Capital
Management Corporation, a Delaware corporation (the "Management Company").
Pursuant to such agreement, the Management Company performs certain services,
including certain management and administrative services necessary for the
operation of the Fund. The Management Company receives a management fee at an
annual rate of 2% of the net assets of the Fund, paid quarterly in arrears. The
Management Company also receives compensation for providing certain investor
communication services, of which $12,500 is included in the accompanying
Statements of Operations for each of the three months ended March 31, 2002 and
2001.

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

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

     The Management Agreement will continue in effect until June 30, 2002, 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

                                       13
<PAGE>

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 94% of the investments of the Fund at March
31, 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.

     Most of the Portfolio Companies utilize a high degree of leverage. 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 are in default of certain covenants in
their loan agreements. 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. When the
Management Company has a reasonable belief that the Portfolio Company will be
able to restructure the loan

                                       14
<PAGE>

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
$80,822,315 (including $645,190 in publicly-traded securities, net of a $261,870
Valuation Discount) and $79,750,789 (including $605,860 in publicly-traded
securities, net of a $276,686 Valuation Discount) at March 31, 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 $(666,922) and $3,202,098 for the three months
ended March 31, 2002 and 2001, respectively. The Fund had net investment income
for tax purposes of $547,943 and $339,863 for the three months ended March 31,
2002 and 2001, respectively.

                                       15
<PAGE>

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

                                           2002           2001
                                          ------         ------

Net realized gain (loss) on the sale
  of portfolio securities, book        $  (666,922)   $ 3,202,098
Book/tax differences                     2,855,711        156,468
                                       -----------    -----------
Net realized gain on the sale of
  portfolio securities, tax            $ 2,188,789    $ 3,358,566
                                       ===========    ===========

(5)  Dividends

     The Fund declared no dividends during the three months ended March 31, 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 $63,925,952 in
money market accounts with Bank of America, N.A. earning interest at a rate of
1.30% per annum at March 31, 2002.

(7)  Portfolio Securities

     During the three months ended March 31, 2002, the Fund invested $483,749 in
one new company and made follow-on investments of $3,045,952 in eight companies,
including $415,372 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 loss of $666,922 during the
three months ended March 31, 2002.

     During the three months ended March 31, 2001, the Fund invested $1,120,236
in two new companies and made follow-on investments of $2,664,123 in five
companies, including $558,567 in accrued interest and dividends received in the
form of additional portfolio securities and accretion of original issue discount
on a promissory note. In addition, the Fund realized a net capital gain of
$3,202,098 during the three months ended March 31, 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 $63,000,000 and $62,000,000
outstanding on such notes at March 31, 2002 and December 31, 2001, respectively,
that was secured by $63,000,000 and $62,000,000 of the Fund's temporary cash
investments. The line of credit promissory note expires July 1, 2002.

     The Fund has a $22,500,000 revolving line of credit with Bank of America,
N.A. that expires on July 1, 2002. The Fund had $10,525,000 and $11,200,000
outstanding under such line of credit at March 31, 2002 and December 31, 2001,
respectively, which is secured by the Fund's investments in portfolio

                                       16
<PAGE>

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

     The average daily balances outstanding on the Fund's notes payable during
the three months ended March 31, 2002 and 2001, were $12,609,444 and $7,473,889,
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 1,073,600 and 337,450
shares of the Fund's common stock with a weighted average exercise price of
$8.43 and $17.01 per share were outstanding at March 31, 2002 and 2001,
respectively. Of these options, 70,388 and 324,244 shares, with a weighted
average exercise price per share of $18.60 and $17.00 were exercisable at March
31, 2002 and 2001, respectively. Of the outstanding options at March 31, 2002,
1,027,400 have exercise prices ranging from $7.60 to $14.15 and the remaining
options have exercise prices ranging from $21.82 to $24.95. These options expire
in May 2007 through November 2011.

     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. At December 31, 2000, the notes were secured by the
719,794 shares plus 196,164 additional shares issued to the officers by the Fund
upon payment of dividends. Principal payments of $991,161 were made on the notes
in 2000. In 2001, interest payments of $92,531 were made on the notes. 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.

     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
$111,972 was recorded as an increase to additional paid in capital for the three
months ended March 31, 2001.

     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. On May 4, 2001, options to acquire a total of
13,200 shares at $8.4455 per share were issued to the non-officer directors. In
addition, on November 14, 2001, options to acquire a total of 990,000 shares at
$7.69 per

                                       17
<PAGE>

share (market price on date of grant) were issued to officers of the Fund. These
options include dividend equivalent rights which 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 terms of the dividend equivalent rights. Such
accounting resulted in additional non-cash compensation expense of $41,859
during the quarter ended March 31, 2002, related to the 990,000 options issued
in 2001.

     If all outstanding options for which the market price exceeds the exercise
price at March 31, 2002 had been exercised, the Fund's net asset value would
have been reduced by $0.11 per share, 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. As of March 31, 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 $250,000 in American Trenchless Technology, LLC, $2,000,000 in
Container Care International, Inc., $1,100,000 in Equicom, Inc., $408,334 in FS
Strategies, Inc., $5,527,000 in Reliant Building Products, Inc., $1,500,000 in
Spectrum Management, LLC, $1,500,000 in Sternhill Partners I, L.P. and
$1,800,000 in Vanguard VII, L.P.

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

(11) Subsequent Events

     Subsequent to March 31, 2002, the Fund repaid a net $63,675,100 of notes
payable to the bank.

     On April 5, 2002, the Fund invested an additional $180,000 in Sternhill
Partners I, L.P. pursuant to its commitment.

     On April 29, 2002, the Fund invested an additional $1,641,000 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.

                                       18
<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 (94% of the investments held by the Fund at March 31,
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.

     Most of the Portfolio Companies utilize a high degree of leverage. 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 are in default of certain covenants in
their loan agreements. 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. 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.

                                       19
<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 March 31, 2002, the Fund had $85,679,350 of its assets invested in
portfolio securities of 26 companies and has committed to invest up to an
additional $14,085,334 in eight of such companies. 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 $3.7 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 March 31, 2002, the Fund had
$10,525,000 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 is scheduled to expire on July 1, 2002. The Fund expects to renew the
credit facility on or before such date. 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.

     Net cash used by operating activities was $161,981 and $674,839 for the
three months ended March 31, 2002 and 2001, respectively. Approximately $24.6
million in estimated value of the Fund's investments are in the form of notes
receivable from Portfolio Companies. At March 31, 2002, the Fund

                                       20
<PAGE>

has elected not to continue accruing interest receivable on $10.9 million of
such notes, and $4.9 million of such notes are paying interest in kind, by
adding the interest to the face of the note.

     At March 31, 2002, the Fund had $63,925,952 of its total assets of
$152,762,326 invested in temporary cash investments consisting of money market
securities. This amount includes proceeds of $63,000,000 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 April 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 $506,084 and $227,891
for the three months ended March 31, 2002 and 2001, respectively. The increase
in net investment income in 2002 is primarily due to an increase in income from
portfolio securities, which was offset by an increase in interest expense.
Income from portfolio securities was $1,246,984 for the three months ended March
31, 2002 and $843,424 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 $40,953 in 2002
from $77,635 in 2001 due to an increase in legal fees incurred in 2001 related
to the sale of the Fund's investment in Stephen L. LaFrance Holdings, Inc.
Director fees and expenses decreased to $61,556 in 2002 from $76,325 in 2001 due
to additional meetings held in the first quarter of 2001. Interest expense
increased to $154,314 in 2002 from $39,905 in 2001 due to an increase in the
average daily balances outstanding on the lines of credit to $12,609,444 during
the three months ended March 31, 2002 from $7,473,889 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 $393,151 and $429,199 during the three months ended March 31,
2002 and 2001, respectively. The decrease in management fees during the three
months ended March 31, 2002 was due to the decrease in net assets.

     Shareholders have approved the Equus II Incorporated 1997 Stock Incentive
Plan ("Stock Incentive Plan"), which authorizes the Fund to issue options to the
directors and officers of the Fund in an aggregate amount of up to 20% of the
outstanding shares of common stock of the Fund. 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

                                       21
<PAGE>

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 1,073,600 and 337,450
shares of the Fund's common stock with a weighted average exercise price of
$8.43 and $17.01 per share were outstanding at March 31, 2002 and 2001,
respectively. Of these options, 70,388 and 324,244 shares, with a weighted
average exercise price per share of $18.60 and $17.00 were exercisable at March
31, 2002 and 2001, respectively. Of the outstanding options at March 31, 2002,
1,027,400 have exercise prices ranging from $7.60 to $14.15 and the remaining
options have exercise prices ranging from $21.82 to $24.95. These options expire
in May 2007 through November 2011.

     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. At December 31, 2000, the notes were secured by the
719,794 shares plus 196,164 additional shares issued to the officers by the Fund
upon payment of dividends. Principal payments of $991,161 were made on the notes
in 2000. In 2001, interest payments of $92,531 were made on the notes. 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.

     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
$111,972 was recorded as an increase to additional paid in capital for the three
months ended March 31, 2001.

     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. On May 4, 2001, options to acquire a total of
13,200 shares at $8.4455 per share were issued to the non-officer directors. 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 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 terms of the dividend equivalent rights. Such
accounting resulted in additional non-cash compensation expense of $41,859
during the quarter ended March 31, 2002, related to the 990,000 options issued
in 2001.

     If all outstanding options for which the market price exceeds the exercise
price at March 31, 2002 had been exercised, the Fund's net asset value would
have been reduced by $0.11 per share, 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. As of March 31, 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.

                                       22
<PAGE>

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

                                          2002          2001
                                         ------        ------

Options outstanding at the             1,073,600       337,450
  beginning of the year

Options granted during the year               --     1,003,200

Options exercised during the year             --            --
                                      ----------    ----------
Options surrendered during the year           --      (247,077)

Options expired during the year               --       (19,973)
                                      ----------    ----------
Options outstanding at the end
  of the year                          1,073,600     1,073,600
                                      ==========    ==========
Options exercisable                       70,388        70,388
                                      ==========    ==========

Realized Gains and Losses on Sales of Portfolio Securities

     During the three months ended March 31, 2002, the Fund realized net capital
losses of $666,922 from the sale of securities of one Portfolio Company. The
Fund sold 60,595 shares of its investment in Weatherford International for
$2,844,558, realizing a capital loss of $666,922.

     During the three months ended March 31, 2001, the Fund realized net capital
gains of $3,202,098 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.

Depreciation of Portfolio Securities

     Net unrealized depreciation on investments decreased by $1,782,299 during
the three months ended March 31, 2002 from $4,492,995 to $2,710,696. Such
decrease resulted from increases in the estimated fair value of seven of the
Fund's Portfolio Companies aggregating $4,370,080, decreases in the estimated
fair value of six of the Fund's Portfolio Companies aggregating $3,369,000 and
the transfer of $781,219 in unrealized depreciation to net capital loss from the
sale or disposition of investments in two of the Fund's Portfolio Companies.

     Net unrealized depreciation on investments increased by $8,600,369 during
the three months ended March 31, 2001, from $818,963 to $9,419,332. Such
increase resulted from increases in the estimated fair value of securities of
three of the Fund's Portfolio Companies aggregating $2,395,000, decreases in the
estimated fair value of securities of seven of the Fund's Portfolio Companies
aggregating $8,272,359 and the transfer of $2,723,010 in net unrealized
appreciation to net realized gains from the sale or disposition of investments
in two of the Fund's Portfolio Companies.

Dividends

     The Fund declared no dividends for the three months ended March 31, 2002
and 2001.

                                       23
<PAGE>

Portfolio Investments

     During the three months ended March 31, 2002, the Fund invested $483,749 in
one new company and made follow-on investments of $3,045,952 in eight portfolio
companies, including $415,371 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 quarter ended March 31, 2002, the Fund received an additional 1,793
and 394 shares of preferred stock of Container Acquisition, Inc and Sovereign
Business Forms, Inc. ("Sovereign") in payment of $179,300 and $39,400 in
dividends, respectively. In addition, Sovereign elected to convert $153,575 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"). 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.

     During the quarter ended March 31, 2002, the Fund advanced $100,000 to
Equicom, Inc. pursuant to a 10% promissory note.

     During the quarter ended March 31, 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.

     For the quarter ended March 31, 2002, the original issue discount accretion
and interest on the discounted 15% promissory note from Doane Pet Care Company
amounted to $81,340, bringing the balance of the note to $1,509,565 at March 31,
2002.

     For the quarter ended March 31, 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 quarter ended March 31, 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
$3,663,102 at March 31, 2002. The original issue discount is being accreted over
the life of the note.

Subsequent Events

     Subsequent to March 31, 2002, the Fund repaid a net $63,675,100 of notes
payable to the bank.

     On April 5, 2002, the Fund invested an additional $180,000 in Sternhill
Partners I, L.P. pursuant to its commitment.

     On April 29, 2002, the Fund invested an additional $1,641,000 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.

                                       24
<PAGE>

     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.

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 changes 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.

Part II. Other Information

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

         (a)  Exhibits

         10.  Material Contracts

         (b)  Reports on Form 8-K

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

                                       25
<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:  May 15, 2002                    EQUUS II INCORPORATED

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

                                       26