10-Q

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, 2005

or

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

For the transition period              to             

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 incorporation or organization)	(I.R.S. Employer Identification No.)

2727 Allen Parkway, 13th Floor Houston, Texas	77019
(Address of principal executive offices)	(Zip Code)

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

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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in 12b-2 of the Exchange Act).    Yes  ¨    No  x

There were 7,376,592 shares of the registrant’s common stock, $.001 par value, outstanding, as of August 15, 2005. The net asset value of a share at June 30, 2005 was $11.40.

EQUUS II INCORPORATED

(A Delaware Corporation)

INDEX

		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets
	- June 30, 2005 and December 31, 2004	1
	Statements of Operations
	- For the three months ended June 30, 2005 and 2004	2
	- For the six months ended June 30, 2005 and 2004	3
	Statements of Changes in Net Assets
	- For the six months ended June 30, 2005 and 2004	4
	Statements of Cash Flows
	- For the six months ended June 30, 2005 and 2004	5
	Selected Per Share Data and Ratios
	- For the six months ended June 30, 2005 and 2004	7
	Schedule of Portfolio Securities
	- June 30, 2005	8
	Notes to Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	27
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders	29
Item 6.	Exhibits	30
SIGNATURE		32

EQUUS II INCORPORATED

BALANCE SHEETS

JUNE 30, 2005 AND DECEMBER 31, 2004

(Unaudited)

	2005			2004
Assets
Investments in portfolio securities at fair value (cost $54,309,187 and $53,194,666, respectively)	$	57,458,005		$	48,621,356
Restricted cash & temporary investments, at cost which approximates fair value		40,378,760			24,218,234
Cash		6,706,497			12,523
Temporary cash investments, at cost which approximates fair value		17,729,209			18,563,525
Accounts receivable		72,627			104,964
Accrued interest and dividends receivable		451,098			441,644
Escrowed receivables, at fair value		2,137,333			2,660,000
Total assets	$	124,933,529		$	94,622,246
Liabilities and net assets
Liabilities:
Accounts payable and accrued liabilities	$	827,550		$	99,614
Accrued compensation		—			12,367
Dividends payable		—			1,589,160
Due to management company		23,246			342,998
Borrowing under margin account		39,978,970			23,978,450
Total liabilities		40,829,766			26,022,589
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, 7,376,592 and 6,506,692 shares outstanding, respectively		7,377			6,507
Additional paid-in capital		91,456,960			84,174,979
Undistributed net investment income (losses)		(1,796,005	)		(12,367	)
Undistributed net capital gains (losses)		(8,713,387	)		(10,996,152	)
Unrealized appreciation (depreciation) of portfolio securities, net		3,148,818			(4,573,310	)
Total net assets	$	84,103,763		$	68,599,657
Net assets per share	$	11.40		$	10.54

The accompanying notes are an

integral part of these financial statements.

1

EQUUS II INCORPORATED

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004

(Unaudited)

	2005			2004
Investment income:
Interest income from portfolio securities	$	333,953		$	455,641
Dividend income from portfolio securities		157,416			48,100
Interest from temporary cash investments		82,760			24,848
Other income		—			30,000
Total investment income		574,129			558,589
Expenses:
Management fee		420,519			352,642
Director fees and expenses		142,519			87,602
Professional fees		255,934			227,369
Administrative fees		12,500			12,500
Mailing, printing and other expenses		139,755			46,434
Interest expense		25,167			12,358
Compensation expense (benefit)		283,259			23,629
Franchise taxes		117,546			77,465
Special administrative fees		535,000			—
Total expenses		1,932,199			839,999
Net investment income (loss)		(1,358,070	)		(281,410	)
Realized gain (loss) on dispositions of portfolio securities, net		15,711			10,255,058
Unrealized appreciation (depreciation) of portfolio securities, net:
End of period		3,148,818			(15,365,837	)
Beginning of period		477,614			(6,778,991	)
Increase (decrease) in unrealized appreciation of portfolio securities, net		2,671,204			(8,586,846	)
Total increase (decrease) in net assets from operations	$	1,328,845		$	1,386,802
Increase (decrease) in net assets from operations per share:
Basic	$	0.20		$	0.21
Diluted	$	0.20		$	0.21
Weighted average shares outstanding, in thousands
Basic		6,516			6,601
Diluted		6,516			6,602

The accompanying notes are an

integral part of these financial statements.

2

EQUUS II INCORPORATED

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(Unaudited)

	2005			2004
Investment income:
Interest income from portfolio securities	$	649,777		$	1,151,895
Dividend income from portfolio securities		313,732			3,620,100
Interest from temporary cash investments		172,407			25,110
Other income		3,335			30,000
Total investment income		1,139,251			4,827,105
Expenses:
Management fees		798,392			701,231
Director fees and expenses		247,348			155,259
Professional fees		377,106			288,268
Administrative fees		25,000			25,000
Mailing, printing and other expenses		159,253			67,812
Interest expense		63,659			263,713
Non-cash compensation expense (benefit)		552,760			(276,851	)
Franchise taxes		164,371			81,665
Special administrative fees		535,000			—
Total expenses		2,922,889			1,306,097
Net investment income		(1,783,638	)		3,521,008
Realized gain (loss) on sales of portfolio securities, net		2,282,765			4,135,150
Change in unrealized appreciation (depreciation) of portfolio securities, net:
End of period		3,148,818			(15,365,837	)
Beginning of period		(4,573,310	)		(7,576,155	)
Change in unrealized appreciation (depreciation), net		7,722,128			(7,789,682	)
Total increase (decrease) in net assets from operations	$	8,221,255		$	(133,524	)
Increase (decrease) in net assets from operations per share:
Basic	$	1.26		$	(0.02	)
Diluted	$	1.26		$	(0.02	)
Weighted average shares outstanding, in thousands
Basic		6,511			6,597
Diluted		6,511			6,608

The accompanying notes are an

integral part of these financial statements.

3

EQUUS II INCORPORATED

STATEMENTS OF CHANGES IN NET ASSETS

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(Unaudited)

	2005			2004
Operations:
Net investment income	$	(1,783,638	)	$	3,521,008
Realized gain (loss) on dispositions of portfolio securities, net		2,282,765			4,135,150
Increase in unrealized appreciation of portfolio securities, net		7,722,128			(7,789,682	)
Increase (decrease) in net assets from operations		8,221,255			(133,524	)
Capital transactions:
Non-cash compensation expense (benefit)		—			(302,402	)
Capital Stock Repurchased		—			(574,204	)
Increase from officer notes settlement		23,475			—
Shares issued in dividend		(216	)		—
Options exercised by directors and officers		7,259,592			—
Increase (decrease) in net assets from capital share transactions		7,282,851			(876,606	)
Increase (decrease) in net assets		15,504,106			(1,010,130	)
Net assets, at beginning of period		68,599,657			71,538,554
Net assets, at end of period	$	84,103,763		$	70,528,424

The accompanying notes are an

integral part of these financial statements.

4

EQUUS II INCORPORATED

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(Unaudited)

	2005			2004
Cash flows from operating activities:
Interest and dividends received	$	510,022		$	5,720,495
Cash paid to management company, directors, bank and suppliers		(1,961,945	)		(1,630,605	)
Purchase of portfolio securities		(1,097,500	)		(596,800	)
Proceeds from dispositions of portfolio securities		3,409,490			24,393,973
Principal payments from portfolio securities		31,032			245,000
Sales (purchases) of restricted temporary cash investments		(16,160,525	)		29,059,855
Net cash provided by (used in) operating activities		(15,269,426	)		57,191,918
Cash flows from financing activities:
Advances from bank		—			3,034,044
Repayments to bank		—			(8,034,044	)
Borrowings under margin account		102,923,965			72,998,161
Repayments under margin account		(86,923,445	)		(101,982,887	)
Dividends paid		(1,589,377	)		(2,287,195	)
Repurchase of common stock		—			(574,204	)
Payment of promissory note payable		—			(1,500,000	)
Exercise of stock options		6,694,466			—
Payments received on officer notes		23,475			—
Net cash provided by (used in) financing activities		21,129,084			(38,346,125	)
Net increase in cash and cash equivalents		5,859,658			18,845,793
Cash and cash equivalents at beginning of period		18,576,048			386,879
Cash and cash equivalents at end of period	$	24,435,706		$	19,232,672

The accompanying notes are an

integral part of these financial statements.

5

EQUUS II INCORPORATED

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(Unaudited)

(Continued)

	2005			2004
Reconciliation of increase (decrease) in net assets from operations to net cash provided by operating activities:
Increase (decrease) in net assets from operations	$	8,221,255		$	(133,524	)
Adjustments to reconcile increase (decrease) in net assets from operations to net cash provided by operating activities:
Realized gain on dispositions of portfolio securities, net		(2,282,765	)		(4,135,150	)
Decrease (increase) in unrealized appreciation, net		(7,722,128	)		7,789,682
Decrease (increase) in accrued interest and dividends receivable		(9,454	)		2,094,055
Decrease in accounts receivable		32,337			1,864
Accrued interest or dividends exchanged for portfolio securities		(652,112	)		(1,202,528	)
Non-cash compensation expense (benefit)		552,760			(276,851	)
Increase (decrease) in accounts payable and accrued liabilities		727,936			(42,607	)
Decrease in due to management company		(319,752	)		(5,051	)
Purchase of portfolio securities		(1,097,500	)		(596,800	)
Proceeds from dispositions of portfolio securities		3,409,490			24,393,973
Principal payments from portfolio securities		31,032			245,000
Sales (purchases) of restricted temporary cash investments		(16,160,525	)		29,059,855
Net cash provided by (used in) operating activities	$	(15,269,426	)	$	57,191,918

The accompanying notes are an

integral part of these financial statements.

6

EQUUS II INCORPORATED

SUPPLEMENTAL INFORMATION – SELECTED PER SHARE DATA AND RATIOS

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(Unaudited)

	2005			2004
Selected per share data:
Investment income	$	0.18		$	0.73
Expenses		0.45			0.20
Net investment income (loss) (1)		(0.27	)		0.53
Realized gain (loss) on dispositions of portfolio securities, net		0.35			0.63
Increase in unrealized appreciation of portfolio securities, net		1.18			(1.18	)
Increase (decrease) in net assets from operations		1.26			(0.02	)
Capital transactions:
Non-cash compensation expense		—			(0.04	)
Common stock repurchases		—			0.03
Dilutive effect of shares issued in common stock dividend and exercise of options		(0.40	)		—
Net increase (decrease) in assets from capital transactions		(0.40	)		(0.01	)
Net increase (decrease) in net assets		0.86			(0.03	)
Net asset value at beginning of period		10.54			10.81
Net asset value at end of period	$	11.40		$	10.78
Weighted average number of shares outstanding during period, in thousands		6,511			6,597
Market value per share at end of period	$	8.25		$	7.72
Selected ratios:
Ratio of total expenses to average net assets		3.83	%		1.83	%
Ratio of net investment income (loss) to average net assets		(2.34	)%		4.96	%
Ratio of increase (decrease) in net assets from operations to average net assets		10.77	%		(0.19	)%
Total shareholder return		7.00	%		(4.10	)%

(1) Net investment income (loss) is calculated as the net investment income (loss) divided by the weighted average number of shares outstanding during the period.

The accompanying notes are an

integral part of these financial statements.

7

EQUUS II INCORPORATED

SCHEDULE OF PORTFOLIO SECURITIES

JUNE 30, 2005

(Unaudited)

Portfolio Company	Date of Initial Investment	Cost		Fair Value
Alenco Window Holdings, LLC	February 2001
Holds cash and escrowed receivables
- 32.25% membership interest		$	—	$	450,000
The Bradshaw Group	May 2000
Sells and services mid-range and high-speed printing equipment
- Prime + 2% promissory note with a face amount of $398,383 (2)			—		250,000
- 15% promissory note (2)			459,546		—
- 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 Holdings, Inc.	March 1999
Manufacturer & distributor of residential windows
- 1,410,000 shares of common stock (1)			1,471,800		25,944,000
- Warrant to purchase 10,000 shares of common stock for $12.50 per share through June 2009			—		59,000
ConGlobal Industries, Inc. (Formerly Container Acquisition, Inc.)	February 1997
Shipping container repair & storage
- 24,397,303 shares of common stock			1,370,495		—
- Member interest in CCI-ANI, LLC			1,926,942		—
- Member interest (66.7%) in JL Madre, LLC			1,000,000		1,000,000
- Promissory note (3)			2,807,423		—
CMC Investments, LLC	December 2001
Awaiting liquidation
- 21% membership interest			525,000		65,000

The accompanying notes are an

integral part of these financial statements.

8

EQUUS II INCORPORATED

SCHEDULE OF PORTFOLIO SECURITIES

JUNE 30, 2005

(Unaudited)

(Continued)

Portfolio Company	Date of Initial Investment	Cost		Fair Value
Doane PetCare Enterprises, Inc.	October 1995
Manufacturer of private label pet food
- 1,943,598 shares of common stock		$	3,936,643	$	—
The Drilltec Corporation	August 1998
Provides protection & packaging for pipe & tubing
- Prime + 9.75% promissory note (2)			1,000,000		—
ENGlobal Corporation (AMEX: ENG)	December 2001
Engineering and consulting services
- Options to acquire 200,000 shares of common stock exercisable only upon change of control			—		—
Equicom, Inc.	July 1997
Radio stations
- 452,000 shares of common stock			141,250		—
- 657,611 shares of preferred stock			6,576,110		—
- 10% subordinated promissory note			4,614,824		1,348,750
- 10% senior subordinated promissory note (1)(3)			950,931		950,931
- 8.81% promissory note (1)			1,000,319		1,000,319
PalletOne, Inc.	October 2001
Wooden pallet manufacturer
- 4,192,650 shares of preferred stock (1)			4,192,650		4,192,650
- 350,000 shares of common stock			350,000		1,150,000
Sovereign Business Forms, Inc.	August 1996
Business forms manufacturer
- 23,899 shares of preferred stock (1)(3)			2,389,900		1,903,772
- 15% promissory notes (1)(3)			4,846,228		4,846,228
- Warrant to buy 551,894 shares of common stock at $1 per share through August 2006			—		—
- Warrant to buy 25,070 shares of common stock at $1.25 per share through October 2007			—		—
- Warrant to buy 273,450 shares of common stock at $1 per share through October 2009			—		—

The accompanying notes are an

integral part of these financial statements.

9

EQUUS II INCORPORATED

SCHEDULE OF PORTFOLIO SECURITIES

JUNE 30, 2005

(Unaudited)

(Continued)

Portfolio Company	Date of Initial Investment	Cost		Fair Value
Spectrum Management, LLC	December 1999
Business & personal property protection
- 285,000 units of Class A equity interest		$	2,850,000	$	7,300,000
- 16% subordinated promissory note (1)			1,303,698		1,303,698
- 12.75% subordinated promissory note (1)			223,657		223,657
Sternhill Partners I, L.P.	March 2000
Venture capital fund
- 3% limited partnership interest			2,529,104		720,000
Turf Grass Holdings, Inc.	May 1999
Grows, sells & installs warm season turfgrasses
- 1,000 shares of common stock			959,632		—
Jones Industrial Holdings, Inc.	July 1998
Field service for petrochemical & power generation industries
- 35,000 preferred stock			3,500,000		3,700,000
- Warrants to buy 63,637 shares of common stock at $0.01 through June 2008			100		—
Vanguard Ventures VII, L.P.	June 2000
Venture capital fund
- 1.3% limited partnership interest			2,047,934		1,050,000
Total		$	54,309,187	$	57,458,005

(1) Income-producing. All other securities are considered non-income producing.

(2) As of June 30, 2005, 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 notes and related interest, and they may be collected in the future.

(3) Income on these securities is paid-in-kind by the issuance of additional securities or through the accretion of original issue discount.

The accompanying notes are an

integral part of these financial statements.

10

EQUUS II INCORPORATED

SCHEDULE OF PORTFOLIO SECURITIES

JUNE 30, 2005

(Unaudited)

(Continued)

Substantially all of the Fund’s portfolio securities are restricted from public sale without prior registration under the Securities Act of 1933. The Fund negotiates certain aspects of the method and timing of the disposition of the Fund’s investment in each portfolio company, including registration rights and related costs. In connection with the investments in Champion Window Holdings, Inc., The Drilltec Corporation, Jones Industrial Services, Inc. and Sovereign Business Forms, 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 (the “1940 Act”, at June 30, 2005, the Fund was considered to have a controlling interest in Champion Window Holdings, Inc., ConGlobal Industries, Inc., The Drilltec Corporation, Equicom, Inc. (“Equicom”), PalletOne, Inc., Sovereign Business Forms, Inc., and Spectrum Management LLC.

Income was earned in the amount of $963,509 and $4,668,007 for the six months ended June 30, 2005 and 2004, respectively, on portfolio securities of companies in which the Fund has a controlling interest. Income was earned in the amount of $103,988 for the six months ended June 30, 2004, on portfolio securities of companies that are affiliates of the Fund but are not controlled by the Fund. No such income was earned in the six months ended June 30, 2005.

As defined in the 1940 Act, 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”), Sternhill Partners I, L.P., and Vanguard VII, L.P. The Fund provides significant managerial assistance to portfolio companies that comprise 97% of the total value of the investments in portfolio companies at June 30, 2005.

The accompanying notes are an

integral part of these financial statements.

11

EQUUS II INCORPORATED

SCHEDULE OF PORTFOLIO SECURITIES

JUNE 30, 2005

(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, 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, 2005:

Type of Securities	Cost		Fair Value		Fair Value as Percentage of Net Assets
Common stock	$	8,229,820	$	27,094,000	32.2	%
Secured and subordinated debt		17,206,626		9,923,582	11.8	%
Preferred stock		17,993,660		9,796,423	11.6	%
Limited liability company investments		6,301,942		8,815,000	10.5	%
Limited partnership investments		4,577,038		1,770,000	2.1	%
Options and warrants		101		59,000	0.1	%
Total	$	54,309,187	$	57,458,005	68.3	%

The following is a summary by industry of the Fund’s investments as of June 30, 2005:

Industry	Fair Value		Fair Value as Percentage of Net Assets
Business Products and Services	$	15,827,355	18.8	%
Industrial Products and Services		3,700,000	4.4	%
Media		3,300,000	3.9	%
Residential Building Products		26,453,000	31.5	%
Shipping Products and Services		6,342,650	7.5	%
Venture Funds and Other		1,835,000	2.2	%
Total	$	57,458,005	68.3	%

12

EQUUS II INCORPORATED

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2005 AND 2004

(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 grow internally or by acquiring other businesses. 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 stock or debt combined with warrants, options or other rights to acquire common or preferred stock. The Fund elected to be treated as a business development company under the 1940 Act. For tax purposes, the Fund has elected to be treated as a regulated investment company (“RIC”). With shareholder approval on June 30, 2005, the Fund has entered into a new investment advisory agreement with Moore Clayton Capital Advisors, Inc. (the “Adviser”). Prior to this agreement, the Fund’s adviser was Equus Capital Management Corporation.

Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. The unaudited financial statements have been prepared consistent with the accounting policies reflected in the Fund’s annual financial statements included in the Company’s Form 10-K for the year ended December 31, 2004 filed with the SEC and should be read in conjunction therewith. In management’s opinion, the unaudited financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such financial statements. Interim results are not necessarily indicative of results for a full year.

(2) Liquidity and Financing Arrangements

Liquidity and Revolving Line of Credit – At June 30, 2005, we had cash and unrestricted temporary investments of approximately $24.4 million. We had $57,458,005 of our total assets of $124,933,529 invested in portfolio securities of sixteen entities, including twelve portfolio companies, two venture capital funds, and two entities which have disposed of substantially all of their assets and are awaiting liquidation. $39,978,970 of our remaining assets were invested in U.S. Treasury Bills for the purpose of satisfying the diversification requirement to maintain our pass-through tax treatment. These securities were held by a securities brokerage firm and were pledged along with cash to secure the payment of the margin account balance. The U.S. Treasury bills were sold and the margin loan was repaid to the brokerage firm on July 1, 2005.

On June 30, 2005, the Fund received cash of $6,694,466 for the exercise of all 869,900 stock options which were in the money and being held by officers and directors of the Fund.

In April 2004, the Fund sold its interest in Strategic Holdings, Inc. and SMIP, Inc. Proceeds of such sale included cash of $13.8 million, which was used to repay the outstanding balance under the Fund’s line of credit and promissory note payable.

13

In May 2004, the Fund and Alenco Window Holdings, LLC (“AWHLLC”) sold their respective interests in Alenco Holding Corporation. The proceeds of the sale and distributions from AWHLLC of approximately $9.75 million were invested in short-term investments.

In May 2004, the Fund announced and began a program to utilize up to $3,000,000 of its cash to repurchase shares of its common stock in the open market on the New York Stock Exchange, subject to the restrictions of the 1940 Act and the Securities Exchange Act of 1934. At June 30, 2004, the Fund had repurchased 74,105 shares of common stock (of which 50,000 shares were sold by a significant shareholder) for a total of $574,204. Since the shares were purchased at a discount to net asset value, these purchases added $0.03 to the net asset value per share at June 30, 2004.

We had a $10,000,000 revolving line of credit with Bank of America, N.A. that expired on January 31, 2004. The line of credit was extended through March 15, 2004 at the reduced maximum borrowing amount of $6,600,000. We used our revolving line of credit to pay operating expenses and for new and follow-on investments in portfolio securities.

Effective March 15, 2004, we entered into a new $6,500,000 revolving line of credit loan with The Frost National Bank, which extended through March 31, 2005. The proceeds of the new loan were utilized to pay off the previous line of credit. In March 2005, we extended our revolving line of credit with The Frost National Bank through April 2006 and reduced the amount that may be borrowed to $5,000,000. There is no outstanding balance as of June 30, 2005, under the new line of credit.

The new line of credit is collateralized by our investments in portfolio securities. The provisions of the new line of credit include a borrowing base that cannot exceed the lesser of 10% of the total value of eligible portfolio securities or $5,000,000. Interest on the new line of credit is payable quarterly at a rate of 0.50% above the floating prime rate, adjusted daily. A facility fee of 0.25% per annum on the unused portion of the line of credit is payable quarterly in arrears. We paid a commitment fee of $65,000 at the closing of the loan in March 2004 and a $25,000 fee in March 2005 to extend the loan through April 2006.

On July 28, 2005, the Fund formally terminated its revolving line of credit with The Frost National Bank due to its present cash position and projected ongoing cash requirements, which made it unlikely that the existing line would be utilized in the foreseeable future.

Under certain circumstances, we may be called on to make follow-on investments in certain portfolio companies. If we do not have sufficient funds to make follow-on investments, the portfolio company in need of the investment may be negatively impacted. Also, our equity interest in and our estimated fair value of the portfolio company could be reduced. As of June 2005, we have committed to invest up to an additional $1,342,500 in the two venture capital funds in our portfolio.

At June 30, 2005 and 2004, the Fund was being charged interest at a rate of 6.25% and 4.5%, respectively, on its line of credit. The average daily balances outstanding on the Fund’s line of credit during the six months ended June 30, 2005 and 2004 was $0 and $2,725,877, respectively. During the six months ended June 30, 2005 and 2004, the amount of interest and loan fees paid in cash was $72,941 and $292,455, respectively.

RIC Borrowings, Restricted Cash and Temporary Investments - Because of the nature and size of its portfolio investments, the Fund periodically borrows money utilizing a margin account with a securities brokerage firm to make qualifying investments to maintain its tax status as a RIC under the Internal Revenue Code. As of June 30, 2005 and 2004, the Fund borrowed $39,978,970 and $22,999,361, respectively. The

14

Fund collateralized such borrowings with restricted cash and temporary investments of $40,378,760 and $23,635,347, at June 30, 2005 and 2004, respectively. The temporary qualifying investments were sold, and the total amount borrowed was repaid on July 1, 2005 and 2004. The Adviser believes the Fund will be able to use this financing arrangement to maintain its RIC status. However, there is no assurance that such arrangement will be available to the Fund in the future. If the Fund is unable to borrow funds in the future to make qualifying investments, the Fund may no longer qualify as a RIC. Failure to continue to qualify as a RIC could be material to the Fund and the Fund’s shareholders in that the Fund would be subject to corporate income tax on its net investment income and net realized gains, and any distributions to stockholders would be subject to income tax as ordinary dividends.

(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 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 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, in an orderly manner. Appraisal valuations are necessarily subjective and the Adviser’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 Adviser, 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 free cash flow generated by the portfolio company in its most recent fiscal year, 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 Adviser’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 portfolio 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. When the Adviser 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. 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.

15

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 condition 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.

Certain of the promissory notes provide that interest may be paid in kind or that the original issue discount may be accreted over the life of the notes, by adding such amounts to the principal of the notes.

Because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values, amounting to $57,458,005 and $48,621,356 (including $2,778,878 in publicly-traded securities, net of a $424,836 valuation discount) at June 30, 2005 and December 31, 2004, respectively, the Fund’s estimate of fair value may materially 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. Weekly and daily net asset values 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.

Escrowed Receivables, at Estimated Fair Value - In April and May of 2004, we sold our investments in Strategic Holdings, Inc. and Alenco Holding Corporation, respectively. A portion of the proceeds from each sale was placed in a cash escrow account to secure the representations and warranties we made to the respective purchasers. We could receive up to an aggregate of $3,371,000 in 2005, 2006 and 2007 from such escrow accounts if no claims are made. On April 12, 2005, the Fund received proceeds of $898,667 from the Strategic Holdings, Inc. escrow account. This payout, which was not adjusted for any claims, reduces the aggregate amount of total potential proceeds to $2,472,333. At June 30, 2005, we have valued the amounts receivable from the escrows at $2,137,333, because of the uncertainty of collection. We are not aware of any claims against the escrow that have been made as of June 30, 2005.

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. The Fund includes its investing activities within cash flows from operations.

16

.Stock-Based Compensation – The Fund accounts for stock-based compensation using the intrinsic value method in accordance with the provisions of APB No. 25. Had the Fund accounted for the options using the fair value method under SFAS 123, the increase (decrease) in net assets from operations for the six months ended June 30, 2005 and 2004, respectively, would have been:

	2005			2004
Increase (decrease) in net assets from operations, as reported	$	8,221,255		$	(133,524	)
Stock-based employee compensation expense (benefit) included in increase (decrease) in net assets from operations		552,760			(276,851	)
Stock-based employee compensation expense determined using fair value method		(46,136	)		(24,837	)
Pro forma increase (decrease) in net assets from operations	$	8,727,879		$	(435,212	)
Net increase (decrease) in net assets from operations per share
Basic, as reported	$	1.11		$	(0.02	)
Basic, pro-forma	$	1.18		$	(0.07	)
Diluted, as reported	$	1.11		$	(0.02	)
Diluted, pro-forma	$	1.18		$	(0.07	)

Federal Income Taxes – The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company (“RIC”) and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to stockholders. Therefore, no provision for federal income taxes is recorded in the accompanying financial statements. The Fund borrows money from time to time to maintain its tax status under the Internal Revenue Code as a RIC. See Note 2 for further discussion of the Fund’s RIC borrowings.

(4) Management - Administration

The Fund has entered into a new investment advisory agreement dated June 30, 2005 (the “Advisory Agreement”) with the Adviser. Pursuant to the Advisory Agreement, the Adviser performs certain investment advisory services that are necessary for the operation of the Fund. The Adviser receives a base advisory fee at an annual rate of 2% of the net assets of the Fund, paid quarterly in arrears, as well as incentive fees in the following amounts: (i) 20% of the excess, if any, of the Fund’s net investment income for a quarter that exceeds a quarterly hurdle rate equal to 2% (8% annualized) of the Fund’s net assets, and (ii) 20% of the Fund’s net realized capital gain less unrealized capital depreciation paid on an annual basis. The advisory fees that the Fund pays represent the Adviser’s primary source of revenue. The Adviser is a wholly-owned subsidiary of Moore, Clayton & Co., Inc., an international private equity investment and advisory firm.

The Advisory Agreement will continue in effect for two years, 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 Independent Directors of the Fund. The Advisory Agreement may be terminated at any time, without the payment of any penalty, by the Board of Directors or the holders of a majority of the Fund’s shares on 60 days’ written notice to the Adviser, and would automatically terminate in the event of its “assignment” (as defined in the 1940 Act).

The Fund has also entered into a new administration agreement dated June 30, 2005 (“Administration Agreement”) with Equus Capital Administration Company (the “Administrator”). The

17

Fund agreed to reimburse the Administrator certain one time costs and expenses (“Special Administrative Fee”) associated with the change in administrators. The Special Administrative Fee, in the amount of $535,000, has been accrued as of June 30, 2005 and is included in “Accounts payable and accrued expenses” in the accompanying Balance Sheet. Pursuant to the Administration Agreement, the Administrator provides (or arranges for suitable third parties to provide) all administrative services necessary for the operation of the fund. The Fund reimburses the Administrator for the costs and expenses incurred by the Administrator in performing its obligations and providing personnel and facilities under the Administrative Agreement, provided that such reimbursements do not exceed $450,000 per year, excluding the one-time Special Administrative Fee.

The Administration Agreement will continue in effect for two years, and from year-to-year thereafter, provided such continuance is approved at least annually by the Fund’s Board of Directors, including a majority of the Independent Directors. The Administration Agreement may be terminated at any time, without the payment of any penalty, by the Board of Directors, or by the Administrator, upon 60 days’ written notice to the other party, and would automatically terminate in the event of its “assignment” (as defined in the 1940 Act).

Prior to entering into the Advisory and Administration Agreements, the Fund was a party to a management agreement with Equus Capital Management Corporation (“ECMC”) that was initially approved by the Fund’s stockholders at a special meeting held on April 9, 1997. Under that agreement, ECMC provided both advisory and administration services. ECMC received a management fee at an annual rate of 2% of the net assets of the Fund, paid quarterly in arrears. Additionally, ECMC received compensation for providing certain investor communication services. The accompanying Statements of Operations include $25,000 related to such services for each of the six months ended June 30, 2005 and 2004.

As compensation for services to the Fund, each Independent Director receives an annual fee of $20,000 paid quarterly in arrears, a fee of $2,000 for each meeting of the Board of Directors attended in person, a fee of $1,000 for participation in each telephonic meeting of the Board and a fee of $1,000 for each committee meeting attended, and reimbursement of all out-of-pocket expenses relating to attendance at such meetings. Certain officers of the Fund serve as directors of the Fund’s portfolio companies, and may receive and retain fees, including non-employee director stock options, from such portfolio companies in consideration for such service.

(5) Federal Income Tax Matters

The Fund is required to make distributions of any net taxable investment income on an annual basis, and may elect to distribute or retain net taxable realized capital gains. 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.

The Fund was required to make a distribution of ordinary income for 2004 under income tax regulations. For the year ended December 31, 2004, the Fund had net investment income for book purposes of $3.7 million and $3.5 million for tax purposes. During 2004, the Fund had a net capital loss for book purposes of $5.5 million and a net capital loss for tax purposes of $7.8 million. As of December 31, 2004, the Fund has a capital loss carry forward of $16.0 million, which may be used to offset future taxable capital gains. If not utilized, some of the loss will expire beginning in 2009.

18

(6) Dividends

The Fund declared no dividends during the three months ended June 30, 2005 and 2004. On January 16, 2005, the Fund paid $1,589,377 in cash for a dividend that had been declared in 2004 and on January 16, 2004, the Fund paid $2,287,194 in cash for a dividend that had been declared in 2003.

(7) Portfolio Securities

During the six months ended June 30, 2005, the Fund made follow-on investments of $1,749,612 in four companies and one venture fund, including $652,112 in the form of interest and dividends paid in kind or original issue discount amortization. In addition, the Fund realized a net capital gain of $2,282,765 during the six months ended June 30, 2005.

During the six months ended June 30, 2004, the Fund made follow-on investments of $1,799,328 in four companies and two venture funds, including $302,528 in accrued interest and dividends in the form of additional portfolio securities and $949,632 recorded as the cost of securities acquired in an exchange for securities of a new company that acquired the business and assets of a former portfolio company. In addition, the Fund realized a net capital gain of $4,135,150 during the six months ended June 30, 2004.

(8) Former Stock Option Plan

Prior to June 30, 2005, an Equus II Incorporated 1997 Stock Incentive Plan (“Stock Incentive Plan”) authorized 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 2,200 shares of the Fund’s common stock. Options were issued to the officers of the Fund at the discretion of the compensation committee. The options had a ten year life and vested 50% six months after the grant date and 16 ²/3% on the first, second and third anniversaries of the date of the grant. The Board of Directors cancelled the Stock Incentive Plan as of June 30, 2005.

Under the Stock Incentive Plan, options to purchase 1,049,200 shares of the Fund’s common stock with a weighted average exercise price of $8.46 per share were outstanding at June 30, 2004. Of these options, 855,950 shares, with a weighted average exercise price per share of $8.62 were exercisable at June 30, 2004. There were no outstanding options at June 30, 2005. On June 30, 2005, all 869,900 stock options in the money were exercised, and the remaining 89,100 shares that were not in the money were cancelled.

On May 7, 2004, options to acquire a total of 15,400 shares at $7.72 per share were issued to the non-officer directors. On January 4, 2005, options to purchase 150,000 shares at $7.69 per share were issued to two of the Fund’s officers. On December 24, 2003, options to purchase 40,000 shares at $7.85 per share were issued to a new officer of the Fund. On November 14, 2001, options to acquire a total of 990,000 shares at $7.69 per share were issued to officers of the Fund. These options included dividend equivalent rights which require that the options be accounted for using variable plan accounting. Variable plan accounting resulted in non-cash compensation expense (benefit) of $552,760 and (276,851) during the six months ended June 30, 2005 and 2004, respectively.

19

On September 30, 1999, options to purchase 719,794 shares of common stock of the Fund were exercised by six officers of the Fund for $15.45 per share. Pursuant to the terms of the options, the Stock Incentive Plan, and the Investment Company Act, the Fund loaned the officers the exercise price of $11,124,086 and the officers issued promissory notes, which were secured by the 719,794 shares, to the Fund. In 2001, the Fund agreed to cancel the remaining principal balance and accrued interest on the promissory notes aggregating $11,040,849 in consideration of the officers surrendering to the Fund 844,133 shares of common stock (the shares originally issued and certain shares received as dividends). Pursuant to the terms of the notes, the cancellation of the principal and accrued interest on the notes was based on the net asset value of the shares at date of surrender. The officers retained 71,235 shares of common stock following the cancellation of the notes. These transactions were recorded as decreases in common stock and additional paid in capital. There was no change in total net assets as a result of the note repayment and surrendering of the shares.

In January 2002, the Fund filed an application with the SEC seeking an amendment to an exemptive order previously issued by the SEC to permit the Fund to grant dividend equivalent rights to the Fund’s independent directors as part of their stock option awards. Dividend equivalent rights represent the right of the officers of the Fund to receive a credit against the option exercise price for the amount of any dividends paid by the Fund during the option period. During its review of such application, the SEC staff advised the Fund that it does not believe that dividend equivalent rights are permitted under the Investment Company Act. Based on the ongoing discussion with the SEC, the Fund has not credited any dividends to the outstanding options or recorded any associated compensation expense for the 2004 or 2003 dividends applicable to dividend equivalent rights. If the dividend equivalent rights had been in effect, additional non-cash compensation expense of approximately $387,000 and $650,000 with a credit to accrued compensation, would have been recognized under variable plan accounting of 2004 and 2003, respectively.

During its review of the exemptive application filed by the Fund in connection with the granting of the dividend equivalent rights as part of the Stock Incentive Plan, the SEC staff raised certain issues with respect to the valuation of the shares held as collateral and the manner in which the notes were settled in 2001. In November 2003, the Fund’s board of directors appointed a special committee of independent directors to address the SEC staff’s issues and retained independent legal counsel with respect to the issues raised by the SEC. The Fund responded to the staff’s questions and supplied additional information, and the special committee and counsel met personally with the SEC staff.

In September 2004, the independent directors of the Fund unanimously approved a proposal to resolve the issues surrounding the loan transactions by unwinding the loan transactions and attempting to place the Fund in the position it would have been in had the loan transactions never taken place. In exchange for repayment of the balance of benefits received as a result of the loan transactions, the Fund agreed to formally release each of the Fund’s officers and former officers from any and all claims that the Fund might have with respect to the loan transactions. In connection with the resolution of this matter, the Fund issued a release to one additional former officer in consideration of his payment to the Fund of $23,475 in March 2005.

Options to purchase 869,900 shares were exercised by all officers and directors on June 30, 2005 and the Fund received $6,694,465 in cash from the exercise of such options. Options to purchase 12,500 shares were exercised by one officer of the Fund during 2004 and the Fund received $96,125 in cash from the exercise of such options.

If all outstanding options for which the market price exceeds the exercise price at December 31, 2004, had been exercised, the fund’s net asset value would have been reduced by $0.02 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.

20

Subsequent Events

On July 1, 2005, the Fund sold U.S. Treasury Bills for $40,000,000 and repaid the margin loan.

On July 6, 2005, the Fund received a cash interest payment from Sovereign Business Forms, Inc. for $136,067. This amount was included in accrued interest receivable at June 30, 2005.

On July 12, 2005, the Fund received a cash dividend payment from PalletOne, Inc. for $104,816. This amount was included in dividends receivable at June 30, 2005.

On July 28, 2005, the Fund formally terminated its revolving line of credit loan with The Frost National Bank due to its present cash position and projected ongoing cash requirements, which made it unlikely that the existing line would be utilized in the foreseeable future.

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

Overview

Equus II Incorporated is a business development company which invests in equity and equity-oriented securities issued by privately-owned companies in transactions negotiated directly with such companies. We had investments in sixteen entities, including twelve portfolio companies, two venture capital funds and two entities which have disposed of substantially all of their assets and are

awaiting liquidation at June 30, 2005. We had investments in sixteen portfolio companies and two venture capital funds at June 30, 2004. We did not make any new investments during the six months ended June 30, 2005 or 2004.

The valuation of our investments is the most significant area of judgment impacting our financial statements. Our portfolio investments are valued at their fair value, with the net change in unrealized appreciation or depreciation included in the determination of net assets. Almost all of our long-term investments are in privately-held or restricted securities, the valuation of which is necessarily subjective. Portfolio valuations are determined quarterly by the Adviser, subject to the approval of the Board of Directors, and are based on a number of relevant factors.

Most of our portfolio companies utilize leverage, and the leverage magnifies the return on our investments. For example, if a portfolio company has a total enterprise value of $10 million and $7.5 million in funded indebtedness, its equity is valued at $2.5 million. If the enterprise value increases or decreases by 20%, to $12 million or $8 million, respectively, the value of the equity increases or decreases by 80%, to $4.5 million or $0.5 million, respectively. This disproportionate increase or decrease adds a level of volatility to our equity-oriented portfolio securities.

We derive our cash flow from interest and dividends received and sales of securities from our investment portfolio. We pay certain advisory fees to the Adviser, administrative fees to the Administrator and interest expense on our existing debt. We also spend our cash on new investments, or follow-on investments which may be required by certain portfolio companies. Because our investments are illiquid, we utilized leverage to provide the required funds, and the leverage was then repaid from the sale of portfolio securities. In April and May of 2004, we sold securities of two portfolio companies and paid off our loans. We have maintained substantial amounts of cash and cash equivalents since May 2004.

21

We have distributed to our stockholders any net taxable investment income or realized capital gains on an annual basis. We declared a net investment income dividend of $0.57 per share in 2004, all of which was qualifying dividend income. We did not declare a dividend for the six months ended June 30, 2005.

Since we are a closed-end business development company, stockholders have no right to present their shares to the Fund for redemption. Because our shares continue to trade at a discount, our Board of Directors has determined that it would be in the best interest of our stockholders for the Fund to be authorized to attempt to reduce or eliminate the market value discount from net asset value. Accordingly, from time to time we may, but we are not required to, repurchase our shares (including by means of tender offers) to attempt to reduce or eliminate the discount or to increase the net asset value of our shares.

In May and June of 2004, the Fund repurchased 74,105 shares (of which 50,000 shares were sold by a significant shareholder) of its common stock for $574,204, pursuant to a plan to spend up to $3,000,000 to repurchase our common stock in the open market. The 74,105 shares were repurchased at an average discount rate of approximately 27% from net asset value, and the effect of these transactions added approximately $0.03 per share to the net asset value of our outstanding shares. The plan was completed by the end of 2004.

Significant Accounting Policies

Valuation of Investments - The valuation of our portfolio companies is the most significant area of judgment impacting the financial statements. 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 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 is determined on the basis of procedures established in good faith by our Board of Directors. As a general principle, the current “fair value” of an investment is the amount we might reasonably expect to receive for it upon its current sale, in an orderly manner. 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 our 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 our common equity investments are appraised at a multiple of free cash flow generated by the portfolio company in its most recent fiscal year, 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 Adviser’s experience in the private company marketplace, and are necessarily subjective in nature.

22

Most of the portfolio companies utilize a high degree of leverage. From time to time, portfolio companies are in default of certain covenants in their loan agreements. When the Adviser has a reasonable belief that a portfolio company will be able to restructure its loan agreements to adjust for any defaults, the portfolio company’s securities continue to be valued assuming that the company is a going concern. In the event a portfolio company cannot generate adequate cash flow to meet the principal and interest payments on its indebtedness or is not successful in refinancing the debt upon its maturity, the value of our investment could be reduced or eliminated through foreclosure on the portfolio company’s assets or the portfolio company’s reorganization or bankruptcy.

We 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 generally will be valued at their face value, plus interest accrued to the date of valuation.

On a daily basis, we adjust our net asset value for changes in the value of our publicly held securities and material changes in the value of our private securities, and report those amounts to Lipper Analytical Services, Inc. Weekly and daily net asset values appear in various publications, including Barron’s and The Wall Street Journal.

Federal Income Taxes – We intend to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to stockholders. Therefore, no provision for federal income taxes is recorded in our financial statements. As of December 31, 2004, the Fund had a capital loss carry forward of approximately $16.0 million, which may be used to offset future taxable capital gains. We borrow money from time to time to maintain our tax status under the Internal Revenue Code as a regulated investment company (“RIC”).

Liquidity and Capital Resources

At June 30, 2005, we had cash and unrestricted temporary investments of approximately $24.4 million. We had $57,458,005 of our total assets of $124,933,529 invested in portfolio securities of sixteen entities, including twelve portfolio companies, two venture capital funds, and two entities which have disposed of substantially all of their assets and are awaiting liquidation. $39,978,970 of our remaining assets were invested in U.S. Treasury Bills for the purpose of satisfying the diversification requirement to maintain our pass-through tax treatment. These securities were held by a securities brokerage firm and were pledged along with cash and other securities to secure the payment of the margin account balance. The U.S. Treasury bills were sold and the margin loan was repaid to the brokerage firm on July 1, 2005.

Effective March 15, 2004, we entered into a new $6,500,000 revolving line of credit loan with The Frost National Bank, which extended through March 31, 2005. The proceeds of the new loan were utilized to pay off the previous line of credit. The proceeds of the new loan were utilized to pay off the previous line of credit. In March 2005, the Fund extended our revolving line of credit with The Frost National Bank through April 2006 and reduced the amount that may be borrowed to $5,000,000. There is no outstanding balance as of June 30, 2005, under the new line of credit.

23

The new line of credit is collateralized by our investments in portfolio securities. The provisions of the new line of credit include a borrowing base that cannot exceed the lesser of 10% of the total value of eligible portfolio securities or $5,000,000. Interest on the new line of credit is payable quarterly at a rate of 0.50% above the floating prime rate, adjusted daily. A facility fee of 0.25% per annum on the unused portion of the line of credit is payable quarterly in arrears. We paid a commitment fee of $65,000 at the closing of the loan in March 2004 and a $25,000 fee in March 2005 to extend the loan through April 2006.

On July 28, 2005, the Fund formally terminated its revolving line of credit loan with The Frost National Bank due to its present cash position and projected ongoing cash requirements, which made it unlikely that the existing line would be utilized in the foreseeable future.

On April 8, 2004, we sold our interest in Strategic Holdings, Inc and SMIP, Inc. Proceeds from such sale were used to pay off our existing borrowings under our line of credit and the promissory note referenced above. The remaining proceeds may be used for new or follow-on investments or other corporate purposes.

We declared a net investment income dividend of $0.57 per share for 2004, or $3,560,205. We paid $1,589,376 in cash and issued 260,719 additional shares of common stock at $7.56 per share on January 16, 2005.

Under certain circumstances, we may be called on to make follow-on investments in certain portfolio companies. If we do not have sufficient funds to make follow-on investments, the portfolio company in need of the investment may be negatively impacted. Also, our equity interest in and our estimated fair value of the portfolio company could be reduced. As of June 30, 2005, we have committed to invest up to an additional $1,342,500 in the two venture capital funds in our portfolio.

Net cash provided by (used in) operating activities was ($15,269,426) and $57,191,918 for the six months ended June 30, 2005 and 2004, respectively. Approximately $9.9 million in estimated value of our investments are in the form of notes receivable from portfolio companies. However, only three of the portfolio companies are currently paying cash interest to us in accordance with their respective notes receivable, which aggregate $5,931,660 in fair value. Certain of the promissory notes provide that interest may be paid in kind or that the original issue discount may be accreted over the life of the notes, by adding such amounts to the principal of the notes.

Because of the nature and size of our portfolio investments, we periodically borrow funds to make qualifying investments to maintain our tax status as a RIC. During the six months ended June 30, 2005 and 2004, we borrowed such funds by utilizing a margin account with a securities brokerage firm. There is no assurance that such arrangement will be available in the future. If we are unable to borrow funds to make qualifying investments, we may no longer qualify as a RIC. We would then be subject to corporate income tax on our net investment income and realized capital gains, and distributions to stockholders would be subject to income tax as ordinary dividends.

We have the ability to borrow funds and issue forms of senior securities representing indebtedness or stock, such as preferred stock, subject to certain restrictions. Net taxable investment income and net taxable 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 expenses and contingencies or to make follow-on or new investments. Pursuant to the restrictions in our existing line of credit, we are not allowed to incur additional indebtedness unless approved by the lender.

24

We reserve 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 us as long-term capital gains and stockholders will be able to claim their proportionate share of the federal income taxes paid by us 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 (loss) income after all expenses amounted to ($1,783,638) and $3,521,008 for the six months ended June 30, 2005 and 2004, respectively. Total income from portfolio securities was $963,509 for the six months ended June 30, 2005 and $4,771,995 for the comparable period in 2004. The decrease from 2004 to 2005 is due primarily to a cash dividend of $3,525,000 received in 2004 from Champion Window Holdings, Inc.

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 $798,392 and $701,231 during the six months ended June 30, 2005 and 2004, respectively. The increase in management fees during the six months ended June 30, 2005, was due to an increase in net assets between the two periods which was primarily from the $10.6 million valuation increase at Champion Window Holdings, Inc.

Director fees and expenses increased by $92,089 for the six months ended June 30, 2005, from the same period in 2004 due primarily to eight full board meetings in 2005 compared to three full board meetings in 2004 and additional committee meetings in 2005. The additional board meetings, Strategic Alternative Meetings and Special Committee Meetings were related to entering into the new management agreement with Moore, Clayton & Co., Inc.

Professional Fees increased by $88,838 for the six months ended June 30, 2005, over the comparable period in 2004. These increases are primarily due to legal fees incurred in connection with the SEC matter described in Note 8, proxy preparation, consideration of strategic alternatives and deciding on a strategic alternative for the benefit of the Fund’s shareholders.

Mailing, printing and other expenses increased by $91,441 for the six months ended June 30, 2005, from the same period in 2004 due primarily to proxy solicitation and annual report and proxy printing and mailing.

Interest expense decreased to $63,659 for the first six months of 2005 from $263,713 in 2004 due to the payoff of the revolving line of credit. In addition, franchise taxes increased to $165,371 in 2005 from $81,665 in 2004 primarily due to increases in both the Texas franchise tax and the Delaware franchise tax.

The Fund agreed to reimburse the Administrator certain one time costs and expenses (“Special Administrative Fee”) associated with the change in administrators upon receiving approval from the Fund’s shareholders. The Special Administrative Fee, in the amount of $535,000, has been accrued as of June 30, 2005 and is included in “Accounts payable and accrued expenses” in the accompanying Balance Sheet.

Certain options issued by the Fund are accounted for using variable plan accounting. Such accounting resulted in non-cash compensation expense (benefit) of $552,760 and ($276,851) during the six months ended June 30, 2005 and 2004, respectively. The change is due to the fluctuation in the Fund’s closing stock

25

market price from the beginning of the year to the price at the end of June in relation to the exercise price of the stock options. In 2005, the market price increased from a January 1, 2005 market price of $7.71 to an ending market price at June 30, 2005 of $8.25. In 2004, the market price decreased from a market price at January 1, 2004 of $8.05 to an ending market price at June 30, 2004 of $7.72.

Realized Gains and Losses on Sales of Portfolio Securities

During the six months ended June 30, 2005, we realized net capital gains of $2,282,765 from the disposition of securities in one portfolio company and a reduction in the discounts on the escrow receivable related to the sales of two former portfolio companies. We sold 1,033,457 shares of ENGlobal Corporation (“ENG”) common stock, realizing a capital gain of $1,890,142. We increased the value of the escrow account of Strategic Holdings, Inc. for a capital gain of $331,000 and increased the value of the escrow account of Alenco Holding Corp. for a capital gain of $45,000. In addition, we realized a short-term capital gain of $16,623 on our U.S. Treasury Bills.

During the six months ended June 30, 2004, we realized a capital gain of $4,135,150. We sold 1,154,316 shares of ENGlobal, Inc. (“ENG”) common stock, realizing a capital loss of $119,803. We exchanged our investment in Turfgrass America, Inc. (“TAI”) for an investment in a new entity that acquired the assets and business of TAI, realizing a capital loss of $6,049,696. In the second quarter of 2004 we sold our interests in Alenco and Strategic Materials, and received a cash distribution from AWHLLC, realizing capital gains of $10,201,126. In addition, we realized a short term capital gain of $3,520 on our U.S. Treasury Bills.

Changes in Unrealized Appreciation/Depreciation of Portfolio Securities

Net unrealized appreciation on investments increased by $7,722,128 during the six months ended June 30, 2005, from a net unrealized depreciation of ($4,573,310) to a net unrealized appreciation of $3,148,818. The increase in appreciation resulted from increases in the estimated fair values of six of our portfolio companies aggregating $13,203,000, of which Champion Window Holdings, Inc. accounted for $10,603,000. The Fund had decreases in the estimated fair values of six of our portfolio companies aggregating ($3,590,730), with ConGlobal Industries, Inc. accounting for ($1,346,284), Sovereign Business Forms, Inc. (786,128) and Equicom ($646,140). The Fund also transferred ($1,890,142) in unrealized appreciation to realized capital gains from the sale of all its common stock of ENG.

Net unrealized depreciation on investments increased by $7,789,682 during the six months ended June 30, 2004 from $7,576,155 to $15,365,837. Such increase in unrealized depreciation is due primarily to the sale of Alenco and Strategic Materials, which transferred $9,939,384 of unrealized appreciation at December 31, 2003, to realized gains at June 30, 2004. Excluding the sale of Alenco and Strategic Materials, the net unrealized depreciation decreased by $2,149,702. Such decrease resulted from increases in the estimated fair value of six of our portfolio companies aggregating $9,364,702 and decreases in the estimated fair value of seven of our portfolio companies aggregating $7,215,000. The decrease in the estimated fair value of the portfolio companies is partially a result of the recapitalization dividend declared by Champion Window Holdings, Inc. in March 2004, from which the Fund received $3,525,000 in cash.

Dividends

We declared no dividends for the six months ended June 30, 2005 and 2004. On January 16, 2005 we paid cash dividends of $1,589,377 for dividends declared in 2004. On January 16, 2004, we paid cash dividends of $2,287,194 for dividends declared in 2003.

26

Portfolio Investments

During the six months ended June 30, 2005, we made follow-on investments of $1,749,612 in four portfolio companies and one venture capital fund, including $652,112 of accrued interest, dividends, and original issue discount received in the form of additional portfolio securities.

For the six months ended June 30, 2005, we received an additional 1041 shares amounting to $104,100 of preferred stock of Sovereign Business Forms, Inc. (“Sovereign”) in dividends. In addition, Sovereign elected to convert $182,248 of accrued interest into the balance of the 15% promissory notes due to us.

In January 2005, Spectrum Management, LLC elected to convert $223,657 of accrued interest into a new 12.75% promissory note with interest and principal due at maturity on January 31, 2006.

During the first three months of 2005, all 1,033,457 shares of ENG common stock were sold, realizing a capital gain of $1,890,142.

During the six months ended June 30, 2005, Equicom, Inc. made six principal payments on its 8.81% promissory note of $31,032, reducing the note balance to $1,000,319. Equicom also elected to convert $45,821 of accrued interest into the balance of the 10% promissory note due to us.

For the six months ended June 30, 2005, we recorded $96,286 as amortization of original issue discount on our non-interest bearing note receivable from ConGlobal Industries, Inc.

On June 15, 2005, the Fund made a $1,000,000 follow-on investment to ConGlobal Industries, Inc., through a 66.67% member’s interest in J.L. Madre, LLC. The 10% senior participating note due from J. L. Madre is to mature in September 2007.

On May 16, 2005, we invested an additional $97,500 in Sternhill Partners I, L.P. pursuant to a $3,000,000 commitment made in March 2000. There is $442,500 remaining on the commitment at June 30, 2005.

Subsequent Events

On July 1, 2005, the Fund sold U.S. Treasury Bills for $40,000,000 and repaid the margin loan.

On July 6, 2005, the Fund received a cash interest payment from Sovereign Business Forms, Inc. for $136,067. This amount was included in accrued interest receivable at June 30, 2005.

On July 12, 2005, the Fund received a cash dividend payment from PalletOne, Inc. for $104,816. This amount was included in dividends receivable at June 30, 2005.

On July 28, 2005, the Fund formally terminated its revolving line of credit loan with The Frost National Bank due to its present cash position and projected ongoing cash requirements, which made it unlikely that the existing line would be utilized in the foreseeable future.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

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

27

Our investments in portfolio securities consist 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 our determination of fair value of these debt securities, since the securities are generally held to maturity. Their fair values are determined on the basis of the terms of the debt security and the financial condition of the issuer.

Borrowings under our lines of credit expose the Fund to certain market risks. Based on the average outstanding borrowings under our lines of credit for the six months ended June 30, 2004 of approximately $2,725,877, a change of one percent in the interest rate would have caused a change in interest expense of approximately $14,000. This change would have resulted in a change of $0.002 in the net asset value per share at June 30, 2004. There were no borrowings outstanding during the six months ended June 30, 2005. We did not enter into our credit facility for trading purposes and the line of credit carries interest at a pre-agreed upon percentage point spread from the prime rate. We obtained a new line of credit effective March 15, 2004, which expires on March 31, 2005. In March 2005, the Fund extended our revolving line of credit with The Frost National Bank through April 2006. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our liquidity and capital resources.

On July 28, 2005 the Fund formally terminated its revolving line of credit loan with The Frost National Bank due to its present cash position and projected ongoing cash requirements, which made it unlikely that the existing line would be utilized in the foreseeable future.

A major portion of our investment portfolio consists of debt and equity investments in private companies. Modest changes in public market equity prices generally do not significantly impact the estimated fair value of these investments. However, significant changes in market equity prices can have a longer-term effect on valuations of private companies, which could affect the carrying value and the amount and timing of gains or losses realized on these investments. A small portion of our investment portfolio also consists of common stocks in publicly traded companies. These investments are directly exposed to equity price risk, in that a hypothetical ten percent change in these equity prices would result in a similar percentage change in the fair value of these securities.

The Fund is classified as a “non-diversified” investment company under the Investment Company Act, which means we are not limited in the proportion of our assets that may be invested in the securities of a single user. At June 30, 2005, we had investments in twelve portfolio companies, two venture capital funds and two entities which have disposed of substantially all of their assets and are awaiting liquidation. The value of one of our investments, in a business which manufactures residential windows primarily for new construction, was 31% of our net asset value and 45% of our investments in portfolio company securities (at fair value) at June 30, 2005. Changes in business or industry trends or in the financial condition, results of operations, or the market’s assessment of any single portfolio company will affect our net asset value and the market price of our common stock to a greater extent than would be the case if we were a “diversified” company holding numerous investments.

Item 4. Controls and Procedures

The Fund maintains disclosure controls and other procedures that are designed to ensure that information required to be disclosed by the Fund in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Fund’s management, including its Chairman and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

28

The Fund’s management, with the participation of the Fund’s Chairman and Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operations of the Fund’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2005. Based on their evaluation, the Fund’s Chairman and Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures are effective in timely making known to them material information relating to the Fund required to be disclosed in the Fund’s reports file or submitted under the Exchange Act. There has been no change in the Fund’s internal control over financial reporting during the quarter ended June 30, 2005, that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

Part II. Other Information

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

The Fund held its annual meeting of shareholders on June 30, 2005. At the meeting, shareholders voted on (i) the election of the persons named in the Proxy Statement as Directors of the Fund for the terms described therein, (ii) a new Advisory Agreement between the Fund and Moore, Clayton Capital Advisors, Inc. and (iii) the ratification of the selection of PricewaterhouseCoopers LLP as the Fund’s independent auditors for the fiscal year ending December 31, 2005.

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
Richard F. Bergner	4,798,270	485,459
Charles M. Boyd	4,801,993	481,736
Sam P. Douglass	4,795,967	487,762
Alan D. Feinsilver	4,769,664	514,065
Gregory J. Flanagan	4,802,405	481,324
Henry W. Hankinson	4,800,231	483,498
Robert L. Knauss	4,798,542	485,187
Anthony R. Moore	4,800,780	482,949
Francis D. Tuggle	4,804,096	479,633
James M. Walsh	4,801,589	482,140

29

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

Proposal	For	Against	Abstain
Ratification of new Advisory Agreement	3,015,419	508,271	70,333
Ratification of Auditors	4,982,795	233,660	67,273

The new Advisory Agreement was ratified. All nominees to the Registrant’s Board of Directors were elected. The Fund’s selection of independent auditors was ratified.

Item 6. Exhibits

3.	Articles of Incorporation and by-laws
	(a)	Restated Certificate of Incorporation of the Fund dated March 4, 1992. [Incorporated by reference to Exhibit 3(a) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991.]
	(b)	Certificate of Merger dated June 30, 1993, between the Fund and Equus Investments Incorporated [Incorporated by reference to Exhibit 3(c) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993]
	(c)	Amended and Restated Bylaws of the Fund. [Incorporated by reference to Exhibit 3(c) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995.]
10.	Material Contracts
	(a)	Investment Advisory Agreement dated June 30, 2005, between the Fund and Moore Clayton Capital Advisors, Inc.
	(b)	Administration Agreement dated June 30, 2005, between the Fund and Equus Capital Administration Company.
	(c)	Former 1997 Stock Incentive Plan [Incorporated by reference to Exhibit B to the Registrant’s Definitive Proxy Statement dated February 24, 1997.]

30

	(d)	Form of Indemnification Agreement between Equus II Incorporated and its directors and certain officers.
	(e)	Form of Release Agreement between Equus II Incorporated and certain of its officers and former officers.
	(f)	Joint Code of Ethics of Equus II Incorporated and Equus Capital Management Corporations (Rule 17j-1)
14.	Code of Business Conduct and Ethics for Members of the Board of Directors, Officers, And Employees. [Incorporated by reference to Exhibit 14 to the Registrant’s Annual Report of Form 10-K for the year ended December 31, 2004.]
31.	Rule 13a-14(a)/15d-14(a) Certifications
	a.	Certification by Chairman and Chief Executive Officer
	b.	Certification by Chief Financial Officer
32.	Section 1350 Certification
	a.	Certification by Chairman and Chief Executive Officer
	b.	Certification by Chief Financial Officer

31

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 15, 2005	EQUUS II INCORPORATED
	/s/ Harry O. Nicodemus IV
	Harry O. Nicodemus IV
	Chief Financial Officer

32

EX-10.(A)

Exhibit 10(a)

INVESTMENT ADVISORY AGREEMENT

Between

MOORE CLAYTON CAPITAL ADVISERS, INC.

And

EQUUS II INCORPORATED

Dated June 30, 2005

TABLE OF CONTENTS

		Page
SECTION 1 DUTIES OF THE ADVISER		1
1.1	Engagement	1
1.2	Services	2
1.3	Records	2
1.4	Control and Supervision	3
1.5	Acceptance	3
1.6	Independent Contractor	3
1.7	Compliance	3
1.8	Excess Brokerage Commissions	3
SECTION 2 USE OF SUB-INVESTMENT ADVISER		4
SECTION 3 SERVICES OF THE ADVISER NOT EXCLUSIVE		4
3.1	Limitations on the Employment of the Adviser	4
3.2	Responsibility of Dual Directors, Officers, and Employees	5
SECTION 4 ALLOCATION OF COSTS AND EXPENSES		5
4.1	Costs and Expenses Allocated to the Company	5
4.2	Costs and Expenses Allocated to the Adviser	6
4.3	Company’s Payment of Costs Allocated to the Adviser
4.4	Payment or Assumption by the Adviser	7
SECTION 5 MANAGEMENT FEES		7
5.1	Compensation for Services	7
5.2	Base Management Fee	7
5.3	Incentive Fee	7
5.4	Proration of Fees	9
5.5	Fee Reduction	9
5.6	Calculation and Payment of Management and Incentive Fees	9
SECTION 6 LIMITATION OF LIABILITY OF THE ADVISER		10
SECTION 7 INDEMNIFICATION OF THE ADVISER		10
SECTION 8 DURATION AND TERMINATION		11
8.1	Duration	11
8.2	Termination	12
8.3	Effect of Termination of Expiration	12
SECTION 9 GENERAL PROVISIONS		12
9.1	Notice	12
9.2	Proprietary Rights	12
9.3	Notice of Filing of Certificate of Incorporation	12

i

9.4	Amendment of this Agreement	12
9.5	Assignment	12
9.6	Governing Law	12
9.7	Miscellaneous	13
9.8	Entire Agreement	13
9.9	Counterparts	13
9.10	Severability	13

ii

INVESTMENT ADVISORY AGREEMENT

Agreement dated as of June 30, 2005 (the “Agreement”), by and between Moore Clayton Capital Advisers, Inc., a Delaware corporation (the “Adviser”), and Equus II Incorporated, a Delaware corporation (the “Company”).

WHEREAS, the Company is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940 (the “Investment Company Act”), and is in the business of making investments in equity and equity-oriented securities issued in private placements, primarily in connection with leveraged buyouts and leveraged recapitalizations and making short-term investments for its own account;

WHEREAS, the Adviser is an investment adviser registered as such under the Investment Advisers Act of 1940 (collectively, with the rules and regulations promulgated thereunder, the “Advisers Act”) and is engaged in the business of providing management and investment advisory services with respect to companies participating in leveraged buyouts and leveraged recapitalizations transactions and making temporary short-term investments; and

WHEREAS, the Company deems it advisable to retain the Adviser to furnish certain management and investment advisory services to the Company, and the Adviser wishes to be retained to provide such services, on the terms and conditions hereinafter set forth; and

WHEREAS, the parties acknowledge that Equus Capital Administration Company, an affiliate of the Adviser (the “Administrator”), is providing administrative services to the Company under an Administration Agreement dated June 30, 2005 (the “Administration Agreement”), between the Company and the Administrator;

NOW THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, it is agreed by and between the parties hereto as follows:

SECTION 1

DUTIES OF THE ADVISER

1.1 Engagement. Commencing on the date hereof, the Company hereby engages and retains the Adviser to act as the investment adviser to the Company and to manage the investment and reinvestment of the assets of the Company, subject to the supervision of the Board of Directors of the Company (the “Board”), for the period and upon the terms herein set forth, in accordance with (i) the investment objectives, policies, and restrictions of, and applicable to, the Company, as such investment objectives, policies, and restrictions may be amended from time to time, (ii) the Investment Company Act, (iii) the policies adopted by the Board to the extent such policies do not conflict with any provisions of this Agreement, (iv) all other applicable federal and state securities and commodities laws, rules, and regulations, and (v) the Company’s certificate of incorporation and by-laws, as such certificate of incorporation and by-laws may be amended from time to time.

1.2 Services. Without limiting the generality of Section 1.1, the Adviser shall, during the term and subject to the provisions of this Agreement provide, or arrange for suitable third parties to provide, any and all management and investment advisory services necessary for the operation of the Company and the conduct of its business. Such management and investment advisory services shall include, but not be limited to, the following:

(a) determining the composition of the portfolio of the Company, the nature and timing of the changes therein, and the manner of implementing such changes;

(b) identifying, evaluating, and negotiating the structure of the investments made by the Company;

(c) monitoring the performance of, and managing the Company’s investments;

(d) determining the securities and other assets that the Company will purchase, retain, or sell and the terms on which any such securities are purchased and sold;

(e) arranging for the disposition of investments for the Company;

(f) recommending to the Board the fair value of the Company’s investments that are not publicly traded debt or equity securities based upon the valuation guidelines adopted by the Board;

(g) voting proxies in accordance with the proxy voting policies and procedures adopted by the Adviser; and

(h) providing the Company with such other investment advice, research, and related services as the Company may, from time to time, reasonably require for the investment of the Company’s assets.

The Adviser shall have the power and authority on behalf of the Company to effect its investment decisions for the Company, including the execution and delivery of all documents relating to the Company’s investments and the placing of orders for purchase or sale transactions on behalf of the Company. If the Company determines to acquire debt financing, the Adviser will arrange for such financing on the Company’s behalf, subject to the oversight and approval of the Board. If it is necessary for the Adviser to make investments or arrange financing on behalf of the Company through a special purpose vehicle, the Adviser shall have authority to create or arrange for the creation of such special purpose vehicle in accordance with the Investment Company Act

1.3 Records. The Adviser shall keep and preserve for the period required by the Investment Company Act any books and records related to the provision of investment advisory services to the Company and required to be maintained under Rule 31a-2 under the Investment Company Act for an investment adviser to a business development company and shall maintain all books and records with respect to the Company’s portfolio transactions. The Adviser agrees

2

that any records that it maintains for the Company as required under the Investment Company Act are the property of the Company and it will surrender promptly to the Company any such records upon the Company’s request, provided that (i) the Adviser may retain a copy of such records and (ii) nothing contained herein shall prevent the Adviser from using the performance track record of the Company’ following any termination of this Agreement.

1.4 Control and Supervision. The performance by the Adviser of its duties and obligations hereunder shall be subject to the control and supervision of the Board and the Adviser’s determination of what services are necessary or required for operation or to reasonably conduct the business of the Company shall be subject to review by the Board. The Adviser shall provide periodic and special reports to the Board of its performance of its obligations hereunder as the Board may request.

1.5 Acceptance. The Adviser hereby accepts such engagement and agrees during the term hereof, at its expense, to provide the services described herein and to assume the obligations herein set forth for the compensation provided herein.

1.6 Independent Contractor. The Adviser shall for all purposes herein provided be deemed to be an independent contractor and, except as expressly provided or authorized herein, shall have no authority to act for or represent the Company in any way or otherwise be deemed an agent of the Company.

1.7 Compliance. The Adviser represents that it is registered with the Securities and Exchange Commission (the “SEC”) as an investment adviser under the Advisers Act. The Adviser agrees that its activities with respect to the Company will at all times be in compliance in all material respects with applicable federal securities and state securities laws governing its operations and investments. The Adviser has adopted and implemented written policies and procedures reasonably designed to prevent violation of the Federal Securities Laws (as defined in Rule 38a-l under the Investment Company Act) by the Adviser. The Adviser shall provide the Company, at such times as the Company may reasonably request, with a copy of such policies and procedures and a written report that addresses the operation of the policies and procedures; such report shall be of sufficient scope and sufficient detail, as may reasonably be required to comply with Rule 38a-1 and to provide reasonable assurance that any weaknesses in the design or implementation of the policies and procedures would be disclosed by such examination, and, if there are no such weaknesses, the report shall so state.

1.8 Excess Brokerage Commissions. The Adviser is hereby authorized, to the fullest extent now or hereafter permitted by law, to cause the Company to pay a member of a national securities exchange, broker, or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of such exchange, broker, or dealer would have charged for effecting that transaction, if the Adviser determines in good faith, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities, that such amount of commission is reasonable in relation to the value of the brokerage and/or research services provided by such member, broker or dealer, viewed in terms of either that particular transaction or its overall

3

responsibilities with respect to the Company’s portfolio, and constitutes the best net results for the Company.

SECTION 2

USE OF SUB-INVESTMENT ADVISER

The Adviser may, subject to requirements of the Investment Company Act, employ one or more sub-investment advisers (each, a “Sub-Adviser”) to assist the Adviser in the performance of its duties under this Agreement. Specifically, the Adviser may retain a Sub-Adviser to recommend specific securities or other investments based upon the Company’s investment objectives and policies, and work, along with the Adviser, in structuring, negotiating, arranging or effecting the acquisition or disposition of such investments and monitoring investments on behalf of the Company, subject to the oversight of the Adviser and the Company. Such use of a Sub-Adviser does not relieve the Adviser of any duty or liability it would otherwise have under this Agreement. Compensation of any such Sub-Adviser for services provided and expenses assumed under any agreement between the Adviser and such Sub-Adviser permitted under this paragraph is the sole responsibility of the Adviser. Any sub-advisory agreement entered into by the Adviser shall be in accordance with the requirements of the Investment Company Act and other applicable federal and state law and shall contain a provision requiring any Sub-Adviser to comply with Sections 1.3 and 1.7.

SECTION 3

SERVICES OF THE ADVISER NOT EXCLUSIVE

3.1 Limitations on the Employment of the Adviser. The obligations of the Adviser to the Company and the services furnished by the Adviser hereunder are not exclusive. The Adviser and its Affiliates (as hereinafter defined) may engage in any other business or furnish the same or similar services to others, including businesses that may be in direct or indirect competition with the business of the Company and may be in direct competition with the Company for particular investments, so long as its services to the Company under this Agreement are not impaired thereby. It is contemplated that from time to time one or more Affiliates of the Adviser may serve as directors, officers, or employees of the Company or otherwise have an interest or affiliation with the Company or have the same or similar relationships with competitors of the Company. Nothing in this Agreement shall limit or restrict the right of any manager, partner, officer, agent, or employee of the Adviser or its Affiliates, who may also be a manager, officer, agent, or employee of the Company, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or dissimilar nature, or to receive fees or compensation in connection therewith (including fees for serving as a director of, or providing consulting services to, one or more of the Company’s portfolio companies, subject to applicable law). Neither the Adviser nor any of its Affiliates shall in any manner be liable to the Company by reason of the foregoing activities of the Adviser or such Affiliate. Within 60 days after the end of each calendar quarter of the Company, the Adviser will furnish the Board with information on a confidential basis, as to any investment within the investment objective of the Company made during such quarter by the Adviser or any Sub-Adviser for their own account or

4

the account of others. So long as this Agreement remains in effect, the Adviser shall be the only investment adviser for the Company, subject to the Adviser’s right to enter into sub-advisory agreements. The Adviser assumes no responsibility under this Agreement other than to provide the services called for hereunder.

3.2 Responsibility of Dual Directors, Officers, and Employees. It is understood that directors, officers, employees, and stockholders of the Company are or may become interested in the Adviser and its Affiliates, as directors, officers, employees, partners, stockholders, members, and managers or otherwise, and that the Adviser and directors, officers, employees, partners, stockholders, members, and managers of the Adviser and its Affiliates are or may become similarly interested in the Company as stockholders or otherwise. If any person who is a manager, partner, officer, or employee of the Adviser is or becomes a director, officer, or employee of the Company and acts as such in any business of the Company, then such manager, partner, officer, or employee of the Adviser shall be deemed to be acting in such capacity for the Company, and not as a manager, partner, officer, or employee of the Adviser or under the control or direction of the Adviser, even if paid by the Adviser.

SECTION 4

ALLOCATION OF COSTS AND EXPENSES

4.1 Costs and Expenses Allocated to the Company. Except as otherwise expressly provided for in Section 4.2, during the term of this Agreement the Company will bear (and to the extent paid by the Adviser will reimburse the Adviser for) the costs and expenses of the Company’s business, operations, and investments, which include the following:

(a) administration fees and expenses payable under the Administration Agreement;

(b) brokerage and commission expense and other transaction costs incident to the acquisition and dispositions of investments;

(c) federal, state, and local taxes and fees, including transfer taxes and filing fees, incurred by or levied upon the Company;

(d) interest charges and other fees in connection with borrowings by the Company;

(e) fees and expenses payable to the SEC and any fees and expenses of state securities regulatory authorities;

(f) expenses of preparing, printing, filing, and distributing reports and notices to stockholders and regulatory bodies including the SEC;

(g) costs of proxy solicitation and meetings of stockholders and the Board;

(h) charges and expenses of the Company’s custodian, administrator, and transfer and dividend disbursing agent;

5

(i) compensation and expenses of the Company’s directors who are not interested persons of the Company or the Adviser (“Independent Directors”), and of any of the Company’s officers who are not interested persons of the Adviser; expenses of all directors in attending meetings of the Board or stockholders;

(j) legal and auditing fees and expenses, including expenses incident to the documentation for, and consummation of, transactions;

(k) costs of certificates representing the shares of the Company’s common stock;

(l) the costs of membership by the Company or its directors or executive officers in any trade organizations;

(m) any insurance premiums (including fidelity bond and directors and officers errors and omission liability insurance premiums);

(n) expenses of offering the Company’s common stock and other securities including registering securities under federal and state securities laws; and

(o) subject to Board approval:

(i) reasonable expenses with respect to the investigation, acquisition and disposition of investments;

(ii) reasonable fees payable to third parties, including agents or consultants in monitoring financial and legal affairs of the Company and the Company’s investments;

(iii) reasonable expenses associated with litigation and other extraordinary or non-recurring expenses; and

(iv) other reasonable costs and expenses directly allocable and identifiable to the Company or its business or investments.

4.2 Costs and Expenses Allocated to the Adviser. The expenses to be borne by the Adviser are limited to the following:

(a) to the extent allocable for the provision of investment advisory or management services required to be provided to the Company by the Adviser under this Agreement, the cost of adequate office space for the investment professionals of the Adviser and their respective staffs, and all necessary office equipment and services, including telephone service, heat, utilities, and similar items, and supplies; and

(b) to the extent allocable for the provision of the investment advisory or management services required to be provided to the Company by the Adviser under this Agreement, the wages, salaries, and benefits of the Adviser’s investment professionals, employees, and personnel.

6

4.3 Payment or Assumption by the Adviser. The payment or assumption by the Adviser of any expense of the Company that the Adviser is not required by this Agreement to pay or assume shall not obligate the Adviser to pay or assume the same or any similar expense of the Company on any subsequent occasion.

SECTION 5

MANAGEMENT FEES

5.1 Compensation for Services. In consideration of the services to be provided by the Adviser under this Agreement, the Company agrees to pay the Adviser, and the Adviser agrees to accept as compensation for the services provided hereunder, a base management fee (“Base Management Fee”) and an incentive fee (“Incentive Fee”) as hereafter set forth. The Adviser may agree to temporarily or permanently waive or defer, in whole or in part, the Base Management Fee and/or the Incentive Fee.

5.2 Base Management Fee. The Base Management Fee shall be calculated at an annual rate of 2% of the Company’s net assets.

The Base Management Fee shall be paid quarterly in arrears thereafter in accordance with the provisions of Section 5.6 below and will be appropriately prorated for any partial quarter.

5.3 Incentive Fee. The Incentive Fee shall consist of two parts, as follows:

(a) The first part, which is payable quarterly in arrears, will equal 20% of the amount, if any, by which (i) the Company’s Net Investment Income (as hereinafter defined) for the quarter exceeds (ii) the product of (A) the Net Assets (as hereinafter defined) of the Company at the end of the preceding quarter multiplied by (B) 2% (“Hurdle Rate”). “Net Investment Income” means (i) interest income (including accrued original issue discount and interest payable in kind), dividend income, royalty payments, net profits interest payments, and any other income (including any other fees such as commitment, origination, syndication, structuring, diligence, monitoring, and consulting fees, or other fees that the Company receives from portfolio companies) accrued by the Company during the fiscal quarter, minus (ii) the Company’s expenses for the quarter (including, without limitation, the Base Management Fee, expenses payable by the Company under the Administration Agreement, interest expense, and dividends paid on any issued and outstanding preferred stock, if any, of the Company, but excluding the Incentive Fee payable under this Section 5.3 during such quarter); provided, however, that with respect to any special, one-time, nonrecurring (paid on less than a quarterly basis), or extraordinary payment of interest or dividend income received or accrued by the Company during any fiscal quarter, no more than 25% of such payment shall be allocated to any fiscal quarter. The fee shall be payable quarterly in arrears. The Hurdle Rate will be pro rated for any period of less than three months. “Net Assets” means the total assets, less total liabilities, of

7

the Company, determined in accordance with generally accepted accounting principles consistently applied.

(b) The second part of the Incentive Fee (the “Capital Gains Fee”) will be determined and payable in arrears as of the end of each fiscal year (or upon termination of this Agreement as set forth below), and will equal (i) 20% of (A) the Company’s cumulative Net Realized Capital Gains from the date of this Agreement to the last day of such fiscal year, if any, less (B) the amount of Unrealized Capital Depreciation on the last day of such fiscal year (but excluding all Unrealized Capital Depreciation attributable to any period ended on or prior to the date of this Agreement); less (ii) the aggregate amount of Capital Gains Fees payments to the Advisor in prior fiscal years, provided, however, that if the amount calculated under this Section is less than zero, there shall be no implied obligation by Adviser to pay any fees back to the Company.

The Capital Gains Fee shall be payable on the day after the Company files its Annual Report on Form 10-K for such year. If this Agreement shall terminate as of a date that is not a fiscal year end, the termination date shall be treated as though it were a fiscal year end for purposes of calculating and paying the Capital Gains Fee.

The terms used in calculating the Capital Gains Fee have the following meanings:

“Realized Capital Gains” means:

(i) with respect to a security that the Company held on the effective date of this Agreement, (a) the amount by which the net amount realized from the sale or other disposition of such security, exceeds (b) the fair value of such security on the effective date of this Agreement as determined by the Company in accordance with generally accepted accounting principles (“GAAP”) and the Investment Company Act; and

(ii) with respect to a security that the Company acquires after the effective date of this Agreement, (a) the amount by which the net amount realized from the sale or other disposition of such security, exceeds (b) the original cost of such security as determined by the Company in accordance with GAAP and the Investment Company Act.

“Realized Capital Losses” means:

(i) with respect to a security that the Company held on the effective date of this Agreement, (a) the amount by which the net amount received from the sale or other disposition of such security is less than (b) the fair value of such security on the

8

effective date of this Agreement as determined by the Company in accordance with GAAP and the Investment Company Act; provided, however, that “Realized Capital Losses” shall be determined without regard to any Unrealized Capital Depreciation occurring on or prior to the date of this Agreement; and

(ii) with respect to a security that the Company acquires after the effective date of this Agreement, (a) the amount by which the net amount received from the sale or other disposition of such security is less than (b) the original cost of such security as determined by the Company in accordance with GAAP and the Investment Company Act; provided, however, that “Realized Capital Losses” shall be determined without regard to any Unrealized Capital Depreciation occurring on or prior to the date of this Agreement.

“Net Realized Capital Gains” means Realized Capital Gains minus Realized Capital Losses (but not less than zero).

“Unrealized Capital Depreciation” means with respect to a security the amount by which the fair value of such security at the end of a fiscal year as determined by the Company in accordance with GAAP and the Investment Company Act is less than the original cost of such security.

5.4 Proration of Fees. If this Agreement becomes effective or terminates before the end of any fiscal quarter, the Base Management Fee and Incentive Fee for the period from the effective day to the end of the fiscal quarter or from the beginning of such quarter to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full fiscal quarter in which such effectiveness or termination occurs. In the event that this Agreement shall terminate as of a date that is not a fiscal year end, the termination date shall be treated as though it were a fiscal year end for purposes of calculating and paying an Incentive Fee

5.5 Fee Reduction. If (a) the Adviser, (b) a manager, officer, agent, or employee of the Adviser, (c) a company controlling, controlled by, or under common control with the Adviser, or (d) a director, officer, agent, or employee of any such company receives any compensation from a company whose securities are held in the Company’s portfolio in connection with the provision to that company of significant managerial assistance, the compensation due to the Adviser hereunder shall be reduced by the amount of such fee. If such amounts have not been fully offset at the time of termination of this Agreement, the Adviser shall pay such excess amounts to the Company upon termination.

5.6 Calculation and Payment of Management and Incentive Fees. The Adviser and the Company shall make a good faith estimate of the Base Management Fee payable for each month or quarter (the “Estimated Base Management Fee”) within ten (10) business days after the end of each month or quarter. The Company will pay the Adviser an amount equal to such

9

Estimated Base Management Fee promptly after determination of the Estimated Base Management Fee. A final calculation of the Base Management Fee (the “Final Base Management Fee”) shall be completed in conjunction with the completion of the Company’s Quarterly Reports of Form 10-Q or Annual Report on Form 10-K, as the case may be. To the extent the Estimated Base Management Fee paid to the Adviser for any period exceeds the Final Base Management Fee for such period, within five business days of such notification by the Company, the Adviser shall pay such difference to the Company. To the extent the Estimated Base Management Fee paid to the Adviser for any period is less than the Final Base Management Fee for such period, the Company shall pay the Adviser such difference on the day after the Company files its Quarterly Report on Form 10-Q or Annual Report on Form 10-K, as the case may be. The Incentive Fee payable for any period shall be calculated in conjunction with the completion of the Company’s Annual Report on Form 10-K for such period. The Incentive Fee, if any, shall be payable by the Company on the day after it files its Annual Report on Form 10-K.

SECTION 6

LIMITATION OF LIABILITY OF THE ADVISER

Except for the “disabling conduct” set forth in Sections 17(h) and 17(i) of the Investment Company Act, the Adviser (and its partners and the Adviser’s and its partners’ officers, managers, agents, employees, controlling persons, members, and any other person or entity affiliated with the Adviser including, without limitation, its general partner and the Administrator (collectively, “Affiliates”)) shall not be liable to the Company, or any stockholder of the Company, for any error of judgment, mistake of law, any loss or damage with respect to any investment of the Company, or any action taken or omitted to be taken by the Adviser in connection with the performance of any of its duties or obligations under this Agreement or otherwise as an investment adviser of the Company.

SECTION 7

INDEMNIFICATION OF THE ADVISER

Except for the disabling conduct set forth in Sections 17(h) and 17(i) of the Investment Company Act, the Company shall indemnify the Adviser (and its partners and the Adviser’s and its partners’ officers, managers, agents, employees, committee members, controlling persons, members, and any other person or entity affiliated with the Adviser or any of the foregoing, including its general partner and the Administrator, each of whom shall be deemed a third party beneficiary hereof) (collectively, the “Indemnified Parties”) and hold them harmless from and against all damages, liabilities, costs, and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the Indemnified Parties in or by reason of any pending, threatened, or completed action, suit, investigation, or other proceeding whether civil, criminal, administrative, or investigative (including an action or suit by or in the right of the Company or its security holders) arising out of or otherwise based upon the performance of any of the Adviser’s duties or obligations under this Agreement or otherwise as an investment adviser of the Company. Notwithstanding any termination of this Agreement, the provisions of this Section 7 of this Agreement shall remain in full force and effect, and the Indemnified Parties

10

shall remain entitled to the benefits thereof. The satisfaction of any indemnification and any holding harmless hereunder shall be from and limited to assets of the Company.

Absent a court determination that the person seeking indemnification was not liable by reason of the disabling conduct set forth in Sections 17(h) and 17(i) of the Investment Company Act, the decision by the Company to indemnify such person shall be based upon the reasonable determination, based upon a review of the facts, that such person was not liable by reason of such disabling conduct, by (a) the vote of a majority of the Company’s Independent Directors who are not parties to such action, suit, or proceeding or (b) an independent legal counsel in a written opinion.

Expenses incurred by the Adviser in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit, or proceeding as authorized by the Board in the specific case upon receipt of an undertaking by or on behalf of the Adviser to repay such amount unless it shall ultimately be determined that the Adviser is entitled to be indemnified by the Company as authorized in this Section 7, provided that at least one of the following conditions precedent has occurred in the specific case: (a) the Adviser has provided security for its undertaking; (b) the Company is insured against losses arising by reason of any lawful advances; or (c) a majority of a quorum of the disinterested non-party directors of the Company or an independent legal counsel in a written opinion, shall determine, based upon a review of the readily available facts, that there is reason to believe that the Adviser ultimately will be found entitled to indemnification. The advancement and indemnification provisions in this Section 7 shall apply to all threatened, pending, and completed actions, suits, or proceedings in which the Adviser is a party or is threatened to be made a party during the term of this Agreement.

For purposes of this Section 7, any provision hereof applicable to the Adviser shall also be applicable to any person serving as a partner of the Adviser or any of their directors, officers, employees, agents, members, committee members, controlling persons or Affiliates of the Adviser or any of the foregoing if such person is made a party or is threatened to be made a party to a threatened, pending, or completed action, suit, or proceeding in such capacity. The indemnification and advancement provisions of this Section 7 shall be independent of and in addition to any indemnification and advancement provisions that may apply to any director, officer, employee, agent, or Affiliate of the Adviser because of any other position that such person may hold with the Company.

SECTION 8

DURATION AND TERMINATION

8.1 Duration. This Agreement shall become effective as of the date hereof and shall continue in effect until June 29, 2007, and subsequently for successive periods of one year, subject to the provisions for termination and all of the other terms and conditions hereof if such continuation shall be specifically approved at least annually (a) by the vote of a majority of the directors of the Company, cast in person at a meeting called for that purpose, or by the vote of a majority of the outstanding voting securities of the Company and (b) by the vote of a majority of

11

the Company’s Independent directors, in accordance with the requirements of the Investment Company Act.

8.2 Termination. This Agreement may be terminated at any time, without payment of any penalty, by the Board or by the shareholders of the Company acting by the vote of at least a majority of the outstanding voting securities of the Company, provided in either case that 60 days’ written notice of termination be given to the Adviser at its principal place of business. The Adviser may also terminate this Agreement at any time by giving 60 days’ written notice of termination to the Company, addressed to its principal place of business.

8.3 Effect of Termination of Expiration. The provisions of Section 6 and 7 shall remain in full force and effect and the Adviser and its representatives shall remain entitled to the benefits thereof, notwithstanding any termination or expiration of this Agreement. Further, notwithstanding the termination or expiration of this Agreement, the Adviser shall be entitled to any amounts owed under Section 5 through the date of termination or expiration.

SECTION 9

GENERAL PROVISIONS

9.1 Notice. Any notice under this Agreement shall be in writing, addressed and delivered or mailed, postage prepaid, to the other party at such address as such other party may designate for the receipt of such notice.

9.2 Proprietary Rights. The Adviser has proprietary rights in the Company’s name. The Company acknowledges and agrees that the Adviser may withdraw the use of such names from the Company should it cease to act as the investment adviser to the Company.

9.3 Notice of Filing of Certificate of Incorporation. All parties hereto are expressly put on notice of the Company’s Certificate of Incorporation and all amendments thereto, all of which are on file with the Secretary of State of Delaware, and the limitation of director, officer, agent, employee, and stockholder liability contained therein. This Agreement has been executed by and on behalf of the Company by its representatives as such representatives and not individually, and the obligations of the Company hereunder are not binding upon any of the directors, officers, agents, employees, or stockholders of the Company individually but are binding upon only the assets and property of the Company.

9.4 Amendment of this Agreement. This Agreement may be amended by the mutual consent of the parties in writing, but the consent of the Company must be obtained in accordance with the requirements of the Investment Company Act.

9.5 Assignment. This Agreement may not be assigned by either party hereto and shall terminate automatically in the event of any assignment (within the meaning of the Investment Company Act) of this Agreement.

9.6 Governing Law. This Agreement shall be construed in accordance with the laws of the State of Texas, without giving effect to the conflicts of laws principles thereof, and in accordance with the Investment Company Act. To the extent that the applicable laws of the

12

State of Texas conflict with the applicable provisions of the Investment Company Act, the Investment Company Act shall control.

9.7 Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Agreement, the terms “majority of the outstanding voting securities,” “affiliated person,” “interested person,” “assignment,” “investment adviser,” “security,” and “making available significant managerial assistance” shall have the same meaning as such terms have in the Investment Company Act, subject to such exemption as may be granted by the Commission by any rule, regulation, or order. Where the effect of a requirement of the Investment Company Act reflected in any provision of this Agreement is relaxed by a rule, regulation, or order of the Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation, or order.

9.8 Entire Agreement. This Agreement is the entire contract between the parties relating to the subject matter hereof and supersedes all prior agreements between the parties relating to the subject matter hereof.

9.9 Counterparts. This Agreement may be executed in counterparts which together shall constitute a single agreement.

9.10 Severability. If a provision of this Agreement, or its application to any person or circumstance, is held invalid or unenforceable in any jurisdiction, to the extent permitted by law, the enforceability provision or its application to persons or circumstances other than those as to which it is held invalid or unenforceable and in other jurisdictions, and the remaining provisions of this Agreement, shall not be affected.

13

MOORE CLAYTON CAPITAL ADVISERS, INC.
By:	/s/ Anthony R. Moore
Name:	Anthony R. Moore
Title:	Chairman
EQUUS II INCORPORATED
By:	/s/ Sam P. Douglass
Name:	Sam P. Douglass
Title:	Chairman

14

EX-10.(B)

Exhibit 10(b)

ADMINISTRATION AGREEMENT

By and Between

EQUUS II INCORPORATED

And

EQUUS CAPITAL ADMINISTRATION COMPANY, INC.

Dated June 30, 2005

Equus – Admin Agreement (final)

TABLE OF CONTENTS

		Page
SECTION 1 DUTIES OF THE ADMINISTRATOR		1
1.1	Engagement of Administrator	1
1.2	Services	2
1.3	Legal Compliance; Workers’ Compensation Insurance	3
1.4	Sub-Administrators	3
SECTION 2 RECORDS		3
2.1	Records	3
2.2	Compliance Program	3
SECTION 3 CONFIDENTIALITY		4
SECTION 4 COMPENSATION; ALLOCATION OF COSTS AND EXPENSES		4
SECTION 5 LIMITATION OF LIABILITY OF THE ADMINISTRATOR		4
SECTION 6 INDEMNIFICATION		5
6.1	Indemnification of the Administrator	5
6.2	Indemnification of the Company	6
SECTION 7 ACTIVITIES OF THE ADMINISTRATOR		6
SECTION 8 DURATION AND TERMINATION OF THE AGREEMENT		7
SECTION 9 GENERAL PROVISIONS		7
9.1	Governing Law	7
9.2	Entire Agreement	7
9.3	Amendment	7
9.4	Notices	7
9.5	Counterparts	7
9.6	Severability	7

Equus – Admin Agreement (final) i

ADMINISTRATION AGREEMENT

THIS AGREEMENT dated as of June 30, 2005 (this “Agreement”), by and between Equus II Incorporated, a Delaware corporation (the “Company”), and Equus Capital Administration Company, Inc., a Delaware corporation (the “Administrator”).

WHEREAS, the Company is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940 (the “Investment Company Act”) and in the business making investments in equity and equity oriented securities issued in private placements, primarily in connection with leveraged buyouts and leveraged recapitalizations;

WHEREAS, the Administrator is engaged in the business of providing administrative services with respect to companies participating in leveraged buyouts and leveraged recapitalizations and making temporary short-term investments; and

WHEREAS, the Company deems it advisable to retain the Administrator to furnish certain administrative services to the Company, and the Administrator wishes to be retained to provide such services, on the terms and conditions hereinafter set forth;

NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Administrator hereby agree as follows:

SECTION 1

DUTIES OF THE ADMINISTRATOR

1.1 Engagement of Administrator. Commencing on the date hereof, the Company engages and retains the Administrator to act as administrator of the Company, and to provide, or arrange for suitable third parties to provide, the administrative services, personnel, and facilities described below, subject to supervision of the Board of Directors of the Company (the “Board’), for the period and on the terms and conditions set forth in this Agreement. The Administrator hereby accepts such engagement and agrees during such period to provide, or arrange for suitable third parties to provide, such services and to assume the obligations herein set forth subject to the reimbursement of costs and expenses provided for below. The Administrator and such others shall for all purposes herein be deemed to be independent contractors and shall, unless otherwise expressly provided or authorized herein, have no authority to act for or represent the Company in any way or otherwise be deemed agents of the Company.

Equus – Admin Agreement (final)

1.2 Services. Except to the extent that the provision of any such service is allocated to Moore Clayton Capital Advisers, Inc. (the “Adviser”), pursuant to the Investment Advisory Agreement dated June 30, 2005 (the “Advisory Agreement”), between the Company and the Adviser, the Administrator shall provide (or oversee, or arrange for, suitable third parties to provide) all administrative services necessary for the operation of the Company and the conduct of its business. Such administrative services shall include, but not be limited to, the following:

(a) providing the Company with such office space, equipment, facilities, and supplies; the services of such clerical, bookkeeping, record keeping, and other personnel of the Administrator; and such other services as the Administrator, subject to review by the Board, shall from time to time determine to be necessary, useful, or required for the reasonable conduct of the business of the Company;

(b) on behalf of the Company, conducting relations with custodians, depositories, transfer agents, dividend disbursing agents, other stockholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks, stockholders of the Company, and such other persons in any such other capacity as may be requested by the Company or may be reasonably necessary or desirable for the conduct of the business of the Company;

(c) making reports to the Directors of the Company of its performance of obligations hereunder and furnishing advice and recommendations with respect to such other aspects of the business and affairs of the Company as it shall determine to be desirable; provided that nothing herein shall be construed to require the Administrator to, and the Administrator shall not, provide any advice or recommendation relating to the securities and other assets that the Company should purchase, retain, or sell or any other investment advisory services to the Company;

(d) being responsible for the financial and other books and records that the Company is required to maintain; preparing such accounting and other reports and documents as may be necessary or appropriate for the reasonable conduct of the business of the Company, and preparing reports to stockholders, and reports and other materials filed with the Securities and Exchange Commission (the “SEC”);

(e) to the extent permitted under the Investment Company Act, providing on the Company’s behalf significant managerial assistance to those portfolio companies to which the Company is required to make available such assistance;

(f) assisting the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns, and the printing and dissemination of reports to stockholders of the Company, and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others;

(g) providing such other administrative services with respect to the business and affairs of the Company as the Administrator shall deem to be desirable or appropriate.

Equus – Admin Agreement (final) 2

1.3 Legal Compliance; Workers’ Compensation Insurance. In performing its services under this Agreement, the Administrator shall comply with all applicable provisions of the investment Company Act, federal law, and Texas laws, including all laws relating to the provision of services and employment laws. The Company shall not be considered to be an employer or co-employer of the employees of the Administrator for any purpose other than for purposes of the application of the Texas Workers’ Compensation Act. The services provided by the Administrator under this Agreement are not and are not intended to be “staff leasing services” as defined in Section 91.001 of the Texas Labor Code. The Administrator shall carry workers’ compensation insurance coverage for its employees and shall cause the Company to be named as an additional insured under such policy.

1.4 Sub-Administrators. The Administrator is authorized is to enter into one or more sub-administration agreements with other service providers (each a “Sub-Administrator”) pursuant to which the Administrator may obtain the services of the service providers in fulfilling its responsibilities hereunder. Any such sub-administration agreement shall be in accordance with the requirements of the Investment Company Act and other applicable federal and state law and shall contain a provision requiring the Sub-Administrator to comply with Sections 2 as if it were the Administrator.

SECTION 2

RECORDS

2.1 Records. The Administrator agrees to maintain and keep all books, accounts, and other records of the Company that relate to activities performed by the Administrator hereunder and, if required by the Investment Company Act, will maintain and keep such books, accounts, and records in accordance with such Act. In compliance with the requirements of Rule 31a-3 under the Investment Company Act, the Administrator agrees that all records which it maintains for the Company shall at all times remain the property of the Company, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request. The Administrator further agrees that all records that it maintains for the Company pursuant to Rule 31a-1 under the Investment Company Act will be preserved for the periods prescribed by Rule 31a-2 under the Investment Company Act unless any such records are earlier surrendered as provided above. Records shall be surrendered in usable machine-readable form. The Administrator shall have the right to retain copies of such records subject to observance of its confidentiality obligations under this Agreement.

2.2 Compliance Program. The Administrator has adopted and implemented written policies and procedures reasonably designed to prevent violation of the Federal Securities Laws (as defined in Rule 38a-1 under the Investment Company Act) by the Administrator. The Administrator shall provide the Company, at such times as the Company may reasonably request, with a copy of such policies and procedures and a written report that addresses the operation of the policies and procedures; such report shall be of sufficient scope and sufficient detail, as may reasonably be required to comply with Rule 38a-1 and to provide reasonable assurance that any weaknesses in the design or implementation of the policies and procedures

Equus – Admin Agreement (final) 3

would be disclosed by such examination, and, if there are no such weaknesses, the report shall so state.

SECTION 3

CONFIDENTIALITY

The parties hereto agree that each shall treat confidentially all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto, including nonpublic personal information pursuant to Regulation S-P of the SEC shall be used by any other party hereto solely for the purpose of rendering services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party, without the prior consent of such providing party. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by any regulatory authority, any authority or legal counsel of the parties hereto, by judicial or administrative process, or otherwise by applicable law or regulation.

SECTION 4

COMPENSATION; ALLOCATION OF COSTS AND EXPENSES

In full consideration of the provision of the services of the Administrator, the Company shall reimburse the Administrator for the costs and expenses incurred by the Administrator in performing its obligations and providing personnel and facilities hereunder, provided that such reimbursements shall not exceed $450,000 per year. The Company will bear all costs and expenses that are incurred in its operation and transactions and not specifically assumed by the Adviser pursuant to the Advisory Agreement. Costs and expenses to be borne by the Company include, but are not limited to, those relating to:

(a) advisory fees and expenses payable under the Advisory Agreement; and

(b) all expenses incurred by the Administrator in connection with administering the Company’s business, including payments under this Administration Agreement based upon the Company’s overhead and other expenses incurred by the Administrator in performing its obligations under this Administration Agreement, including rent and the allocable portion of the salaries and benefits of the Company’s chairman, chief compliance officer/chief financial officer and controller and their respective staffs.

SECTION 5

LIMITATION OF LIABILITY OF THE ADMINISTRATOR

Except for the “disabling conduct” set forth in Section 17(i) of the Investment Company Act, the Administrator (and its members and the Administrator’s and its members’ officers, managers, agents, employees, controlling persons, members, and any other person or entity

Equus – Admin Agreement (final) 4

affiliated with the Administrator, including without limitation its sole member, and the Adviser collectively, “Affiliates”)) shall not be liable to the Company, or its stockholders, for any error of judgment, mistake of law, or any action taken or omitted to be taken by the Administrator in connection with the performance of any of its duties or obligations under this Agreement or otherwise as administrator for the Company.

SECTION 6

INDEMNIFICATION

6.1 Indemnification of the Administrator. Except for the “disabling conduct” set forth in Section 17(i) of the Investment Company Act, the Company shall indemnify, defend, and protect the Administrator (and its members and the Administrator’s and its members’ officers, managers, agents, employees, committee members, controlling persons, members, and any other person or entity affiliated with the Administrator or any of the foregoing, including without limitation the Adviser, each of whom shall be deemed a third party beneficiary hereof) (collectively, the “Indemnified Parties”) and hold them harmless from and against all damages, liabilities, costs, and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the Indemnified Parties in or by reason of any pending, threatened, or completed action, suit, investigation, or other proceeding (including an action or suit by or in the right of the Company or its security holders) arising out of or otherwise based upon the performance of any of the Administrator’s duties or obligations under this Agreement or otherwise as administrator for the Company. The satisfaction of any indemnification and any holding harmless hereunder shall be from and limited to assets of the Company.

Absent a court determination that the person seeking indemnification was not liable by reason of “disabling conduct” within the meaning of Sections 17(h) and 17(i) of the Investment Company Act, the decision by the Company to indemnify such person shall be based upon the reasonable determination, based upon a review of the facts, that such person was not liable by reason of such disabling conduct, by (a) the vote of a majority of the Company’s directors who are not “interested persons” of the Company as defined in Section 2(a)(19) of the Investment Company Act (“Independent Directors”) and who are not parties to such action, suit, or proceeding or (b) an independent legal counsel in a written opinion.

Expenses incurred by the Administrator in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit, or proceeding as authorized by the Board of Directors of the Company in the specific case upon receipt of an undertaking by or on behalf of the Administrator to repay such amount unless it shall ultimately be determined that the Administrator is entitled to be indemnified by the Company as authorized in this Section 6, provided that at least one of the following conditions precedent has occurred in the specific case: (a) the Administrator has provided security for its undertaking; (b) the Company is insured against losses arising by reason of any lawful advances; or (c) a majority of the Company’s Independent Directors or an independent legal counsel in a written opinion, shall determine, based upon a review of the readily available facts, that there is reason to believe that the Administrator ultimately will be found entitled to indemnification. The advancement and indemnification provisions in this Section 6 shall apply to all threatened, pending, and completed actions, suits, or proceedings in which the Administrator is a party or is

Equus – Admin Agreement (final) 5

threatened to be made a party during the term of this Agreement, including those actions, suits, or proceedings that were threatened, filed, or otherwise initiated prior to the effective date of this provision.

For purposes of this Section 6, any provision hereof applicable to the Administrator shall also be applicable to any person serving as a director, officer, employee, agent, or affiliate of the Administrator if such person is made a party or is threatened to be made a party to a threatened, pending, or completed action, suit, or proceeding in such capacity. The indemnification and advancement provisions of this Section 6 shall be independent of and in addition to any indemnification and advancement provisions that may apply to any director, officer, employee, agent, or affiliate of the Administrator because of any other position that such person may hold with the Company.

6.2 Indemnification of the Company. Notwithstanding Section 6.1, the Administrator shall indemnify, defend, and protect the Company (and its directors, officers, managers, agents, employees, controlling persons, shareholders, and any other person or entity affiliated with the Company, each of whom shall be deemed a third party beneficiary hereof) and hold them harmless from and against all damages, liabilities, costs, and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by any of them in or by reason of any pending, threatened, or completed action, suit, investigation, or other proceeding arising out of or otherwise based upon claims asserted against the Company or such persons by employees of the Administrator related to their employment by the Administrator including without limitation claims with respect to any work-related injury or employment discrimination.

SECTION 7

ACTIVITIES OF THE ADMINISTRATOR

The obligations of the Administrator to the Company and the services furnished by the Administrator to the Company hereunder are not exclusive. The Administrator and its Affiliates may (a) provide the same or similar services to others (including others whose business may be in direct or indirect competition with the business of the Company), work for other contractors, or send helpers to work for other contractors, during the term of this Agreement and (b) hire as many helpers as the Administrator desires and determine what each helper is paid. It is contemplated that from time to time one or more Affiliates of the Administrator may serve as directors, officers, or employees of the Company or otherwise have an interest or affiliation with the Company or have the same or similar relationships with competitors of the Company. Nothing in this Agreement shall limit or restrict the right of any manager, officer, agent, or employee of the Administrator or its Affiliates, who may also be a manager, officer, agent, or employee of the Company, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or dissimilar nature. Neither the Administrator nor any of its Affiliates shall in any manner be liable to the Company by reason of the foregoing activities of the Administrator or such Affiliate.

Equus – Admin Agreement (final) 6

SECTION 8

DURATION AND TERMINATION OF THE AGREEMENT

This Agreement shall become effective as of the date hereof, and shall remain in force with respect to the Company for two years thereafter, and thereafter continue from year to year, but only so long as such continuance is specifically approved at least annually by the Company’s Board of Directors, including a majority of the Independent Directors.

This Agreement may be terminated at any time, without the payment of any penalty, by vote of the Directors of the Company, or by the Administrator, upon 60 days’ written notice to the other party. This Agreement may not be assigned by a party without the written consent of the other party. This agreement will automatically terminate in the event of its “assignment” (as such term is defined in Section 15(a)(4) of the Investment Company Act.

SECTION 9

GENERAL PROVISIONS

9.1 Governing Law. This Agreement shall be construed in accordance with laws of the State of Texas and the applicable provisions of the Investment Company Act, if any. To the extent that the applicable laws of the State of Texas, or any of the provisions herein, conflict with the applicable provisions of the Investment Company Act, if any, the latter shall control.

9.2 Entire Agreement. This Agreement contains the entire agreement of the parties and supercedes all prior agreements, understandings and arrangements with respect to the subject matter hereof. In the case of any conflicts between the provisions of this Agreement and the Advisory Agreement, the provisions of the Advisory Agreement shall govern.

9.3 Amendment. This Agreement may be amended pursuant to a written instrument by mutual consent of the parties.

9.4 Notices. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed, postage prepaid, to the other party at its principal office.

9.5 Counterparts. This Agreement may be executed in counterparts, which together shall constitute a single agreement.

9.6 Severability. If a provision of this Agreement, or its application to any person, entity or circumstance, is held invalid or unenforceable in any jurisdiction, to the extent permitted by law, the enforceability provision or its application to persons, entities or circumstances other than those as to which it is held invalid or unenforceable and in other jurisdictions, and the remaining provisions of this Agreement, shall not be affected.

Equus – Admin Agreement (final) 7

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.

EQUUS II INCORPORATED
By:	/s/ Sam P. Douglass
Name:	Sam P. Douglass
Title:	Chairman
EQUUS CAPITAL ADMINISTRATION COMPANY, INC.
By:	/s/ Anthony R. Moore
Name:	Anthony R. Moore
Title:	Chairman

Equus – Admin Agreement (final) 8

EX-31.1

EXHIBIT 31.1

Form of Quarterly Certification Required

by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

I, Anthony R. Moore, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Equus II Incorporated;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a. Designed such disclosure controls and procedures. or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. [Reserved]

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation;

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and;

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: August 15, 2005

/s/ Anthony R. Moore

Anthony R. Moore

Chairman

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Form of Quarterly Certification Required

by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

I, Harry O. Nicodemus, IV, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Equus II Incorporated;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a. Designed such disclosure controls and procedures. or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. [Reserved]

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation;

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and;

6. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: August 15, 2005

/s/ Harry O. Nicodemus IV

Harry O. Nicodemus IV

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the accompanying Quarterly Report of Equus II Incorporated (the “Company”) on Form 10-Q for the period ended June 30, 2005 (the “Report”), I, Anthony R. Moore, Chairman and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) To my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 15, 2005	/s/ Anthony R. Moore
	Anthony R. Moore
	Chairman Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the accompanying Quarterly Report of Equus II Incorporated (the “Company”) on Form 10-Q for the period ended June 30, 2005 (the “Report”), I, Harry O. Nicodemus IV, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) To my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 15, 2005

/s/ Harry O. Nicodemus IV

Harry O. Nicodemus IV

Chief Financial Officer