<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-Q
 
(MARK ONE)
 
  /X/         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
                   FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
                                        OR
 
  / /            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                      OF THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE TRANSITION PERIOD FROM                TO
                          COMMISSION FILE NUMBER: 0-22525
 
                            ------------------------
 
                          FIRST SIERRA FINANCIAL, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                             <C>
                   DELAWARE                                       76-0438432
           (State of incorporation)                  (I.R.S. Employer Identification No.)
 
           CHASE TOWER, SUITE 7050
              600 TRAVIS STREET
                HOUSTON, TEXAS                                      77002
   (Address of principal executive offices)                       (Zip Code)
 
                                        (713) 221-8822
                     (Registrant's telephone number, including area code)
</TABLE>
 
                            ------------------------
 
    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 / /
 
    The number of shares outstanding of the registrant's Common Stock, $.01 par
value, at May 12, 1999 was 14,243,915.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                         PART I - FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                             (DOLLARS IN THOUSANDS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,   MARCH 31,
                                                                                            1998         1999
                                                                                        ------------  -----------
<S>                                                                                     <C>           <C>
                                                                                                      (UNAUDITED)
Lease financing receivables, net......................................................   $  337,162    $ 540,668
Cash and cash equivalents.............................................................        7,928       24,318
Other receivables.....................................................................       11,596        5,880
Investment in trust certificates......................................................        7,288        7,458
Marketable securities.................................................................        5,042        4,631
Goodwill and other intangible assets, net.............................................       39,202       38,925
Furniture and equipment, net..........................................................        9,909       10,360
Other assets..........................................................................        6,923        7,191
Current tax receivables...............................................................        3,243        1,389
                                                                                        ------------  -----------
    Total assets......................................................................   $  428,293    $ 640,820
                                                                                        ------------  -----------
                                                                                        ------------  -----------
 
                                      LIABILITIES AND STOCKHOLDERS' EQUITY
 
Debt:
  Nonrecourse debt....................................................................   $  276,511    $ 484,035
  Other debt..........................................................................       23,026       27,284
  Subordinated notes payable..........................................................        3,250        3,250
Other liabilities:
  Accounts payable and accrued liabilities............................................       23,283       24,101
  Holdback reserves payable...........................................................       16,682       16,840
  Income taxes payable................................................................          523          225
  Deferred income taxes...............................................................          501          501
                                                                                        ------------  -----------
    Total liabilities.................................................................      343,776      556,236
                                                                                        ------------  -----------
 
Redeemable preferred stock............................................................          469          469
 
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 14,223,915 shares and
  14,243,915 shares issued and outstanding as of 12/31/98 and 3/31/99, respectively...          142          142
Additional paid-in capital............................................................       76,855       77,101
Retained earnings.....................................................................        6,859        6,890
Accumulated other comprehensive income................................................          192          (18)
                                                                                        ------------  -----------
    Total stockholders' equity........................................................       84,048       84,115
                                                                                        ------------  -----------
    Total liabilities and stockholders' equity........................................   $  428,293    $ 640,820
                                                                                        ------------  -----------
                                                                                        ------------  -----------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       1
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                               FOR THE THREE MONTHS
                                                                                                 ENDED MARCH 31,
                                                                                              ----------------------
                                                                                                 1998
                                                                                              (RESTATED)     1999
                                                                                              -----------  ---------
<S>                                                                                           <C>          <C>
Gain on sale of lease financing receivables through securitization transactions.............   $   6,550   $      --
Gains from direct sales of lease financing receivables......................................       4,336       3,170
Interest income.............................................................................       1,607      13,165
Servicing income............................................................................       1,207       1,647
Other income................................................................................       1,029       1,386
                                                                                              -----------  ---------
  Total revenues............................................................................      14,729      19,368
                                                                                              -----------  ---------
 
Salaries and benefits.......................................................................       5,638       6,479
Interest expense............................................................................         399       6,320
Provision for credit losses on lease financing receivables..................................         729       2,087
Depreciation and amortization...............................................................         683       1,260
Other general and administrative............................................................       2,027       2,934
Relocation of operations center.............................................................         885          --
                                                                                              -----------  ---------
  Total expenses............................................................................      10,361      19,080
                                                                                              -----------  ---------
 
Income before provision for income taxes....................................................       4,368         288
Provision for income taxes..................................................................       1,608         257
                                                                                              -----------  ---------
Net income..................................................................................   $   2,760   $      31
                                                                                              -----------  ---------
                                                                                              -----------  ---------
Earnings per common share, basic............................................................   $    0.22   $    0.00
                                                                                              -----------  ---------
                                                                                              -----------  ---------
Earnings per common share, diluted..........................................................   $    0.21   $    0.00
                                                                                              -----------  ---------
                                                                                              -----------  ---------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       2
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                                 FOR THE THREE MONTHS
                                                                                                   ENDED MARCH 31,
                                                                                                ----------------------
                                                                                                   1998
                                                                                                (RESTATED)     1999
                                                                                                -----------  ---------
<S>                                                                                             <C>          <C>
Net income....................................................................................   $   2,760   $      31
Other comprehensive income:
  Foreign currency translation adjustment, net of tax.........................................          --        (210)
                                                                                                -----------  ---------
Comprehensive income (loss)...................................................................   $   2,760   $    (179)
                                                                                                -----------  ---------
                                                                                                -----------  ---------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       3
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                       COMMON STOCK                              ACCUMULATED
                                                    ------------------   ADDITIONAL                 OTHER          TOTAL
                                                    NUMBER OF             PAID-IN     RETAINED   COMPREHENSIVE STOCKHOLDERS'
                                                      SHARES    AMOUNT    CAPITAL     EARNINGS     INCOME         EQUITY
                                                    ----------  ------   ----------   --------   -----------   -------------
<S>                                                 <C>         <C>      <C>          <C>        <C>           <C>
Balance, December 31, 1998........................  14,223,915   $142     $76,855      $6,859       $ 192         $84,048
 
  Net income......................................                                         31          --              31
  Issuance of common stock in connection with
    prior business combinations...................     20,000      --         246          --          --             246
  Foreign currency translation adjustment.........         --      --          --          --        (210)           (210)
                                                    ----------  ------   ----------   --------      -----      -------------
Balance, March 31, 1999...........................  14,243,915   $142     $77,101      $6,890       $ (18)        $84,115
                                                    ----------  ------   ----------   --------      -----      -------------
                                                    ----------  ------   ----------   --------      -----      -------------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       4
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                                        FOR THE THREE MONTHS
                                                                                                          ENDED MARCH 31,
                                                                                                      ------------------------
                                                                                                         1998
                                                                                                      (RESTATED)      1999
                                                                                                      -----------  -----------
<S>                                                                                                   <C>          <C>
Cash flows from operations:
  Net income........................................................................................  $     2,760  $        31
  Reconciliation of net income to cash provided by operations--
    Depreciation and amortization...................................................................          683        1,260
    Provision for credit losses on lease financing receivables......................................          729        2,087
    Gain on sale of lease financing receivables.....................................................      (10,886)      (3,170)
    Funding of lease financing receivables, held for sale...........................................     (206,164)     (76,981)
    Principal payments received on lease financing receivables, held for sale.......................        1,942       18,174
    Proceeds from sales of lease financing receivables, net of trust certificates and marketable
      securities retained...........................................................................      221,024       80,732
    Proceeds from (repayments of) warehouse credit facilities, net of repayments (borrowings).......       (9,195)          --
    Accumulated translation adjustment..............................................................           --         (209)
Changes in assets and liabilities, net of effects from acquisitions:
  Decrease (increase) in other receivables..........................................................       (1,289)       5,715
  Decrease (increase) in other assets...............................................................        2,328         (268)
  Increase (decrease) in accounts payable and accrued liabilities...................................       (2,635)         819
  Increase in holdback reserve payable..............................................................        1,108          157
  Decrease in current income tax receivable, net of decrease in income tax payable..................           53        1,556
                                                                                                      -----------  -----------
      Net cash provided by operations...............................................................          458       29,903
                                                                                                      -----------  -----------
Cash flows from investing activities:
  Funding of lease financing receivables, net of repayments, held for investment....................           --     (220,441)
  Additions to furniture and equipment..............................................................       (1,708)      (1,141)
  Cash used in acquisitions, net of cash acquired...................................................         (169)         (45)
                                                                                                      -----------  -----------
      Net cash used in investing activities.........................................................       (1,877)    (221,627)
                                                                                                      -----------  -----------
Cash flows from financing activities:
  Proceeds from (repayments of) warehouse credit facilities, net of repayments (borrowings).........           --      208,114
  Repayment of subordinated notes payable, net of issuances.........................................       (5,000)          --
  Proceeds from issuance of common stock and exercise of convertible warrants.......................       39,670           --
  Distributions to stockholders.....................................................................         (255)          --
                                                                                                      -----------  -----------
      Net cash provided by financing activities.....................................................       34,415      208,114
                                                                                                      -----------  -----------
Net increase in cash and cash equivalents...........................................................       32,996       16,390
Cash and cash equivalents at beginning of period....................................................       14,569        7,928
                                                                                                      -----------  -----------
Cash and cash equivalents at end of period..........................................................  $    47,565  $    24,318
                                                                                                      -----------  -----------
                                                                                                      -----------  -----------
Supplemental disclosure of cash flow information:
  Income tax payments (refunds), net................................................................  $     1,369  $    (1,854)
                                                                                                      -----------  -----------
                                                                                                      -----------  -----------
  Interest paid.....................................................................................  $       430  $     5,813
                                                                                                      -----------  -----------
                                                                                                      -----------  -----------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       5
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
THE COMPANY
 
    ORGANIZATION
 
    First Sierra Financial, Inc. ("First Sierra" or the "Company") customizes
lease financing products and offers servicing, consulting and technology
solutions for commercial customers. The Company was formed in June 1994 to
acquire, originate, sell and service equipment leases. The underlying leases
financed by the Company relate to a wide range of equipment, including computers
and peripherals, software, medical, dental, diagnostic, telecommunications,
office, automotive servicing, hotel security, food services, tree service and
industrial. The equipment generally has a purchase price of less than $250,000
(with an average of approximately $31,000 for leases originated in 1998 and
$24,000 for leases originated during the first quarter of 1999). The Company
initially funds the acquisition or origination of its leases through its
securitized funding facilities and, from time to time depending on market
conditions, securitizes the leases in its portfolio that meet pre-established
eligibility criteria by packaging them into a pool and selling beneficial
interests in the leases through public offerings and private placement
transactions.
 
    Prior to July 1, 1998, the Company structured its securitization
transactions to meet the criteria for sales of lease financing receivables under
generally accepted accounting principles. Thus, for all securitizations
completed prior to such date, the Company recorded a gain on sale of lease
financing receivables when it included the receivables in a securitization.
Effective as of July 1, 1998, the Company made a strategic decision to alter the
structure of its future securitization transactions so as to retain leases
acquired and originated as long-term investments on its balance sheet rather
than selling such leases through securitization transactions. The Company also
modified the structure of its securitized funding facilities such that they
would be considered debt under generally accepted accounting principles. The
cash flows available to the Company, which are generally based on the advance
rates and discount rates set forth in the agreements, were unaffected by these
modifications. The primary effect from this move to emphasize portfolio lending
is a shift from the recognition of an immediate gain upon sale of the lease
receivables to the recognition of net interest margin over the lives of the
receivables.
 
    The Company acquires and originates leases primarily through its Private
Label, Wholesale, Retail, and Captive Finance programs. Under the Private Label
program, the Company is provided protection from credit losses on defaulted
leases through a first lien security interest in the underlying equipment,
recourse to the source of the lease (the "Source"), which is generally supported
by holdback reserves withheld from amounts paid to the Source upon purchase of
the lease, or a combination of the above. Leases acquired through the Wholesale,
Retail and Captive Finance programs are originated through relationships with
lease brokers, equipment vendors and individual lessees. In addition, the
Company has in the past generated, and may in the future generate, income
through the acquisition of lease portfolios and the subsequent sale of such
portfolios at a premium.
 
    Since inception, the Company's underwriting, customer service and collection
staff had been located in its Jupiter, Florida office. In order to consolidate
its operations and maximize administrative efficiencies, the Company relocated
its operations center from Jupiter, Florida to its headquarters in Houston,
Texas. The relocation was commenced in late 1997 and completed in the first half
of 1998. The Company incurred approximately $885,000, or $0.04 per diluted
share, of expenses in the quarter ended March 31, 1998, related to the
relocation.
 
                                       6
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. SIGNIFICANT ACCOUNTING POLICIES
 
    BASIS OF PRESENTATION
 
    The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission for interim
financial statements. Accordingly, the interim statements do not include all of
the information and disclosures required for annual financial statements. In the
opinion of the Company's management, all adjustments (consisting solely of
adjustments of a normal recurring nature) necessary for a fair presentation of
these interim results have been included. All significant intercompany accounts
and transactions have been eliminated in consolidation. These financial
statements and related notes should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K. The results for the interim periods are not necessarily indicative
of the results to be expected for the entire year.
 
    Gain on portfolio sales of leases is calculated as the difference between
the proceeds received, net of related selling expenses, and the carrying amount
of the related leases adjusted for ongoing recourse obligations of the Company,
if any. At March 31, 1999, the Company believes that it does not have any
material recourse obligations related to receivables sold through portfolio
sales.
 
    EXPOSURE TO CREDIT LOSSES
 
    Management evaluates the collectibility of leases acquired or originated
based on the level or recourse provided, if any, delinquency statistics,
historical loss experience, current economic conditions and other relevant
factors. Prior to July 1, 1998, the Company structured its securitization
transactions to meet the criteria for sales of lease financing receivables under
generally accepted accounting principles. The Company provided an allowance for
credit losses for leases which were considered impaired during the period from
the funding of the leases through the date such leases were sold through the
Company's securitization program. When the securitizations took place, the
Company reduced the allowance for credit losses for any provision previously
recorded for such leases. Any losses expected to be incurred on leases sold were
taken into consideration in determining the fair value of any Trust Certificates
retained and recourse obligations accrued, if any. Effective as of July 1, 1998,
the Company made a strategic decision to retain its leases as long-term
investments on its balance sheet. As a result, the Company now provides an
allowance for credit losses for leases which the Company considers impaired
based on management's assessment of the risks inherent in the lease receivables.
Management monitors the allowance on an ongoing basis based on its current
assessment of the risks and losses identified in the portfolio.
 
    The Company's allowance for credit losses on lease receivables and its
valuation of the Trust Certificates retained in its securitization transactions
are based on management's current assessment of the risks inherent in the
Company's lease receivables from national and regional economic conditions,
industry conditions, concentrations, financial conditions of the obligors,
historical experience of certain origination channels, and other factors. These
estimates are reviewed periodically and as write-downs become necessary, they
are reported as reduction of earnings in the period in which they become known.
 
    In assessing the Company's exposure to credit losses, management generally
segregates the leases acquired under its Private Label program from those
acquired or originated under its Wholesale and Retail programs due to the
differing levels of credit protection available to the Company under the various
lease funding programs. The following table sets forth the Company's allowance
for credit losses for its
 
                                       7
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Private Label program and its Wholesale and Retail programs for the quarters
ended March 31, 1998 and 1999 (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                                                      PRIVATE    WHOLESALE/
                                                                                       LABEL     RETAIL (1)    TOTAL (2)
                                                                                    -----------  -----------  -----------
<S>                                                                                 <C>          <C>          <C>
Balance at December 31, 1997......................................................   $      36    $     945    $     981
  Provision for credit losses.....................................................          17          712          729
  Charge-offs, net of recoveries, on leases acquired or originated by the
    Company.......................................................................          --           --           --
  Reduction of allowance for leases sold (1)......................................         (19)        (723)        (742)
                                                                                         -----   -----------  -----------
  Balance at March 31, 1998.......................................................   $      34    $     934    $     968
                                                                                         -----   -----------  -----------
                                                                                         -----   -----------  -----------
Balance at December 31, 1998......................................................   $      83    $   4,680    $   4,763
  Provision for credit losses.....................................................          74        2,013        2,087
  Charge-offs, net of recoveries, on leases acquired or originated by the
    Company.......................................................................           5          (84)         (79)
  Reduction of allowance for leases sold (1)......................................          --         (155)        (155)
  Charge-offs, net of recoveries, on leases acquired through business
    combinations..................................................................          --         (314)        (314)
                                                                                         -----   -----------  -----------
Balance at March 31, 1999.........................................................   $     162    $   6,140    $   6,302
                                                                                         -----   -----------  -----------
                                                                                         -----   -----------  -----------
</TABLE>
 
------------------------
 
(1) In connection with the sales of leases, the Company reduces the allowance
    for credit losses for any provision previously recorded for such leases. Any
    losses expected to be incurred on leases sold, as previously evidenced by
    the allowance for credit losses, are taken into consideration in determining
    the fair value of any Trust Certificates retained and recourse obligations
    accrued, if any.
 
(2) The Company began its Captive Finance program in March 1998 through the
    acquisition of Integrated Lease Management, Inc. During the quarters ended
    March 31, 1998 and 1999, leases originated through its Captive Finance
    program were $50 million and $48 million, respectively, all of which were
    sold to, or financed through, third parties at the time of originations
    without recourse to the Company. Therefore no allowance for credit losses
    were provided for leases originated under the Captive Finance program.
 
    Under the Private Label program, the Company seeks to minimize its losses
through a first lien security interest in the equipment funded, recourse to the
Private Label Source which is generally collateralized by holdback reserves
withheld from the Private Label Source upon purchase of the lease, or a
combination of the above. The recourse provisions generally require the Private
Label Source to repurchase a receivable when it becomes 90 days past due. The
recourse commitment generally ranges from 10% to 20% of the aggregate purchase
price of all leases acquired from the Private Label Source. Holdback reserves
withheld from the purchase price generally range from 1% to 10% of the aggregate
purchase price of the leases acquired from the Private Label Source. In
determining whether a lease acquired pursuant to the Private Label program which
is considered impaired will result in a loss to the Company, management takes
into consideration the ability of the Private Label Source to honor its recourse
commitments and the holdback reserves withheld from the Private Label Source
upon purchase of the lease, as well as the credit quality of the underlying
lessee and the related equipment value. At December 31, 1998 and March 31, 1999,
the Company had holdback reserves of $16.7 million and
 
                                       8
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$16.8 million, respectively, relating to leases acquired pursuant to the Private
Label program. Such amounts have been classified as liabilities in the
accompanying financial statements.
 
    The following table sets forth certain aggregate information regarding the
level of credit protection afforded the Company pursuant to the recourse and
holdback provisions of the Private Label program as of December 31, 1998 and
March 31, 1999 (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                                               DECEMBER 31,  MARCH 31,
                                                                                   1998         1999
                                                                               ------------  ----------
<S>                                                                            <C>           <C>
Leases outstanding under the Private Label program (1).......................   $  477,138   $  534,122
                                                                               ------------  ----------
                                                                               ------------  ----------
 
Recourse to Sources available................................................   $   52,518   $   58,323
Ratio of recourse to total leases outstanding under the Private Label program
  (2)........................................................................        11.01%       10.92%
                                                                               ------------  ----------
                                                                               ------------  ----------
Holdback reserves outstanding................................................   $   16,682   $   16,840
Ratio of holdback reserves outstanding to total leases outstanding under the
  Private Label program (2)..................................................         3.50%        3.15%
                                                                               ------------  ----------
                                                                               ------------  ----------
</TABLE>
 
------------------------
 
(1) Represents net principal balance of leases held by the Company in its
    portfolio as well as leases serviced by the Company pursuant to its
    securitization program.
 
(2) The specific level of credit protection varies for each Private Label
    Source. Specific levels of credit protection by Source are considered by
    management in determining the allowance for credit losses.
 
    Management analyzes the collectibility of leases acquired or originated
pursuant to its Wholesale and Retail programs based on its underwriting
criteria, delinquency statistics, historical loss experience, current economic
conditions and other relevant factors. While the Company owns the underlying
equipment, it does not have any recourse or holdback reserves with respect to
any leases acquired or originated pursuant to its Wholesale and Retail programs.
The Company began its Captive Finance program in March 1998 through the
acquisition of Integrated Lease Management, Inc. During 1998 and the first
quarter of 1999, leases originated through the Company's Captive Finance program
were $164 million and $48 million, respectively, all of which were subsequently
sold to or financed through third parties without recourse to the Company.
 
    The following tables set forth certain information as of December 31, 1998
and March 31, 1999, with respect to leases which were held by the Company in its
portfolio or serviced by the Company pursuant to its securitization programs
(dollars in thousands):
 
<TABLE>
<CAPTION>
                                                    AS OF DECEMBER 31, 1998             AS OF MARCH 31, 1999
                                               ---------------------------------  ---------------------------------
                                                PRIVATE   WHOLESALE/               PRIVATE   WHOLESALE/
                                                 LABEL      RETAIL       TOTAL      LABEL      RETAIL       TOTAL
                                               ---------  -----------  ---------  ---------  -----------  ---------
<S>                                            <C>        <C>          <C>        <C>        <C>          <C>
Gross leases outstanding.....................  $ 592,435   $ 478,139   $1,070,574 $ 648,955   $ 572,912   $1,221,867
31-60 days past due..........................       1.36%       1.30%       1.33%      1.10%       1.28%       1.18%
61-90 days past due..........................       0.63%       0.69%       0.65%      0.63%       0.40%       0.53%
Over 90 days past due........................       0.40%       0.81%       0.58%      0.49%       0.88%       0.67%
                                               ---------  -----------  ---------  ---------  -----------  ---------
  Total past due.............................       2.39%       2.80%       2.56%      2.22%       2.56%       2.38%
                                               ---------  -----------  ---------  ---------  -----------  ---------
                                               ---------  -----------  ---------  ---------  -----------  ---------
</TABLE>
 
                                       9
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    The following table sets forth the experience of the Company with respect to
leases acquired for the periods indicated (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                                                             FOR THE THREE MONTHS
                                                                                               ENDED MARCH 31,
                                                                                            ----------------------
                                                                                               1998        1999
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
Average balance of leases acquired outstanding during the period (1)(2)...................  $  551,828  $  917,372
                                                                                            ----------  ----------
                                                                                            ----------  ----------
Net losses experienced on leases acquired:
  Private Label program...................................................................  $      100         438
  Wholesale and Retail programs...........................................................         310       1,998
                                                                                            ----------  ----------
    Total.................................................................................  $      410  $    2,436
                                                                                            ----------  ----------
                                                                                            ----------  ----------
Net Loss Ratio as a percentage of average balance of leases acquired outstanding..........        0.07%       0.27%
                                                                                            ----------  ----------
                                                                                            ----------  ----------
</TABLE>
 
------------------------
 
(1) Excludes lease receivables and losses on lease receivables acquired through
    business combinations.
 
(2) Represents net principal balance of leases held by the Company in its
    portfolio as well as leases serviced by the Company pursuant to its
    securitized programs.
 
    EARNINGS PER SHARE
 
    Earnings per share are presented for all periods in accordance with SFAS No.
128, "Earnings per Share." SFAS No. 128 requires a dual presentation of basic
and diluted earnings per share. Basic earnings per share excludes dilution and
is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock.
 
                                       10
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Following is a reconciliation of the numerators and denominators used in
calculating basic and diluted earnings per share for the three months ended
March 31, 1998 and 1999 (dollars in thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                                                               FOR THE THREE MONTHS
                                                                                 ENDED MARCH 31,
                                                                           ----------------------------
                                                                               1998           1999
                                                                           -------------  -------------
<S>                                                                        <C>            <C>
Earnings per common share, basic:
Net income...............................................................  $       2,760  $          31
  Preferred stock dividends..............................................             22             --
                                                                           -------------  -------------
  Net income available to common stockholders............................  $       2,738  $          31
                                                                           -------------  -------------
                                                                           -------------  -------------
  Weighted average shares outstanding....................................     12,429,010     14,226,138
                                                                           -------------  -------------
                                                                           -------------  -------------
  Earnings per common share, basic.......................................  $        0.22  $        0.00
                                                                           -------------  -------------
                                                                           -------------  -------------
 
Earnings per common share, diluted:
  Net income.............................................................  $       2,760  $          31
                                                                           -------------  -------------
                                                                           -------------  -------------
  Weighted average shares outstanding....................................     12,429,010     14,226,138
Dilutive securities:
  Options................................................................        494,611        157,085
  Warrants...............................................................             --             --
  Redeemable preferred stock.............................................        254,692         55,124
                                                                           -------------  -------------
Weighted average shares outstanding, diluted.............................     13,178,313     14,438,347
                                                                           -------------  -------------
                                                                           -------------  -------------
Earnings per common share, diluted.......................................  $        0.21  $        0.00
                                                                           -------------  -------------
                                                                           -------------  -------------
</TABLE>
 
    COMPREHENSIVE INCOME
 
    In January, 1998, the Company adopted the provision of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards of
reporting and display of comprehensive income and its components of net income
and "other comprehensive income" in a full set of general-purpose financial
statements. "Other comprehensive income" refers to revenues, expenses, gains and
losses that are not included in net income but rather are recorded directly in
stockholders' equity. The only component of comprehensive income other than net
income was foreign currency translation adjustments that commenced with the
acquisition of the Company's first foreign subsidiary in July 1998.
 
    FOREIGN CURRENCY TRANSLATION
 
    The financial statements of the Company's foreign subsidiaries were prepared
in their local currency and translated into U.S. dollars based on the current
exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the statement of operations. Balance
sheet translation adjustments, net of related deferred taxes, are reflected as
other comprehensive income in the stockholders' equity section of the Company's
balance sheet and accordingly, have no impact on net income or loss.
 
    RECENT ACCOUNTING PRONOUNCEMENT
 
    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting
 
                                       11
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standards for derivative instruments, certain derivative instruments imbedded in
other contracts, and hedging activities. In particular, SFAS No. 133 requires a
company to record every derivative instrument on the company's balance sheet as
either an asset or liability measured at fair value. In addition, SFAS No. 133
requires that changes in the fair value of a derivative be recognized currently
in earnings unless specific hedge accounting criteria are satisfied. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effect the
effectiveness of transactions that receive hedge accounting. Management has not
quantified the effect that SFAS No. 133 will have on the Company's financial
statements, however, the Statement could increase volatility in earnings and
other comprehensive income. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999, but companies may adopt it on a going-forward basis as of
the start of any fiscal quarter beginning on or after June 16, 1998. SFAS No.
133 cannot be applied retroactively. It must be applied to (a) derivative
financial instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997 (and at the Company's election, before January 1, 1998). The Company
expects to adopt SFAS No. 133 on January 1, 2000 and is currently evaluating the
impact of such adoption on the consolidated financial statements.
 
    RECLASSIFICATIONS
 
    Certain reclassifications have been made to conform with the current period
presentation.
 
3. LEASE FINANCING RECEIVABLES
 
    The Company's lease financing receivables balance at December 31, 1998 and
March 31, 1999, consists of the following (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,   MARCH 31,
                                                                                  1998         1999
                                                                              ------------  -----------
<S>                                                                           <C>           <C>
Minimum lease payments......................................................   $  417,116   $   653,687
Estimated unguaranteed residual value.......................................        4,120        10,785
Initial direct costs........................................................        6,729        11,367
Unearned income.............................................................      (86,040)     (128,869)
Allowance for credit losses.................................................       (4,763)       (6,302)
                                                                              ------------  -----------
  Lease financing receivables, net..........................................   $  337,162   $   540,668
                                                                              ------------  -----------
                                                                              ------------  -----------
</TABLE>
 
                                       12
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
4. DEBT
 
    Total debt consisted of the following as of December 31, 1998 and March 31,
1999 (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                                               DECEMBER 31,  MARCH 31,
                                                                                   1998         1999
                                                                               ------------  ----------
<S>                                                                            <C>           <C>
Nonrecourse Debt:
  Securitized Warehouse Facilities...........................................   $  173,767   $  385,710
  Securitized Transactions:
    Series 1998-1 securitization.............................................      101,247       93,463
  Other nonrecourse debt.....................................................        1,497        4,862
                                                                               ------------  ----------
Total Nonrecourse Debt.......................................................      276,511      484,035
Other Debt...................................................................       23,026       27,284
                                                                               ------------  ----------
Total Debt...................................................................      299,537      511,319
Subordinated Notes Payable...................................................        3,250        3,250
                                                                               ------------  ----------
Total........................................................................   $  302,787   $  514,569
                                                                               ------------  ----------
                                                                               ------------  ----------
</TABLE>
 
    The Company classifies its indebtedness as either nonrecourse debt or debt
based on the structure of the debt instrument that defines the Company's
obligations. Nonrecourse debt includes amounts outstanding related to leases
included in Securitized Funding Facilities, securitized transactions, or
individual or groups of leases funded under nonrecourse funding arrangements
with specific financing sources. Amounts outstanding in these instances are
classified as nonrecourse debt because the Company has no obligation to ensure
that investors or funding sources receive the full amount of principal and
interest which may be due to them under their funding arrangement. In these
instances, the investors or financing sources may only look to specific leases
and the associated cashflows for the ultimate repayment of amounts due to them.
In the event the cashflow associated with specific leases funded under
circumstances are insufficient to fully repay amounts due, the investor or
financing source withstands the full risk of loss. Debt includes amounts due to
financing sources for which the Company is responsible for full repayment of
principal and interest.
 
5. SEGMENT INFORMATION
 
    The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" on January 1, 1998. SFAS No. 131 establishes
standards for reporting information about operating segments in annual financial
statements and in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers.
 
    The Company acquires and originates leases primarily through its Private
Label, Wholesale/Retail, and Captive Finance programs. Additionally, the Company
conducts business in the continental United States (U.S.) and the United Kingdom
(U.K.). Segment and geographic data for the periods indicated are as follows
(dollars in thousands):
 
                                       13
<PAGE>
                 FIRST SIERRA FINANCIAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
5. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
                                                                                 FOR THE THREE MONTHS
                                                                                   ENDED MARCH 31,
                                                                               ------------------------
                                                                                   1998         1999
                                                                               ------------  ----------
<S>                                                                            <C>           <C>
Revenue by business segment:
  Private Label..............................................................   $    3,191   $    3,815
  Wholesale/Retail...........................................................       10,639       14,887
  Captive Finance............................................................          899          666
  Corporate..................................................................           --           --
                                                                               ------------  ----------
  Total......................................................................   $   14,729   $   19,368
Revenue by geographic area:
  Revenue generated from business within U.S.................................   $   14,729   $   17,099
  Revenue generated from U.K. operation......................................           --        2,269
                                                                               ------------  ----------
  Total......................................................................   $   14,729   $   19,368
Depreciation and amortization:
  Private Label..............................................................   $        5   $        6
  Wholesale/Retail...........................................................          469          897
  Captive Finance............................................................           27           17
  Corporate..................................................................          182          340
                                                                               ------------  ----------
  Total......................................................................   $      683   $    1,260
Pre-tax operating profit (loss):
  Private Label..............................................................   $    2,668   $    1,003
  Wholesale/Retail...........................................................        3,853        3,264
  Captive Finance............................................................          103          (99)
  Corporate..................................................................       (2,256)      (3,880)
                                                                               ------------  ----------
  Total......................................................................   $    4,368   $      288
Interest expense:
  Private Label..............................................................   $       25   $    2,723
  Wholesale/Retail...........................................................          355        3,594
  Captive Finance............................................................           19            3
  Corporate..................................................................           --           --
                                                                               ------------  ----------
  Total......................................................................   $      399   $    6,320
 
<CAPTION>
 
                                                                                        AS OF
                                                                               ------------------------
                                                                               DECEMBER 31,  MARCH 31,
                                                                                   1998         1999
                                                                               ------------  ----------
<S>                                                                            <C>           <C>
Total assets:
  Private Label..............................................................   $  158,446   $  255,710
  Wholesale/Retail...........................................................      255,146      355,595
  Captive Finance............................................................          120          550
  Corporate..................................................................       14,581       28,965
                                                                               ------------  ----------
  Total......................................................................   $  428,293   $  640,820
Total assets:
  Total U.S. assets..........................................................   $  388,149   $  594,506
  Total U.K. assets..........................................................       40,144       46,314
                                                                               ------------  ----------
  Total......................................................................   $  428,293   $  640,820
</TABLE>
 
                                       14
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
 
    Revenue increased $4.6 million, or 31%, from $14.7 million for the three
months ended March 31, 1998 to $19.4 million for the three months ended March
31, 1999, due to strong originations which generated higher interest income and
other income. The $4.6 million increase in revenue in the first quarter 1999 was
net of a $6.6 million decrease in gain on sale of lease financing receivables
from the first quarter of 1998 as a result of our strategic decision to alter
the structure of our securitization transactions, effective July 1, 1998, so as
to retain the leases on our balance sheet. With this change in the structure of
our securitization transactions, we did not recognize any gain on sale of lease
financing receivables during the first quarter of 1999.
 
    Gains from direct sales of lease financing receivables decreased $1.1
million, or 27%, from $4.3 million for the three months ended March 31, 1998 to
$3.2 million for the three months ended March 31, 1999. The decrease is related
to a decrease in the volume of leases sold to third parties.
 
    Interest income increased $11.6 million, or 719%, from $1.6 million for the
three months ended March 31, 1998 to $13.2 million for the three months ended
March 31, 1999. The increase was primarily related to a 60% increase in our
balance of lease receivables outstanding during the first quarter of 1999 as a
result of our decision, effective July 1, 1998, to retain lease receivables on
our balance sheet after securitization. The increase was also related to an
increase in the weighted average yield of lease receivables due to the fact that
leases acquired under our Retail program, which are higher yielding, represented
a larger percentage of our lease receivables outstanding in the first quarter of
1999 than in the first quarter of 1998.
 
    Servicing income increased $0.4 million, or 36%, from $1.2 million for the
three months ended March 31, 1998 to $1.6 million for the three months ended
March 31, 1999. Servicing income consists of late charge income collected on
leases owned and serviced and servicing income earned on leases sold under our
securitization programs. This increase was primarily due to a 60% increase in
late charges collected which resulted from a 66% increase in the average balance
of leases owned and serviced. This increase in late charges was partially offset
by a decrease in the late fees collected to total assets owned and serviced due
to lower delinquencies. The increase in servicing income was partially offset by
the change which was made to the structure of our securitization transactions.
Effective July 1, 1998, we began retaining leases on our balance sheet after
securitization. Servicing fees related to lease receivables securitized after
such date were recorded as reduction of interest expense rather than servicing
income.
 
    Other income increased $0.4 million, or 35%, from $1.0 million for the three
months ended March 31, 1998 to $1.4 million for the three months ended March 31,
1999. The increase is primarily attributable to documentation fees and other
fees collected in connection with the origination and administration of the
leases due to the overall expansion of our business.
 
    Salaries and benefits increased $0.9 million, or 15%, from $5.6 million for
the three months ended March 31, 1998 to $6.5 million for the three months ended
March 31, 1999. Such increase is primarily related to a 19% increase in the
number of people employed by us during the same periods. The increase in
headcount and salaries and benefits is directly related to increased origination
activities and the overall expansion of our business. Lease originations
increased 42% from the first quarter 1998 to the first quarter 1999. Average
leases owned and serviced increased 66% from the first quarter 1998 to the first
quarter 1999. Due to continued enhancements made to our e-commerce technology
platform, we were able to increase efficiency and reduce the level of increase
in salaries and benefits.
 
    Provision for credit losses increased $1.4 million, or 186%, from $0.7
million for the three months ended March 31, 1998 to $2.1 million for the three
months ended March 31, 1999. The increase is primarily
 
                                       15
<PAGE>
due to an increase in lease receivables retained on our balance sheet during the
first quarter of 1999, which also resulted from our decision to retain leases on
our balance sheet effective July 1, 1998.
 
    Depreciation and amortization increased $0.6 million, or 84%, from $0.7
million for the three months ended March 31, 1998 to $1.3 million for the three
months ended March 31, 1999. Such increase was primarily attributable to a 100%
increase in goodwill and other intangible assets from March 1998 to March 1999
resulted from acquisitions made in 1998. Additionally, we experienced a 61%
increase in fixed assets from March 1998 to March 1999 as a result of our
acquisitions of leasing companies and the overall expansion of our business.
 
    Interest expense increased $5.9 million, or 1,484%, from $0.4 million for
the three months ended March 31, 1998 to $6.3 million for the three months ended
March 31, 1999. The increase primarily related to an increase in outstanding
borrowings as a result of our decision, effective July 1, 1998, to retain lease
receivables and the related borrowings on our balance sheet after
securitization. The increase was partially offset by the servicing fees and cash
flows allocable to trust certificates that we received from lease receivables
securitized after July 1, 1998. As we retain lease receivables on our balance
sheet, the related servicing fees and cash flows allocable to the trust
certificates are recorded as a reduction of interest expense.
 
    Other general and administrative expenses increased $0.9 million, or 45%,
from $2.0 million for the three months ended March 31, 1998 to $2.9 million for
the three months ended March 31, 1999. Such increase was attributable to the
general expansion of our business.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    Our lease finance business is capital intensive and requires access to
substantial short-term and long-term credit to fund new equipment leases. Since
inception, we have funded our operations primarily through borrowings under our
funding facilities, sales of our common stock and by including our leases in
public and private securitization transactions. We expect to require access to
large amounts of capital to maintain and expand our volume of leases funded and,
depending upon market conditions, to complete acquisitions of additional lease
finance companies.
 
    Our uses of cash include the acquisition and origination of equipment
leases, payment of interest expenses, repayment of borrowings under our
securitized funding facilities, and the payment of operating and administrative
expenses, income taxes and capital expenditures. The structure of our lease
funding programs, including the holdback and recourse features of our Private
Label program, along with the structure of our securitized funding facilities
and public securitization transactions, enabled us to generate positive cash
flow from operations in 1996, 1997 and 1998.
 
    We use our securitized funding facilities to fund the acquisition and
origination of leases that satisfy the eligibility requirements established
under each facility. These funding facilities provide us with advance rates that
generally do not require us to utilize our capital during the period that lease
receivables are financed under such facilities. The liquidity provided under
certain facilities is generally interim in nature and we seek to refinance or
resell the lease receivables that were funded under these interim facilities
through our public securitization program within three to twelve months.
 
    In April 1999, we filed a shelf registration statement with the Securities
and Exchange Commission relating to the proposed public offering from time to
time of up to $300,000,000 of our debt and/or equity securities. Proceeds from
the securities which may be issued are expected to be used for general corporate
purposes, including working capital.
 
    We believe that our existing cash and investment balances, cash flow from
our operations, net proceeds from future securitization transactions and amounts
available under our securitized funding facilities will be sufficient to fund
our operations for the foreseeable future.
 
                                       16
<PAGE>
    SECURITIZED FUNDING FACILITIES
 
    As of March 31, 1999, our five securitized funding facilities had an
aggregate funding capacity of $545 million. As of April 30, 1999, $210 million
was available under these facilities.
 
    Through June 30, 1998, our securitized funding facilities were structured so
that transfers to those facilities were considered sales under generally
accepted accounting principles. Effective July 1, 1998, concurrent with our
strategic decision to retain our lease receivables on our balance sheet as
long-term investments, we modified the structure of our securitized funding
facilities so that advances under the facilities would be considered debt under
generally accepted accounting principles. The cash flows available to us, which
are generally based on the advance rates and discount rates set forth in the
facility agreements, were generally unaffected by the modifications to the
agreements.
 
    PUBLIC SECURITIZATION TRANSACTIONS
 
    To date, the proceeds that we have received in our public securitization
transactions have generally been sufficient to repay amounts we have borrowed
under our securitized funding facilities, as well as issuance expenses related
to each securitization. We generally structure our securitization transactions
to qualify as financings for income tax purposes. Therefore, no income tax is
payable in the current period on the gain recognized. We anticipate that our
future financings of equipment leases will be principally through securitization
transactions and, to a lesser extent, through portfolio sales and sales to
third-party financing sources.
 
    As of March 31, 1999, we have completed four public securitization
transactions involving the issuance of $627 million of senior and subordinated
securities. We completed the Series 1996-1 and 1996-2 transactions in 1996, the
Series 1997-1 transaction in September 1997, and the Series 1998-1 transaction
in December 1998.
 
    In connection with the Series 1996-1 and 1996-2 transactions, Class A
certificates, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services
and AAA by Duff & Phelps Credit Rating Co., were sold in the public market. The
Class B-1 and Class B-2 Certificates were rated BBB and BB, respectively, by
Duff & Phelps Credit Rating Co., and were sold on a non-recourse basis in the
private market.
 
    In connection with the Series 1997-1 transaction, four tranches of Class A
Notes, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services, Inc.
and AAA by Duff & Phelps Credit Rating Co., were sold in the public market. The
Class B-1 and Class B-2 Notes were rated BBB and AA, respectively, by Duff &
Phelps Credit Rating Co., and were sold on a non-recourse basis in the private
market. The Class B-2 Note was enhanced through a letter of credit with Dresdner
Bank AG, which resulted in the higher ratings. We retained a Class B-3 Note,
which was rated B by Duff & Phelps Credit Rating Co., for future sale in the
private market.
 
    Due to our ability to structure and sell Class B-1 and Class B-2 rated
components of our securitizations, the remaining interest retained by us was
reduced, which allowed us to maximize the cash proceeds generated from each
transaction.
 
    In connection with the Series 1998-1 transaction, four tranches of Class A
Notes, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services, Inc.,
AAA by Duff & Phelps Credit Rating Co. and AAA by Fitch IBCA, Inc. were sold in
the public market. The Class B-1 and Class B-2 notes were rated BBB and BB by
Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc., and were sold and financed
on a non-recourse basis in the private market. A Class B-3 Note was rated B by
Duff & Phelps Credit Rating Co., and Fitch IBCA, Inc. which we retained for
future sale in the private market.
 
    We were able to realize approximately 94% of the present value of the
remaining scheduled payments of the equipment leases included in our Series
1996-1 and 1996-2 securitizations, approximately 96% of the
 
                                       17
<PAGE>
present value of the remaining scheduled payments of the equipment leases
included in our Series 1997-1 securitization, and approximately 95% of the
present value of the remaining scheduled payments of the equipment leases
included in our Series 1998-1 securitization.
 
    SUBORDINATED NOTES
 
    In May 1997, we entered into a $5.0 million subordinated revolving credit
facility with an affiliate. The commitment level on this facility is scheduled
to decrease by $1.0 million per year. Advances under this facility bear interest
at 11% per annum. As of March 31, 1999, we had not borrowed any money under this
facility.
 
    In connection with the acquisition of Heritage in May 1997, we issued a $1.0
million subordinated note payable to the former owner of Heritage. Such note
bears interest at 9% per annum, with principal payable semi-annually over 5
years.
 
    On October 1, 1998, we acquired all of the outstanding shares of capital
stock of Titan Finance, Limited, a company incorporated in England and Wales, in
exchange for $2,250,000 in cash and $2,250,000 in convertible subordinated
promissory notes. The promissory notes bear interest at a rate of 6% per annum,
payable semi-annually, with the outstanding principal amount due October 1,
2003. The notes will automatically convert into shares of our common stock when
the average trading price of the common stock for the twenty days preceding
conversion equals or exceeds $20.00. Upon conversion, we will issue one share of
common stock for each $20.00 of outstanding principal amount of the notes.
 
    INTEREST RATE MANAGEMENT ACTIVITIES
 
    The implicit yield to us on all of our leases is on a fixed interest rate
basis due to the leases having scheduled payments that are fixed at the time of
origination of the leases. When we acquire or originate leases, we base our
pricing on the "spread" we expect to achieve between the implicit yield to us on
each lease and the effective interest cost we will pay when we sell or refinance
such lease through a public securitization transaction. Increases in interest
rates between the time the leases are acquired or originated by us and the time
they are sold or refinanced through a public securitization transaction could
narrow or eliminate the spread, or result in a negative spread. It is our policy
to generally mitigate the risk on changes in interest rates. We mitigate the
volatility of interest rate movement between the time we acquire or originate a
lease and the time such lease is sold or refinanced through a public
securitization transaction by hedging movements in interest rates using interest
rate swap derivatives which match the underlying cash flow associated with the
leases originated. Under these swap agreements, we receive interest on the
notional amount at either the 30-day LIBOR or the 30-day AA Corporate Commercial
Paper Index, as applicable, and we pay a fixed rate which is equal to a spread
over the yield to maturity of U.S. Treasury securities similar to the maturities
of the specific leases being held for securitization. Such hedging arrangements
are generally implemented when our portfolio of unhedged leases reaches $10.0
million. At certain times, changes in the interest rate market present favorable
conditions to hedge against future rate movement. We may, from time to time,
enter into hedges against interest rate movement in anticipation of future
origination volume in order to take advantage of unique market conditions, but
this activity is generally limited to levels where we are confident of
origination in the near term.
 
    YEAR 2000
 
    The "Year 2000 problem" exists because many computer programs, embedded
systems and components were designed to refer to a year by the last two digits
of the year, such as "99" for "1999." As a result, some of these systems may not
properly recognize that the year that follows "1999" is "2000" and not "1900."
If those problems are not corrected, the systems could fail or produce erroneous
results. No one knows the extent of the potential impact of the Year 2000
problem generally.
 
                                       18
<PAGE>
STATE OF READINESS
 
    During 1998, we began our Year 2000 program by making initial inquiries of
the software vendors for our major applications as to the Year 2000 readiness of
such applications. We received assurances from these vendors that these
applications are Year 2000 ready. We also began making inquiries of significant
customers and other counterparties as to their Year 2000 readiness. For purposes
of our Year 2000 program, we have divided all of our applications, systems,
relationships and services into three groups:
 
    - Mission critical items are those that we require to operate our business
      without disruption,
 
    - Important items are those that we do not require to operate our business
      without disruption but that are important to our day-to-day operations,
      and
 
    - Ordinary items are those that do not depend on date specific data or are
      not important to our day-to-day operations.
 
    The Year 2000 program for all of our hardware, software, operating systems,
relationships and services consists of the following six phases:
 
    INVENTORY
 
    During this first phase of our Year 2000 program, we compiled information
relating to all hardware, software, operating systems, relationships and
services that may be affected by the Year 2000 problem. As of the date of this
report, we have substantially completed this phase.
 
    IMPACT ANALYSIS
 
    This phase will encompass the initial analysis of all of our hardware and
software, including embedded technologies and other "non-information technology"
applications, and our operating systems, relationships and services, to
determine whether there is a possibility that they are not Year 2000 ready, and
how this may affect us. We will also investigate and categorize the hardware,
software, systems, relationships and services as mission critical, important, or
ordinary. We expect this phase to be completed during the second quarter of
1999.
 
    SOLUTION PLANNING
 
    Based on the results of our impact analysis, we will identify the necessary
steps to ensure Year 2000 readiness. This analysis will determine whether the
hardware, software, systems, relationship or services will be scanned using Year
2000 scanning software, manually checked, or will be checked for readiness
through website or personal letter confirmation. We expect this phase to be
completed by the end of the second quarter of 1999.
 
    CORRECTIVE PROCEDURES
 
    In this phase, we will detail and perform the steps outlined from the
results of the Solution Planning phase to identify those fields or processes
that contain a Year 2000 problem, and to develop appropriate corrective
procedures. These corrective procedures may include remediation, replacement, or
retirement. We expect this phase to be completed by the end of the third quarter
of 1999 for mission critical applications and the end of the fourth quarter of
1999 for important applications.
 
    QUALITY ASSURANCE
 
    During this phase, we will ensure that the necessary steps that are taken to
test any date related issues can be properly executed to create Year 2000
readiness for the specific process or system. In addition, this phase will
ensure that all related processes and systems are not affected by the corrective
action. We expect
 
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<PAGE>
this phase to be completed by the end of the third quarter of 1999 for mission
critical applications and the end of the fourth quarter of 1999 for important
applications.
 
    CONTINGENCY PLANNING
 
    In the event that we are unable to correct a Year 2000 problem in a mission
critical process or system prior to September 30, 1999, a contingency plan will
be completed to ensure continued operation after December 31, 1999. In
completing this contingency plan, we will identify alternatives, including
manual processes, the expected correction date, and any conversion issues from
the manual process to the corrected system.
 
COSTS TO ADDRESS THE YEAR 2000 ISSUES
 
    We did not incur any material cost to address Year 2000 issues during the
year ended December 31, 1998. We estimate that we will incur costs approximating
$250,000 during 1999 to complete our resolution of Year 2000 issues.
 
RISKS OF THE YEAR 2000 ISSUES
 
    We have not identified any specific known events, trends or uncertainties
which are reasonably likely to have a material effect on our business, results
of operations, or financial condition. We will continue to review these issues
as we evaluate the progress of our Year 2000 program.
 
    The foregoing constitutes a Year 2000 statement and readiness disclosure
subject to the protections afforded it by the Federal Year 2000 Information and
Readiness Disclosure Act of 1998.
 
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
    The nature of our business exposes us to market risk arising from changes in
interest rates, credit spreads, and exchange rates. We have instituted risk
management policies to monitor and limit these exposures as follows:
 
    INTEREST RATE RISK
 
    To manage our interest rate risk, we have implemented policies that are
designed to minimize changes in our cost of funds associated with changes in
benchmark interest rates after lease receivables have been funded. The
measurement of market risk associated with financial instruments is meaningful
when all related and offsetting transactions are aggregated, and the resulting
net positions are identified.
 
    Our implicit yield on all of our leases is based on a fixed interest rate.
We generally obtain initial funding for lease acquisitions and originations
through borrowings under our securitized funding facilities and, from time to
time, depending on market conditions, we include the lease receivables in a
securitization transaction or portfolio sale. Because the securitized funding
facilities bear interest at floating rates, whereas the permanent
securitizations or portfolio sales bear interest at a spread over the benchmark
Treasury rate which is fixed at the time the transaction is completed, we are
exposed to the risk of an increase in the cost of funds from adverse interest
rate movements during the period from the date of borrowing through the date
that the underlying leases are included in a securitization transaction or
otherwise sold. We seek to minimize our exposure by entering into amortizing
interest rate swap transactions under which the notional amount of the contract
changes monthly to match the anticipated amortization of the underlying leases.
As of March 31, 1999, we were engaged in various interest rate swap
transactions. The total notional amount involved in these transactions closely
matched our outstanding balance of lease receivables that were not permanently
securitized.
 
    The following earnings sensitivity analysis assumes an immediate closing of
a permanent securitization transaction on lease receivables outstanding as of
March 31, 1999 and an increase of 50 basis points in the
 
                                       20
<PAGE>
benchmark Treasury. As indicated in the analysis, an immediate change in the
interest rate would have a minimal impact on our earnings because the increase
in our cost of funds from an increase in the benchmark Treasury would be
substantially offset by a reduction in our cost of funds from the amortization
of swap settlement proceeds received when our swap positions are unwound.
 
12-month pre-tax earnings change from increase in benchmark Treasury by 50 basis
points:
(Dollars in thousands)
 
<TABLE>
<S>                                                          <C>
Decrease in pre-tax earnings from increase in interest
  expense..................................................  $  (1,860)
Increase in pre-tax earnings from decrease in interest
  expense due to the amortization of swap proceeds.........      1,456
                                                             ---------
Net decrease in pre-tax earnings...........................  $    (404)
                                                             ---------
                                                             ---------
</TABLE>
 
    CREDIT SPREAD RISK
 
    We are also exposed to the risk of an increase in credit spreads between the
time we borrow money under our Securitized Funding Facilities and the time we
securitize or otherwise sell the leases. We can partially offset this type of
increase in our cost of funds by engaging in interest rate swap transactions and
benefiting from an increase in interest rate swap spreads. However, it is not
possible for us to completely offset our credit spread risk through hedging
transactions. Based on our lease receivables outstanding as of March 31, 1999,
an increase of 50 basis points in the credit spread would result in a $1,860,000
decrease in our pre-tax earnings in the next 12 months, provided that there is
no corresponding increase in the swap spread which would partially offset the
decrease in pre-tax earnings.
 
    FOREIGN EXCHANGE RISK
 
    We entered the small ticket leasing market in the United Kingdom in the
third quarter of 1998 through our acquisition of Suffolk Street Group. As of
March 31, 1999, our pound sterling denominated lease receivables totaled
approximately $28.6 million. As of the same date, our pound sterling denominated
borrowings had an aggregate outstanding balance of approximately $21.0 million.
We are exposed to changes in exchange rates when translating these pound
sterling denominated revenues and expenses to United States dollars. Based on
lease receivables and borrowings outstanding as of March 31, 1999, a 5% decrease
in the relative value of the British pound compared to the United States dollar
would result in a $89,000 decrease in our pretax earnings in the next 12 months.
 
    While the earnings sensitivity analyses presented above represent our best
estimate of the impact on our earnings and balance sheet of various market rate
movements, the actual behavior will likely differ from what we project. From
time to time, we recalibrate our assumptions and adjust our modeling techniques
as needed to improve the accuracy of the risk measurement results. You should
also be aware that actual movements of market interest rates can include changes
in the shape of the yield curve and changes in the basis relationship between
various market rates, among other changes, which are not captured in the
sensitivity analyses presented here.
 
                                       21
<PAGE>
                           PART II--OTHER INFORMATION
 
ITEM 5.  OTHER INFORMATION
 
    During 1999, we have undertaken a number of initiatives to further our
strategy to become a leading provider of e-commerce financial products and
services.
 
    In February 1999, we announced the formation of a new strategic services
group called B2B Solutions, which is dedicated to providing e-commerce
technology solutions and on-line financing products for commercial customers.
Our e-commerce technology enables us to make direct originations or acquisitions
of leases over the internet through an on-line application process that provides
customers with immediate access to our credit department and lease documents.
Our lease processing systems are linked directly to the vendor's systems through
our internet browser, allowing us to interface with the vendor's web site, sales
force and customers and providing customers with real-time access to application
status reports and portfolio and customer performance data. We are also able to
develop financial web sites for our vendors to facilitate business-to-business
e-commerce and offer maintenance and training support.
 
    In April 1999, we announced that we plan to begin offering accounts
receivable financing to our business customers beginning in the second half of
1999.
 
    We also announced in April 1999 that we intend to apply for regulatory
approval to establish the first internet-based business-to-business bank. Our
internet bank will be devoted exclusively to the banking and financing needs of
small business customers. Our goal in establishing the bank is to diversify our
funding sources, lower our costs of funds, and allow us to offer additional
e-commerce products to our base of business customers.
 
    We refer you to "Item 1. Business-Safe Harbor Statement Under the Private
Securities Litigation Reform Act of 1995" in our Form 10-K Annual Report for the
year ended December 31, 1998. In connection with initiatives described above, we
have identified the following risks and uncertainties, which supplement those
set forth in the Form 10-K:
 
    - We may not be successful in implementing our e-commerce growth strategy.
      The success of our e-commerce initiatives are dependent on the continued
      growth and viability of the internet and the acceptance of internet
      banking and e-commerce products and services by small business customers.
 
    - We may not receive regulatory approval of our bank charter application.
      Our inability to conduct certain of our operations through an internet
      bank would limit our proposed e-commerce product and service offerings.
 
    - If we receive regulatory approval for our internet bank, we will be
      subject to federal regulation as a bank holding company and the bank will
      be subject to extensive regulation by the Office of the Comptroller of the
      Currency, the Federal Deposit Insurance Operations Corporation and the
      Board of Governors of the Federal Reserve Board. In addition, the bank
      will be subject to minimum capital and leverage requirements.
 
    - Government regulation of the internet could adversely affect our
      e-commerce initiatives. Various local, state, federal and foreign
      governments are now considering proposals to regulate certain aspects of
      the internet, such as on-line content, privacy of user identification and
      other information, telecommunication access charges, liability and
      jurisdictional issues and taxation of e-commerce. In addition, the manner
      in which existing laws will be applied to e-commerce transactions is
      uncertain. Legal requirements which increase the costs or delays required
      in connection with e-commerce transactions may deter businesses from
      conducting such transactions.
 
    - Our computer systems, or those of third parties on whom we rely, could
      fail or suffer security breaches. Our e-commerce initiatives are dependent
      on the consistent operation of computer systems, which may fail or be
      limited because of Year 2000 problems, mechanical breakdown,
 
                                       22
<PAGE>
      computer viruses, power loss, telecommunications interruption, fire, water
      or storm damage, human error or otherwise. In addition, our systems, like
      those of other internet-based entities, are vulnerable to break-ins,
      security breaches and similar problems. Any such security breaches may
      subject us to litigation and the inability to attract and retain
      customers.
 
    - Our internet bank will rely extensively on third party providers of
      technical and customer services. If such providers experience problems or
      terminate their services, the bank's operations could be interrupted or
      otherwise adversely affected.
 
    - We will rely on key employees to operate our internet bank. The success of
      our internet banking initiatives will depend upon our ability to recruit
      and retain experienced banking employees and executives. We will depend to
      a large extent upon the experience, abilities and continued efforts of
      these individuals and the loss of the services of one or more of these
      individuals could have a material, adverse effect on our business,
      financial condition and results of operations.
 
    In April 1999, we also completed our fifth public securitization transaction
of $283 million of equipment leases. In connection with this Series 1999-1
transaction, four tranches of Class A Notes that totaled $260 million and Class
B-1 and Class B-2 notes that totaled $8.5 million were sold and financed. Four
tranches of Class A Notes, rated AAA by Standard & Poor's, Aaa by Moody's
Investor Services, Inc., AAA by Duff & Phelps Credit Rating Co. and AAA by Fitch
IBCA, Inc. were sold in the public market.
 
    The Class B-1 and Class B-2 notes were rated BB and BB by Duff & Phelps
Credit Rating Co. and Fitch IBCA, Inc., and were sold and financed on a
non-recourse basis in the private market. A Class B-3 Note was rated B by Duff &
Phelps Credit Rating Co., and Fitch IBCA, Inc. and was retained by us for future
sale in the private market.
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
    (a) EXHIBITS
 
<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER
-------------
<S>            <C>
         27    Financial Data Schedule for the three months ended March 31, 1999
</TABLE>
 
    (b) REPORTS ON FORM 8-K
 
    The Company was not required to file any Form 8-K Reports during the first
quarter of 1999.
 
                                       23
<PAGE>
                                   SIGNATURES
 
    PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
 
<TABLE>
<CAPTION>
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
 
<C>                             <S>                         <C>
                                Executive Vice President
       /s/ SANDY B. HO            and Chief Financial
------------------------------    Officer (principal           May 12, 1999
         Sandy B. Ho              financial officer)
</TABLE>
 
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