<PAGE>   1
                                 FORM 10-KSB
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997
                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED] for the transition period from
         ____________ to ____________

                        Commission file number:  0-21591

                            GRANITE FINANCIAL, INC.
                 (Name of small business issuer in its charter)


                      DELAWARE                              84-1349929
          (State or other jurisdiction of                (I.R.S. Employer
           incorporation or organization)               Identification No.)
                                                        
                                                        
       16100 TABLE MOUNTAIN PARKWAY, SUITE A            
                 GOLDEN, COLORADO                              80403
      (Address of principal executive offices)              (Zip Code)


                   Issuer's telephone number:  (303) 216-3500

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


      Title of each class              Name of each exchange on which registered
             N/A                                      NONE


      Securities registered pursuant to section 12(g) of the Exchange Act:

                    COMMON STOCK, $.001 PAR VALUE PER SHARE

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [  ]

The issuer's revenues for its most recent fiscal year were $83.5 million.

The aggregate market value of the 3,986,000 shares of Common Stock held by
non-affiliates was $45,340,750 as of September 15, 1997.  For purposes of the
foregoing calculation only, each of the issuer's officers and directors is
deemed to be an affiliate.  The market value of the shares was calculated based
on the average bid and asked price of such shares on the Nasdaq National Market
on such date.

As of September 15, 1997, 6,140,000 shares of the issuer's Common Stock were
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                 INCORPORATED IN PART III OF THIS FORM 10-KSB:
            PROXY STATEMENT TO BE FURNISHED TO SECURITY HOLDERS FOR
                        FISCAL YEAR ENDED JUNE 30, 1997

Transitional Small Business Disclosure Format:  Yes [ ] No  [X]
<PAGE>   2
                               TABLE OF CONTENTS


<TABLE>
<S>                                                                                   <C>
PART I  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
       ITEM 1:     DESCRIPTION OF BUSINESS  . . . . . . . . . . . . . . . . . . . . .   3
              General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
              History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
              Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
              Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . .   4
              Risk Management; Lease Underwriting . . . . . . . . . . . . . . . . . .   6
              Servicing and Collections . . . . . . . . . . . . . . . . . . . . . . .   8
              Funding Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9
              Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
              Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . .  12
              Regulation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
              Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
              Important Factors Related to Forward-Looking Statements                 
              and Associated Risks   . . . .  . . . . . . . . . . . . . . . . . . . .  13
       ITEM 2:     DESCRIPTION OF PROPERTY  . . . . . . . . . . . . . . . . . . . . .  14
       ITEM 3:     LEGAL PROCEEDINGS  . . . . . . . . . . . . . . . . . . . . . . . .  14
       ITEM 4:     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  . . . . . . .  14
                                                                                      
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
       ITEM 5:     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS   . . . .  15
              Market Price  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
              Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
       ITEM 6:     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION  . . . .  15
              Accounting Practices  . . . . . . . . . . . . . . . . . . . . . . . . .  15
              Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . .  17
              Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . .  19
              Asset Quality and Static Pool Analysis  . . . . . . . . . . . . . . . .  21
              Recent Accounting Pronouncements  . . . . . . . . . . . . . . . . . . .  23
       ITEM 7:     FINANCIAL STATEMENTS   . . . . . . . . . . . . . . . . . . . . . .  23
       ITEM 8:     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                  
                   ACCOUNTING AND FINANCIAL DISCLOSURE  . . . . . . . . . . . . . . .  23
                                                                                      
PART III  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
       ITEM 9:     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL               
                   PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT   . . .  24
       ITEM 10:    EXECUTIVE COMPENSATION   . . . . . . . . . . . . . . . . . . . . .  24
       ITEM 11:    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND                
                   MANAGEMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
       ITEM 12:    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS   . . . . . . . . .  24
       ITEM 13:    EXHIBITS AND REPORTS ON FORM 8-K   . . . . . . . . . . . . . . . .  24
</TABLE>

<PAGE>   3
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         The Company (which term, unless the context indicates otherwise,
refers to Granite Financial, Inc., its limited liability company predecessor
and its subsidiaries) is a finance company specializing in originating,
funding, acquiring, selling, securitizing and servicing non-cancelable,
full-payout equipment leases for a broad range of businesses located throughout
the United States.  The Company's operations are primarily in the small-ticket
segment of the equipment leasing market, which encompasses leases of equipment
with original purchase prices of $150,000 or less.  The average purchase price
of equipment leased by the Company's lessees is approximately $30,000 per
lease.  Leases are originated through a network of approximately 65 independent
lease originators selected by the Company.  The Company is committed to
providing a high level of service to its lease originators and is investing in
advanced technology which will allow the Company to electronically link each
originator with the Company's systems and resources.  The Company also develops
specialty lease finance programs in conjunction with its lease originators that
are designed to meet the particular financing requirements of the business
customer.

         The Company is currently implementing a consolidation strategy in the
small-ticket segment of the equipment leasing market.  The Company's
consolidation strategy encompasses the purchase of other companies active in
the small-ticket segment of the equipment leasing market as well as
independent lease originators that may or may not currently conduct business
with the Company.  Consistent with this consolidation strategy, the Company
concluded the acquisitions of Global Finance & Leasing, Inc. ("Global Finance")
in March 1997 and SFR Funding, Inc. ("SFR Funding") in June 1997.  Founded in
1989, Global Finance specializes in providing equipment lease financing for
point-of-sale equipment which costs $2,000 or less per lease.  SFR Funding was
founded in 1988 and specializes in originating equipment leases, primarily for
businesses in the hospitality industry.

         The Company's principal executive offices are located at 16100 Table
Mountain Parkway, Suite A, Golden, Colorado 80403, and its telephone number is
(303) 216-3500.

HISTORY

         The Company's predecessor, Granite Financial, LLC, was organized in
February 1995.  The period from February 21, 1995 (Granite Financial, LLC's
inception) through June 1995 was devoted to start-up of lease funding
operations.  In June 1995, Granite Financial, LLC entered into a Lease Sale
Agreement with Heartland Bank and Heartland Bank committed to purchase an
ownership interest in Granite Financial, LLC, subject to the satisfaction of
certain conditions.  In January 1996, Heartland Leasing Corporation of Missouri
("Heartland Leasing"), a wholly-owned subsidiary of Heartland Bank, fulfilled
Heartland Bank's commitment to purchase a 45.0% ownership interest in Granite
Financial, LLC.  In April 1996, approximately $16.0 million in leases
previously sold to Heartland Bank were repurchased to facilitate the Company's
first securitization transaction under which a special purpose subsidiary, GF
Funding Corp. I, issued approximately $21.7 million of lease-backed notes to an
institutional investor.  The notes were insured by a financial guaranty issued
by MBIA Insurance Corporation and were rated AAA by Standard & Poor's Ratings
Group and Aaa by Moody's Investors Service.  In October 1996, Granite
Financial, Inc. completed its initial public offering (the "Initial Public
Offering") and simultaneously exchanged 2,000,000 shares of its Common Stock
for all of the outstanding membership interests of Granite Financial, LLC.  At
that time, the Company succeeded to servicing and all other activities formerly
undertaken by Granite Financial, LLC.  In November 1996 and in March 1997, the
Company completed additional securitization transactions pursuant to which two
special purpose subsidiaries, GF Funding Corp. II and GF Funding Corp.  III,
respectively, issued lease-backed securities aggregating $92.5 million in
principal amount to third-party institutional investors.  The securities issued
in these securitizations were also insured by a financial guaranty issued by
MBIA Insurance Corporation and were rated AAA by Standard & Poor's Ratings
Group and Aaa by Moody's Investors Service.  The Company also initiated its
consolidation strategy through the closing of the acquisitions of Global
Finance in March 1997 and SFR Funding in June 1997.  In July 1997, the Company
completed a follow-on public offering of Common Stock (the "July 1997
Offering").





                                       3
<PAGE>   4
INDUSTRY OVERVIEW

         According to the Equipment Leasing Association and the International
Trade Administration, business investment in equipment exceeded $563.1 billion
in 1996, an increase of approximately $267.0 billion from comparable 1986 data.
Equipment leasing accounted for approximately $168.9 billion of 1996 business
investment in equipment compared to $85.0 billion in 1986.  Business investment
in equipment under lease is expected to account for over $176.2 billion of 1997
business investment in equipment, according to the same sources.  Although the
Company is not aware of published industry statistics that specifically address
equipment leases with an original equipment cost of $150,000 or less, the
Company estimates that the market for equipment priced in this range
constitutes between approximately 25.0% and 30.0% of equipment acquisitions
under lease.

         The small-ticket equipment leasing market served by the Company is a
highly diversified market, with demand for lease financing coming from a
variety of small and mid-size businesses across the United States.  This market
has experienced growth in recent years because of several factors, including
(i) the decline in prices of computers and computer peripherals and
corresponding increases in demand for this equipment; (ii) the adoption of
accounting pronouncements concerning the consolidation of earnings of
manufacturers and captive finance company subsidiaries that caused a number of
manufacturers to eliminate their captive finance companies, resulting in an
increased demand for independent financing such as that provided by the
Company; (iii) the consolidation of the banking industry, which has reduced the
number of small community banks that traditionally provided equipment financing
for small to mid-size businesses; (iv) stricter lending requirements of
commercial banks; and (v) the reduction in cost of funds for independent
finance companies such as the Company which have been able to access the
asset-backed securities market and other sources of lower cost capital.  The
small-ticket equipment leasing market is highly fragmented, with no company
believed to account for in excess of a 2.0% market share.

SALES AND MARKETING

         The Company's marketing strategy is to increase its volume of lease
financing by diversifying and expanding its lease origination channels.  The
Company intends to implement this strategy by (i) maintaining, selectively
expanding and supporting its high quality network of independent lease
originators, (ii) developing specialty programs in conjunction with its lease
originators for specific vendor or customer groups, including franchisees,
(iii) developing direct links with independent lease originators in order to
further automate transactions between the Company and its lease originators and
(iv) developing Internet capabilities that are expected to increase the flow of
potential lease transactions and permit e-commerce transactions among the
Company, equipment vendors and lessees.

         The Company has four marketing employees who are responsible for
implementing marketing strategies, coordinating marketing activities with the
Company's independent lease originators and supervising customer service.  To
establish and maintain the Company's profile in the equipment leasing industry,
the Company's marketing employees attend major equipment leasing conventions
and trade shows held each year and several officers of the Company are active
in the Equipment Leasing Association and the United Association of Equipment
Lessors, well-recognized trade associations.

         Lease Originators. The Company maintains a network of approximately 65
select independent lease originators through which it markets lease
transactions.  While the Company is familiar with a number of lease finance
companies that have established large groups of sales representatives or
brokers with varying experience levels, the Company has intentionally limited
its network of lease originators to a small, highly focused group of lease
originators with extensive industry experience.  Each lease originator has had
a prior relationship with senior management of the Company within the equipment
leasing industry and has in management's opinion shown an ability to generate
significant volumes of leases with a credit quality that is consistent with the
Company's stringent credit policies.

         The Company's lease originators range from relatively small businesses
which account for a limited number of the Company's monthly lease transactions
to relatively large businesses which originate leases financed by the Company
and other funding sources in an amount estimated by the Company to be in excess
of $50.0 million per year.  Lease transactions generated by the Company's
largest single independent lease originator accounted for approximately 17.9%
and 13.9% of the gross dollar amount of leases funded by the Company during the
fiscal year ended June 30, 1996 (the "1996 fiscal year") and the fiscal year
ended June 30, 1997 (the "1997 fiscal year"), respectively.  The next four
largest independent lease originators accounted for between 5.2% and 9.3% of
the gross dollar amount of leases funded by the Company during the 1997 fiscal
year.  Two lease originators each accounted for between 5.0% and 10.0% of the
gross dollar amount of leases funded by the Company during the 1996 fiscal
year.





                                       4
<PAGE>   5
         The Company maintains agreements with each of its lease originators
that define each party's obligations, but which are terminable by either party
on 30 days' written notice.  The lease originators are compensated by the
Company on a commission basis.  Because each of the lease originators is an
independent contractor, the Company cannot require its lease originators to
direct lease funding opportunities to the Company.  The Company believes that a
number of its lease originators conduct business with other lease finance
companies.

         Specialty Lease Programs. In conjunction with certain of the Company's
lease originators, the Company has developed specialty lease finance programs
to address the needs of specific lessees or businesses, particularly
franchisees.  As of June 30, 1997, the Company had 37 specialty programs in
place, each of which has unique attributes but all of which are based on the
Company's standard lease form.  The principal difference between the Company's
typical lease transactions and its specialty leases is the period of time in
which the lessee must have been engaged in business.  The Company's standard
underwriting criteria typically require that the lessee be engaged in its
business for two years, while specialty programs are available for start-up
businesses.  In consideration for providing lease financing to a start-up
business, certain lease terms are adjusted to reflect the Company's increased
risk.  Underwriting procedures are in other respects identical to those
employed in the Company's other lease transactions.

         As an example, specialty programs have been developed to provide
financing for franchisees in national franchise organizations, which often have
significant equipment financing needs.  Despite being a start-up business, the
new franchisee may represent a creditworthy lessee given the capital investment
required to establish the franchise, the franchisor's review of the franchisee
prior to granting a franchise, and operational and marketing support provided
to the franchisee by its franchisor.  Each of the Company's specialty lease
programs is exclusive, and obligates the lease originator to source all of
their customer's lease financing requirements from the Company, and obligates
the Company to do business exclusively with the lease originator with respect
to his or her specialty program.  The specialty program developed for
franchisees of Domino's Pizza illustrates the type of program offered by the
Company to its originators.  This program provides the franchisee with a
specially tailored lease to finance the purchase of computer and cash register
systems that are standardized throughout the Domino's Pizza franchise system.
The Company anticipates that it will continue to develop specialty lease
finance programs to meet the needs of its lease originators and their
customers, which management believes will further strengthen the Company's
relationship with its lease originators.

         The Company believes that, through its network of independent lease
originators, it can introduce new lease finance products which are
complementary to those now offered by the Company.  In particular, the Company
believes that small-ticket leases to municipalities, leases for start-up and
early-stage businesses and leases designed for franchise systems and chain
businesses offer significant areas in which the Company can expand its
business.  The Company believes that a number of its lease originators now
offer lease financing in these market segments and that, by virtue of the
Company's relationship with its lease originators, the Company can be
successful in expanding its volume of lease financings in these market
segments.

         Vendor Direct Programs. The Company recently hired an in-house
marketing representative who will oversee the development of vendor direct
programs.  The Company anticipates that the vendor direct programs will focus
on establishing formal and informal relationships with equipment vendors
whereby the Company will be the financing source recommended by the vendor to
its equipment purchasers.  The Company may also design vendor direct programs,
as it designs its specialty lease programs, which would offer customized lease
finance arrangements to respond to the needs of a particular vendor and its
equipment purchasers.  As of September 15, 1997, the Company has established
programs with three vendors to provide lease financing to their customers.

         New Technologies.  The Company is committed to implementing leading
edge technologies which can be used in the equipment leasing industry to
streamline and automate the lease application and approval process.  The
Company is currently developing an interactive Web site and related systems and
protocols which will allow the Company to complete lease transactions through a
direct, on-line system with independent lease originators, vendors and
customers.  The Company has developed and is currently testing an on-line
system to be established with its independent lease originators.  The on-line
system will allow lease originators to electronically transmit lease
applications to the computer system located in the Company's headquarters.  The
Company's computer system will then cause the application to be electronically
scored using a credit scoring program.  With respect to applications approved
for funding, the Company's system would prepare and electronically transmit
lease documents which would be downloaded and printed by the originator and
available for execution.  The Company anticipates that the on-line system will
be fully operational in calendar year 1998.





                                       5
<PAGE>   6
         In addition, the Company's interactive Web site and Internet marketing
program are currently under development.  The Company's Internet presence will
be designed to create a new channel of potential lease financing transactions
and to accommodate e-commerce transactions.  The Company anticipates that it
will establish an icon which will appear on the Web site of various equipment
manufacturers and vendors.  Viewers of the manufacturers' and vendors' sites
will be able to click on the Company's icon and connect directly to the
Company's Web site.  The Company's Web site will contain information concerning
equipment lease financing available through the Company and will allow
potential lessees to submit lease applications directly to the Company entirely
over the Internet.  The Company has retained certain software development and
Internet consulting firms to develop the Company's proposed Internet system.
The Company does not expect that its Internet system will be fully operational
until at least calendar year 1998.

RISK MANAGEMENT; LEASE UNDERWRITING

         The Company strives to maintain diversity in its business customer
base, geographic location of lessees and type of equipment under lease as part
of its risk management program and in order to meet or exceed standards
required for securitization transactions.  The Company also seeks to maintain
consistently high asset quality through its reliance on a network of
independent lease originators that are carefully selected and extensively
supported by the Company, application of stringent underwriting criteria that
are consistently applied and maintenance of highly focused servicing and
collection functions.  The Company believes that development of its operational
resources, management and marketing team, and lease processing and funding
capabilities have positioned the Company to increase its market share as it
executes its consolidation and internal growth strategies.  The Company applies
strict underwriting criteria and procedures, a computerized credit scoring
system and independent credit investigations, all of which are designed to
target creditworthy lessees rather than "sub-prime" or "credit impaired"
lessees.  The Company has also made significant investments in management
information systems and other technologies in order to automate and improve the
performance of the Company's servicing and collection functions.

         Equipment and Industry Diversity. The following table sets forth
certain information with respect to the equipment types and industries which
have been served by the Company's equipment financing for the period from
February 21, 1995 (inception) through June 30, 1997:

                         TYPES OF EQUIPMENT FUNDED (1)
<TABLE>
<S>                             <C>
      COMPUTERS/PERIPHERALS                                                             $21,699,263
               FOOD SERVICE                                               $11,750,721
MANUFACTURING/MACHINE WORKS                                        $9,641,072
              COIN-OPERATED                                   $9,120,238
              PERSONAL CARE                             $8,462,953
       DRY CLEANING/WASHING                     $7,733,901
      RADIO/TV/PHOTOGRAPHIC                     $7,717,665
            HEAVY EQUIPMENT             $6,614,087
             GENERAL OFFICE          $5,745,231

                            0%   5.1%    5.8%    6.8%   7.4%   8.0%   8.5%   10.3%     19.1%
                                                                                        
</TABLE>

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

(1)  Excludes leases funded by Global Finance.

         The remaining leases underwritten by the Company and not reflected in
the foregoing table are divided among exercise and sports, medical/dental,
printing/typesetting, engineering and scientific, refuse equipment, automotive
and other licensed equipment, and miscellaneous equipment.  Leases underwritten
in these categories accounted for approximately $25.3 million in leases funded,
or 22.2% of the Company's lease fundings during the period from February 21,
1995 through June 30, 1997.





                                       6
<PAGE>   7
         Geographic Diversity. The following table sets forth certain
information with respect to the geographic distribution of leases funded by the
Company from February 21, 1995 (inception) through June 30, 1997:

<TABLE>
<CAPTION>
                                                                        PERCENTAGE OF
                STATE                      LEASES FUNDED(1)          TOTAL LEASES FUNDED
                -----                      ----------------          -------------------
                                            (IN THOUSANDS)           
                <S>                           <C>                            <C>
                California                    $  25,211                       22.2%
                Texas                             8,747                        7.7
                Florida                           8,608                        7.5
                New York                          8,454                        7.4
                Colorado                          4,306                        3.8
                Illinois                          4,242                        3.7
                Pennsylvania                      4,170                        3.7
                New Jersey                        4,089                        3.6
                Massachusetts                     3,869                        3.4
                Georgia                           3,421                        3.0
                Washington                        3,380                        3.0
                Ohio                              3,182                        2.8
                Arizona                           2,711                        2.4
                All other states(2)              29,374                       25.8
                                               --------                      -----
                     Total                    $ 113,764                      100.0%
                                               ========                      ===== 
</TABLE>

(1)    Based on cost of leased equipment.  Excludes leases funded by Global
       Finance.

(2)    None of the remaining 37 states in which the Company has conducted
       business individually account for in excess of 1.9% of the total leases
       funded since inception.

         Lease Terms and Conditions. The Company uses a standard,
non-cancelable, full-payout lease, the terms and conditions of which may vary
slightly from transaction to transaction.  The Company's leases are structured
so as to be profitable regardless of the disposition of the leased equipment or
the recovery of any residual equipment value upon the expiration of the lease
term.  Approximately one-half of the leases underwritten by the Company provide
that the lessee may purchase the equipment for $1.00 at the expiration of the
lease, with the remainder of the leases calling for either a mandatory 10.0%
firm price buy-out or an optional fair market value buy-out.  Excluding Global
Finance, the Company books a maximum residual value of 10.0% of the original
equipment cost of leases other than those leases with a $1.00 buy-out and does
not book any residual value on leases with a $1.00 buy-out.  The leases
covering point-of-sale equipment funded by Global Finance generally provide for
a maximum residual value of 10.0% of the original lease receivable.  In certain
cases, the residual value may be equivalent to 10.0% of the original equipment
cost.  Leases funded by Global Finance generally have a term of 48 months and
provide that, at the conclusion of the lease, the lessee may continue to
utilize the leased equipment by paying a monthly rental substantially identical
to the monthly payment required under the lease.  Leases funded by Global
Finance also carry somewhat higher implicit lease rates than those funded by
the Company.

         Substantially all of the Company's leases provide that lessees are
obligated to (i) remit all amounts due, regardless of the performance of the
equipment, (ii) operate the equipment in a careful and proper manner and in
compliance with applicable government rules and regulations, (iii) maintain and
service the equipment, (iv) insure the equipment against casualty losses,
public liability, bodily injury and property damage, and require that the
Company be named as an additional insured and as a loss payee under each
insurance policy, and (v) pay directly, or reimburse the Company for, any taxes
associated with the equipment, its use, possession or lease, except those
relating to net income derived by the Company under the lease.  The Company's
equipment leases provide that in the event of a default by a lessee, the
Company may declare the entire unpaid balance of lease payments due and payable
immediately, and may repossess the equipment for subsequent sale, re-lease or
other disposition.

         Credit and Administrative Procedures. Based upon management's
experience in the equipment leasing industry, the Company has developed credit
underwriting policies and procedures that have been effective in the selection
of creditworthy equipment lessees.  The Company's credit underwriting
procedures are based upon the use of, among other things, standardized lease
application documents, a computerized credit scoring system, credit
investigations, and in certain transactions, tax returns, financial statements
and other relevant credit documentation concerning the lessee.





                                       7
<PAGE>   8
         Once a determination to fund a lease has been made, the Company
generates a standardized lease agreement and other documents.  When the
equipment is shipped and installed, the vendor invoices the Company and the
Company verifies that the lessee has received and accepted the equipment before
paying the vendor's invoice.  Because vendor relationships are an important
part of the Company's operations, the Company attempts to assure that vendors
receive timely payments once lessee acceptance of the equipment is received.
In general, the Company makes payments to vendors within 24 hours of receipt of
lessee acceptance.  Upon the lessee authorizing payment to the vendor, the
executed lease is forwarded to the Company's funding and documentation
department for funding, transaction accounting, audit and billing procedures.

SERVICING AND COLLECTIONS

         The Company services substantially all leases that have been
originated or purchased by the Company.  The Company's servicing activities,
with respect to both leases retained by the Company or leases securitized or
sold to third parties, consist of collecting, accounting for and posting of all
payments received; responding to lessee inquiries; taking all necessary action
to maintain the security interest granted in the leased equipment;
investigating delinquencies and taking appropriate action; communicating with
the lessee to obtain timely payments; repossessing and reselling the collateral
when necessary; and generally monitoring each lease.  The Company's existing
servicing agreements provide that the Company will bear all costs and expenses
incurred in connection with servicing activities in exchange for a fixed
monthly fee assessed on each lease.  The servicing agreements require the
Company to deliver monthly reports to the securitization trustee or holder of
the lease reflecting all payment and collection activity with respect to the
leases and reconciliation of changes in the outstanding balance owed under the
leases.  The Company's bank and other credit facilities do not place servicing
requirements upon the Company other than to require that the Company service
leases pledged as collateral to the respective bank or financial institution.

         The Company believes that its ability to monitor performance and
collect payments owed by lessees is primarily a function of its collection and
support systems.  Certain members of the Company's management team and support
staff have extensive experience in lease servicing and collections.  The
Company seeks to identify payment difficulties as early as possible and the
Company's collection staff works closely with lessees to address these
difficulties.

         Delinquencies. The Company estimates that as of June 30, 1997, of the
leases financed by the Company and either held as direct financing leases or
sold to third parties or securitized, excluding leases funded by Global Finance
(the "Gross Servicing Portfolio"), approximately 7.1% were financed on a
recourse basis to the Company and the remaining 92.9% had been sold or
securitized on a non-recourse or limited recourse basis.  In management's
opinion, the low delinquency rates of the Company's Gross Servicing Portfolio
reflect the consistent application of strict underwriting criteria, the
diversity in the Company's Gross Servicing Portfolio and the limited time
period that the vast majority of the Company's leases have been outstanding.
As the size and age of the Company's lease portfolio increases, the Company
expects to experience higher delinquency rates in the normal course of
business.  At June 30, 1997, the Company's portfolio of direct financing leases
had 16 delinquent leases over 31 days.  The table below sets forth certain
information concerning direct financing leases held by the Company at June 30,
1997.

                    DIRECT FINANCING LEASE DELINQUENCIES (1)

<TABLE>
<CAPTION>
                                                                              AT JUNE 30, 1997
                                                                              ----------------
              LEASE STATUS                                           DOLLARS                    PERCENT
              ------------                                           -------                    -------
                                                                 (IN THOUSANDS)
         <S>                                                         <C>                          <C>
         Current  . . . . . . . . . . . . . . . . . . . . . . .      $7,776                        90.6%
         1-30 days past due . . . . . . . . . . . . . . . . . .         137                         1.6
         31-60 days past due  . . . . . . . . . . . . . . . . .         119                         1.4
         61-90 days past due  . . . . . . . . . . . . . . . . .          89                         1.0
         Over 90 days past due  . . . . . . . . . . . . . . . .         459                         5.4
                                                                     ------                       -----
                 Total  . . . . . . . . . . . . . . . . . . . .      $8,580                       100.0%
                                                                     ======                       ===== 
</TABLE>

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

(1)    Excludes data for Global Finance.  Data is presented using aged lease
       receivables at June 30, 1997.





                                       8
<PAGE>   9
         A majority of the leases funded by the Company have been sold to third
parties or securitized.  The following table sets forth certain information
concerning such leases at June 30, 1997.

             LEASE DELINQUENCIES FOR LEASES SOLD OR SECURITIZED (1)

<TABLE>
<CAPTION>
                                                                              AT JUNE 30, 1997
                                                                              ----------------
              LEASE STATUS                                           DOLLARS                    PERCENT
              ------------                                           -------                    -------
                                                                 (IN THOUSANDS)
         <S>                                                       <C>                            <C>
         Current  . . . . . . . . . . . . . . . . . . . . . . .    $107,093                        94.9%
         1-30 days past due . . . . . . . . . . . . . . . . . .       4,042                         3.6
         31-60 days past due  . . . . . . . . . . . . . . . . .         918                         0.8
         61-90 days past due  . . . . . . . . . . . . . . . . .         361                          .3
         Over 90 days past due  . . . . . . . . . . . . . . . .         492                          .4
                                                                   --------                       -----
                 Total  . . . . . . . . . . . . . . . . . . . .    $112,906                       100.0%
                                                                   ========                       ===== 
</TABLE>

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

(1)    Excludes data for Global Finance.  Data is presented using aged lease
       receivables at June 30, 1997.

         As illustrated in the foregoing tables, the lease delinquency rates
for leases sold or securitized are less than the delinquency rates for direct
financing leases.  This difference is primarily attributable to the Company's
exercise of its right to substitute performing leases for non-performing leases
previously securitized, at which time the non-performing lease is reflected in
the direct financing lease delinquency statistics.  The Company exercises its
right of lease substitution from time to time in order to limit the risk of
acceleration of the repayment of principal under outstanding certificates or
notes.  Each securitization facility permits such acceleration if delinquency
or net charge-off rates exceed specified amounts.  Acceleration of principal
repayments would have a material adverse effect on the Company's financial
condition inasmuch as available cash flows from the securitization residual
interest would be diverted to the investor upon acceleration until such time as
all principal has been repaid.

         Reserves for Credit Losses. The Company maintains a reserve for credit
losses in connection with payments due under leases held in the Company's
portfolio.  The reserve is established by management in an amount deemed
sufficient to meet future asset write downs, based on an analysis of
delinquencies, problem accounts, overall risks and probable charge-offs
associated with outstanding leases, together with a review of the Company's
historical loss experience.  The reserve relates to direct financing leases held
by the Company, which include any leases received as a result of lease
substitutions in a securitized pool.  Additionally, the Company has provided for
a reserve for credit losses in its securitization residual interests.  At June
30, 1997, the reserve for credit losses equaled approximately 3% of the
Company's lease receivables and securitization residual interests, excluding
Global Finance leases.  Due to the higher risk associated with leases funded by
Global Finance, the Company has established significantly higher reserves for
credit losses as a percentage of lease receivables for Global Finance leases as
compared to leases funded by Granite Financial, Inc. The reserve is evaluated by
management and the Board of Directors on a quarterly basis.  The Company does
not provide a reserve for credit losses for leases sold to non-recourse lenders
or for leases disposed of through securitizations, except with respect to
reserves included within the securitization residual interest.  The price paid
by purchasers of leases and the terms of securitizations give effect to
estimated delinquency and net charge-off rates.

FUNDING SOURCES

         The Company purchases or originates and funds leases with the
intention of either selling the lease to an institutional purchaser,
securitizing the lease through the sale of lease-backed securities or holding
the lease in the Company's own portfolio.  The Company initially funds a lease
through its existing working capital or through borrowings under its warehouse
credit line with a bank syndicate led by CoreStates Bank, N.A. (the "Warehouse
Credit Line") or under other credit facilities which are available to the
Company.  Upon completing a sale or securitization of a pool of leases, the
Company receives funds which are generally used to pay down borrowings under
the Company's credit facilities or to restore the Company's working capital.
Borrowings under the Company's credit facilities and, to a lesser extent, the
Company's cash and cash equivalents, will therefore fluctuate based upon the
timing and amount of lease sales and securitizations.





                                       9
<PAGE>   10
         Bank and Other Credit Facilities. The $36.0 million Warehouse Credit
Line with CoreStates Bank and its participating lenders serves as the Company's
principal warehouse credit line.  Borrowings under the Warehouse Credit Line
are collateralized by security interests in the leases against which the
borrowing applies, as well as a security interest in the underlying equipment
and all cash and non-cash proceeds therefrom.  During the 1997 fiscal year, the
Company maintained a $3.0 million term loan with FBS Business Finance
Corporation ("FBS") and a $3.0 million revolving credit line/term loan with
Norwest Equipment Finance, Inc. ("Norwest").  These credit facilities were
collateralized by the leases assigned to each lender in connection with each
advance and are similar in certain other respects to the Warehouse Credit Line.
Given the Company's access to other credit facilities, the Company elected not
to renew the credit facilities from FBS and Norwest in June and July 1997,
respectively.  The Company established a $2.0 million unsecured revolving
credit line with Colorado National Bank in January 1997.  The credit line
allows the Company to borrow up to $2.0 million for working capital purposes on
an unsecured basis.  The Company also assumed three credit facilities as a
result of its acquisition of Global Finance in March 1997.  The Global Finance
credit facilities consist of a $2.2 million term loan and an $800,000 line of
credit, each with LaSalle National Bank ("LaSalle"), and a $1.5 million term
loan with Sirrom Capital, L.P. ("Sirrom").  These credit facilities are
recourse to Global Finance, are secured by equipment leases and all other
assets of Global Finance and can only be used by Global Finance.  In May 1997,
LaSalle committed to increase the borrowing limit under the Global Finance line
of credit to $5.0 million.  In July 1997, the Company obtained a $250,000
unsecured term loan for working capital purposes from Colorado National Bank.
Upon receipt of the proceeds from the July 1997 Offering, the Company repaid
the outstanding balances of $2.0 million and $250,000 from the $2.0 million
unsecured revolving credit line and the $250,000 unsecured term loan with
Colorado National Bank, respectively, and $10.4 million on the $36.0 million
Warehouse Credit Line.  Additionally, the Company repaid the entire $1.5
million balance outstanding under the Sirrom term loan and repaid $800,000 on
the line of credit with LaSalle National Bank.  See "Management's Discussion
and Analysis or Plan of Operation."

         Securitizations. The Company has completed three securitizations which
provide for aggregate funding in the amount of approximately $114.0 million
under which the Company had funded an aggregate amount of $73.0 million as of
June 30, 1997.  In each securitization, the Company transfers a pool of leases
to a wholly-owned, bankruptcy remote special purpose subsidiary established for
the limited purpose of purchasing the Company's leases and selling lease-
backed certificates or notes through a grantor trust to institutional
investors.  Proceeds from the sale of lease-backed certificates or notes are
used by the subsidiary to purchase leases from the Company.  Such proceeds are
generally then applied by the Company to pay down its Warehouse Credit Line or
bank and other credit facilities.  See "Management's Discussion and Analysis or
Plan of Operation."

         The Company completed its first securitization in April 1996. The
securitization provided for the issuance of $21.7 million in 6.33% Class A
Lease-Backed Notes due November 20, 2001.  At June 30, 1997, the outstanding
principal balance of such notes was approximately $14.8 million and are backed
by leases with aggregate remaining payments of $18.0 million.

         In November 1996 the Company completed its second securitization
facility.  The facility provides for the issuance of up to $65.0 million in
aggregate principal amount of Class A Lease-Backed Certificates due June 20,
2003.  The certificates are issuable in two tranches, a floating rate tranche
and a fixed rate tranche.  The floating rate tranche bears interest at an
annual rate equal to the LIBOR rate plus 0.50% and generally converts to the
fixed rate tranche on a quarterly basis.  The fixed rate tranche bears interest
at an annual rate equal to the treasury rate, as adjusted, plus 0.70%.  The
initial funding under the securitization facility was approximately $7.2
million.  The Company is required to fund a minimum of $1.5 million from the
securitization facility per month and until June 1997 was subject to
limitations in the monthly amount eligible to be funded under this facility.
At June 30, 1997, certificates had been issued in the aggregate principal
amount of $23.8 million in this securitization and are backed by leases with
aggregate remaining payments of $33.7 million.

         In March 1997 the Company established its third securitization
facility.  This facility was established to securitize additional leases above
the monthly eligibility limit formerly imposed in the November 1996
securitization facility.  The facility provides for the issuance of up to $27.5
million in the aggregate principal amount of 6.82% Class A Lease-Backed
Certificates due December 20, 2002.  The initial funding under the
securitization facility was approximately $14.7 million.  At June 30, 1997,
certificates had been issued in the aggregate principal amount of $27.5 million
in this securitization and are backed by leases with aggregate remaining
payments of $37.2 million.

         Payments due under the lease-backed securities issued in each of the
Company's securitizations have been insured by a financial guaranty issued by
MBIA Insurance Corporation and have been rated AAA by Standard & Poor's Ratings
Group and Aaa by Moody's Investors Service.  In each securitization, the
lease-backed securities were issued pursuant to





                                       10
<PAGE>   11
an indenture (the "Indenture") by and among the respective funding subsidiary,
Norwest Minnesota, the trustee under the Indenture, and the Company.
Contemporaneously, the Company and Norwest Minnesota entered into a servicing
agreement pursuant to which the Company was named as the servicer for all
leases that collateralized the lease-backed securities.  Norwest Minnesota
functions as back-up servicer, as the trustee under the Indenture, as custodian
of the lease contracts and as the paying agent for the leases.

         Under the terms of its existing securitizations, the Company has
retained the securitization residual interest.  At June 30, 1997, the net book
value of the securitization residual interest totalled approximately $10.1
million.  In each securitization, the Company receives advances based on a
percentage which is less than the aggregate present value of cash flows from an
undifferentiated pool of leases, effectively overcollateralizing the
lease-backed notes or certificates.  Over the life of the lease pool
securitized, the Company is eligible to receive the excess cash flow (the
"securitization residual interest") resulting from the difference between the
lease payments received, net of defaults, and the payment of (i) principal and
interest to investors in lease-backed notes or certificates and (ii) servicing,
backup servicing and trustee fees and other securitization expenses.  The
Company's success in realizing the value of the securitization residual
interest will depend primarily on the performance and cash flow of the
securitized leases.

         The Company estimates that the cost of capital available to the
Company through securitizations has been significantly below the cost of
capital to the Company under its bank and other credit facilities.
Accordingly, the Company may enter into securitization transactions in the
future in order to reduce and control its cost of capital.

         Lease Sales.  From June 1995 until completion of the Company's first
securitization in April 1996, sales of leases to Heartland Bank represented the
Company's primary source of funding.  Lease sales to Heartland Bank have
declined significantly since the Company's first securitization, and totaled
approximately $23.2 million in the year ended June 30, 1997.  The Company may
sell leases to Heartland Bank or other institutional investors from time to time
in the future, particularly those leases which are not eligible for
securitization.  Lease sales made by the Company to Heartland Bank are generally
non-recourse, although Heartland Bank has recourse to the Company with respect
to (i) the aggregate residual equipment value of the leases where there is no
firm purchase obligation on the part of the lessee, (ii) the entirety of the
lease in the case of a first payment default and (iii) a restricted cash reserve
account at August 31, 1997 of $0.6 million with respect to the sale of Global
Finance leases. Heartland Bank has been an affiliate of the Company since
January 1996 and two directors of the Company are also officers and directors of
Heartland Bank and Heartland Leasing.

COMPETITION

         Competition in the equipment lease finance market is intense.
Management believes that the small-ticket equipment leasing market is highly
fragmented, with no single competitor believed to have a market share in excess
of approximately 2.0%.  The Company competes for lessees with a number of
national, regional and local finance companies, some of which are active in
financing small-ticket equipment.  The Company also competes against captive
finance companies affiliated with major equipment manufacturers, banks, credit
unions that provide equipment leasing and conventional leasing companies.
There also exist a large number of financial service companies and financial
institutions which, should they choose to do so, may enter the equipment
leasing business in the future.  Competition in the equipment lease finance
market is based primarily on price, service and market presence.  A majority of
the Company's existing and potential competitors possess substantially greater
financial, marketing, personnel and other resources than the Company.  In
general, many of the Company's competitors and potential competitors are
larger, more established companies that have a lower cost of capital than the
Company and which may be able to access capital markets and funding sources
that are unavailable to the Company.  Although the Company expects that future
securitizations will have the effect of making capital available at a cost
which will allow the Company to continue to offer competitive lease rates,
there can be no assurance that the Company will be successful in completing
future securitizations or that such securitizations will be on terms and
conditions favorable to the Company.  The Company has and will encounter
significant competition and there can be no assurance the Company will be
successful in competing in its chosen market segments.  In addition, as the
Company enters new markets such as the municipal leasing market, the Company
will encounter substantial competition.

         The Company believes it currently maintains a competitive advantage in
the small-ticket market segment based on the high level of service provided to
its independent lease originators and its emphasis on the use of computer
systems and software specially designed for the equipment leasing market.  The
Company believes its use of specialized computer systems and related
technologies provides the Company with a competitive advantage over smaller
finance companies.  The Company believes that the principal competitive factors
affecting the lease originator's decision to offer leases through a particular
financing source are the purchase price offered for the leases, the
reasonableness of underwriting guidelines and





                                       11
<PAGE>   12
documentation requests, the predictability and timeliness of financing and the
financial stability of the funding source.  Management has devoted considerable
time and effort to the development of comprehensive underwriting guidelines and
documentation and to the streamlining of the lease underwriting process to
provide its independent lease originators with efficient, prompt and
predictable outcomes.

INTELLECTUAL PROPERTY

         The Company relies on a combination of common law trade secret and
trademark rights and nondisclosure agreements to protect its proprietary marks
and information.  The Company has not registered any of its trademarks or
service marks, and does not believe that any such marks are necessary to the
successful operation of its business.  The Company has developed certain
specialty lease programs for which the Company may register service marks in
the future.  There can be no assurance the Company will receive service mark
registrations on any terms applicable to its specialty lease programs.  The
Company's non-exclusive license agreements with Fair Isaac and DSI grant the
Company limited non-exclusive licenses to the respective trademark or
servicemark of the licensor for the duration of the agreement.  In December
1996, the Company also entered into a non-exclusive license for software
developed by BrokerWare.

REGULATION

         The Company's business is subject to numerous federal and state
regulations which, among other things, require the Company to obtain and
maintain certain licenses and qualifications.  These regulations also address
collection practices, including the rights to repossess and sell equipment.
Under certain circumstances, the Company may also be required to comply with
the Equal Credit Opportunity Act ("ECOA").  Pursuant to the terms of the ECOA,
the Company is required to give all credit applicants notice of the right to
receive a written statement of reasons if their application for credit is
denied, unless the applicant had gross revenues exceeding $1.0 million during
its last fiscal year.  The Company is also required by the ECOA to give oral or
written notice of a credit denial within 30 days after receipt of a completed
lease application, or within a reasonable time for applicants whose gross
revenues exceeded $1.0 million during its last fiscal year.  Although the
Company believes that it is currently in compliance with applicable statutes
and regulations, there can be no assurance that the Company will be able to
maintain such compliance.  The failure to comply with such statutes and
regulations could have a material adverse effect upon the Company.

         One of the Company's principal stockholders, Heartland Leasing, is a
wholly-owned subsidiary of Heartland Bank.  Heartland Bank is a federally
chartered savings association and subject to the jurisdiction of the Office of
Thrift Supervision ("OTS").  Under authority granted by the Homeowners' Loan
Act, OTS regulates federally chartered savings associations and their
subsidiaries.  At June 30, 1997, Heartland Leasing owned approximately 28% of
the outstanding Common Stock of the Company (which was reduced to approximately
17% on completion of the July 1997 Offering) and, by virtue of such ownership,
the Company may be considered a partly owned subsidiary of Heartland Bank by
OTS.  To facilitate compliance by Heartland Bank with OTS regulations and the
Homeowners' Loan Act, the Company has agreed to engage solely in activities
that are permissible for federally chartered savings associations as determined
by applicable laws or OTS regulations.  The Company does not believe its
leasing operations as currently conducted, or as proposed to be conducted, will
place the Company or Heartland Bank in violation of applicable laws or OTS
regulations.  Heartland Bank's indirect affiliation with the Company may
subject the Company to examinations by the OTS and could subject the Company to
civil enforcement proceedings or other action by OTS if the Company engaged in
conduct impermissible for subsidiaries of federally chartered savings
associations.

EMPLOYEES

         At June 30, 1997, the Company had 38 full-time employees.  Of these,
six are principally engaged in management, four are engaged in sales and
marketing and the remainder are engaged in operations, accounting and
administration.  None of the Company's employees are subject to collective
bargaining agreements.  The Company believes its employee relations are
excellent.





                                       12
<PAGE>   13
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

         Certain statements made in this Business section and elsewhere in this
Annual Report on Form 10-KSB are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995 (the "Reform Act").  Those
forward-looking statements involve risks and uncertainties that are based on
certain assumptions that may not be realized.  Those forward-looking statements
include or relate to the Company's plans or expectations to: (i) capitalize on
its operational capabilities and experienced management team, (ii) increase
productivity through utilization of advanced technologies and expansion of its
business using new interactive systems, (iii) leverage its access to lower cost
funds through securitizations and perhaps other sources to increase the gross
profit margins of acquired companies, (iv) increase its market share as it
executes its consolidation strategy, (v) successfully develop and implement a
direct electronic link with its independent lease originators, (vi)
successfully implement an interactive Web site and Internet marketing
strategies, (vii) implement additional marketing initiatives, (viii) complete
future securitization transactions and lease sales, (ix) maintain delinquency
and net charge-off rates within acceptable ranges, (x) identify, acquire and
assimilate complementary equipment leasing companies and independent lease
originators, (xi) develop additional specialty lease and vendor direct programs
in the future and (xii) commence e-commerce transactions among the Company,
equipment vendors and lessees.

         The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties that are based on
assumptions that the Company will continue to be able to provide lease
financing at competitive rates, that the Company will be able to successfully
develop its interactive Web site and Internet marketing strategies, that the
Company will be able to locate and successfully negotiate acquisitions of
complementary equipment leasing companies and independent lease originators,
that the Company will continue to be able to provide a high level of service to
its independent lease originators, that the Company will continue to be able to
attract qualified and experienced management personnel, that the Company is
more advanced in the development of its technology-based systems than its
competitors and that it can successfully develop and implement those systems
before its competition, that competitive conditions within the industry will
not change materially or adversely, that demand for the Company's lease
financing will remain strong, that the Company will retain its existing
independent lease originators and key management personnel, that the Company's
forecasts will accurately anticipate market demand for equipment lease
financing in the small-ticket market, that the Company will continue to have
access to the asset-backed securities markets or other lower cost sources of
capital, and that there will be no material adverse change in the Company's
operations or business.  Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
the Company and its management.  Although the Company believes that the
assumptions underlying the forward-looking statements made in this Annual
Report on Form 10-KSB are reasonable, any of those assumptions could prove
inaccurate and, therefore, there can be no assurance that the results
contemplated in any of the forward-looking statements made herein will be
realized.  In addition, the business and operations of the Company are subject
to substantial risks that increase the uncertainty inherent in such
forward-looking statements.  Risk factors include (i) availability of capital
resources, including additional financing when and as need, and on terms
acceptable to the Company, the Company's maintenance of its existing credit
facilities or arrangements for new credit facilities with sufficient borrowing
capabilities to finance lease funding activities and the ability to pool and
sell leases in additional securitization transactions in a timely manner in
order to repay bank and other credit facilities and to generate cash for
funding of new leases; (ii) economic considerations, such as potential adverse
changes resulting from fluctuations in portfolio performance, general economic
downturns and interest rate and cost of funds increases, (iii) failure to
realize securitization residual interests, (iv) consolidation strategy risks,
such as availability of acquisitions on reasonable terms, the addition of debt
and amortization of costs related to goodwill and other intangible assets, and
successful integration and management of acquired operations and personnel; and
(v) the ability to manage rapid growth.  Any of these factors could cause the
Company's revenues or net income, or the growth in revenues or net income, to
differ materially from prior results.  Growth in absolute amounts of cost of
leases sold or charge-offs or the occurrence of extraordinary events could
cause actual results to vary materially from the results contemplated by the
forward-looking statements contained herein.  Budgeting and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its funding,
marketing, capital expenditure or other budgets, which may in turn materially
affect the Company's results of operations.  In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person or entity that the objectives or plans of the
Company can or will be achieved.





                                       13
<PAGE>   14
ITEM 2.  DESCRIPTION OF PROPERTY

         Through August 8, 1997, the Company's office was located in
Westminster, Colorado and consisted of approximately 6,800 square feet.  The
office was leased for an annual base rent of $37,000 through July 31, 1998,
subject to extension for an additional two years at market rental rates then
prevailing.  The Company relocated its headquarters during August 1997 to a
larger facility in Golden, Colorado.  The new facility has 13,100 square feet
of finished office space and 18,100 square feet of additional space which is
available for future expansion and is leased for an annual base rent ranging
from $135,000 to $148,000 through August 2002.  As a result, the Company
expects to incur occupancy expenses during the 1998 fiscal year which are
approximately $98,000 in excess of fiscal 1997 occupancy expenses.  The Company
was obligated to pay its pro rata share of taxes, assessments and maintenance
expenses attributable to the building in which its office was located and is
similarly obligated under the new lease.  The lease for the Company's prior
premises was terminated in August 1997, at which time the Company paid a fee of
$12,000 for early termination.


ITEM 3.  LEGAL PROCEEDINGS

         The Company is not a party to any litigation, and is not aware of any
threatened or pending legal proceeding, which would have a material adverse
effect on the Company's business, operations or financial condition.


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

         No matter was submitted during the fourth quarter of the fiscal year
covered by this Form 10-KSB to a vote of security holders through the
solicitation of proxies or otherwise.





                                       14
<PAGE>   15
                                    PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET PRICE

         Since the Initial Public Offering, the Company's Common Stock has been
quoted on the Nasdaq National Market under the trading symbol GFNL.  Prior to
the Initial Public Offering, the Common Stock was not listed or quoted on any
organized market.  The following table sets forth for the periods indicated the
high and low closing sales prices of the Common Stock as reported on the Nasdaq
National Market.  Such quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission, and may not necessarily represent actual
transactions.


<TABLE>
<CAPTION>
        FISCAL 1997                                     HIGH             LOW
        -----------                                     ----             ---
        <S>                                              <C>             <C>
                                                  
        Second Quarter  . . . . . . . . . . . . .        $ 9.50          $ 8.00
        Third Quarter   . . . . . . . . . . . . .        $12.75          $ 9.38
        Fourth Quarter  . . . . . . . . . . . . .        $11.00          $ 8.38
</TABLE>

         On September 15, 1997 the last reported sale price of the Common Stock
reported on the Nasdaq National Market was $11.375.  As of September 15, 1997,
there were approximately 14 holders of record of the Company's Common Stock and
the Company estimates, based upon information provided by brokers, that it has
in excess of 550 beneficial owners of its Common Stock.

DIVIDENDS

         Holders of Common Stock are entitled to receive such dividends as may
be declared by the Company's Board of Directors.  The Company currently intends
to retain future earnings to finance its growth and development and therefore
does not anticipate paying any cash dividends in the foreseeable future.  In
addition, the Company's revolving credit facilities restrict the payment of
cash dividends by the Company under certain circumstances.  Payment of any
future dividends will depend upon the future earnings and capital requirements
of the Company and other factors which the Board of Directors considers
appropriate.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto.

ACCOUNTING PRACTICES

         Overview.  The leases underwritten by the Company are non-cancelable,
full-payout leases.  As such, the Company's leases cannot be canceled at the
lessee's discretion and all payments (which include interest implicit in the
lease) must be made at or before the dates due.  The Company's leases meet the
accounting criteria for capitalization and are accounted for by the Company as
direct financing leases.  Since its inception, the Company has initially funded
all of its direct financing leases with recourse debt under its existing bank
and other credit facilities or using its own working capital.  The Company
typically retains these leases for a period of time.  Thereafter, the Company
may sell or securitize leases on a non-recourse or limited recourse basis, at
which time the Company may relinquish any continuing economic interest in such
leases or may retain a contingent interest in the leases.  The Company retains
servicing rights on substantially all leases it underwrites and is paid
servicing fees on a monthly basis.  The Company's accounting practices with
respect to direct financing leases, securitizations and sales of leases are
summarized below.

         The Company's leases are collateralized by the business equipment
leased as well as, in many cases, a personal guarantee provided by a principal
of the lessee.  The Company also manages credit risk through diversifying its
business customer base, geographic location of lessees and the type of business
equipment leased.  The Company believes that prepayment and charge-off risks
are mitigated by the non-cancelable, full payout structure of its leases which
cover





                                       15
<PAGE>   16
equipment used in business operations. The Company has experienced nominal
prepayments to date.  The Company also attempts to manage the risk of
charge-offs through strict adherence to the Company's underwriting criteria.

         Direct Financing Leases.  In accounting for direct financing leases,
the Company records the total lease payments, the estimated unguaranteed
residual equipment value and the initial direct costs (consisting of
commissions and fees paid to lease originators and other origination costs) as
the investment in the direct financing lease.  The difference between the
investment in the direct financing lease and the cost to the Company of the
equipment being financed is recorded as unearned income.  The unearned income
is recognized over the life of the lease using the interest method.  On
securitization or sale of the lease, the Company's investment in the lease,
including initial direct costs, is eliminated and the resulting sales and cost
of sales are included in results of operations.  Unless the residual value of
the leased equipment (the "residual equipment value") is sold in connection
with the securitization or sale of the lease, the estimated residual equipment
value remains on the Company's balance sheet and is recognized as income from
direct financing leases over the life of the lease using the interest method.
Any permanent reduction in the estimated residual equipment value is charged to
operations in the period it occurs.  The Company books a maximum residual value
of 10.0% of the original equipment cost of leases (or, in the case of Global
Finance, 10.0% of the original lease receivable) other than those leases with a
$1.00 buy-out.  No residual value is booked on leases with a $1.00 buy-out.

         Securitizations.  Through June 30, 1997, the Company completed three
securitizations which provide for aggregate funding in the amount of
approximately $114.2 million.  The Company's securitizations consist of a $21.7
million lease-backed note transaction completed in April 1996, a $65.0 million
lease-backed certificate transaction completed in November 1996, and a $27.5
million lease-backed certificate transaction completed in March 1997.  As of
June 30, 1997, the Company had funded an aggregate amount of $73.0 million
under a lease-backed note and certificates.  In each securitization, the
Company transfers leases to a wholly-owned, bankruptcy remote special purpose
subsidiary which in turn simultaneously transfers its interest in the leases to
a grantor trust which issues beneficial interests in the leases in the form of
debt or equity securities.

         In each securitization, the Company receives advances based on a
percentage which is less than the aggregate present value of cash flows from an
undifferentiated pool of leases, effectively overcollateralizing the
lease-backed notes or certificates.  Over the life of the lease pool
securitized, the Company is eligible to receive the excess cash flow (the
"securitization residual interest") resulting from the difference between the
lease payments received, net of defaults, and the payment of (i) principal and
interest to investors in lease-backed notes or certificates and (ii) servicing,
backup servicing and trustee fees and other securitization expenses.  The
securitization residual interest may be sold to investors or may be retained by
the Company.  In each of its securitizations to date, the Company has retained
the securitization residual interest.  The fair value of the securitization
residual interest is based on the Company's estimates using a risk adjusted
discounted cash flow approach.

         As the holder of the securitization residual interest, the Company's
right to receive this excess cash flow is subject to certain conditions
specified in the related agreements designed to provide additional credit
enhancement to holders of the lease-backed securities issued in the
securitization.  The Company estimates the expected levels of cash flows
available to the securitization residual interest after taking into
consideration estimated charge-offs, recoveries and other factors which may
affect the cash flows available to the securitization residual interest.  The
Company estimates defaults on securitized lease portfolios and has included
estimated losses within the assumptions underlying the accounting for the
securitization residual interest.  See Note 2 to the Consolidated Financial
Statements.  The Company believes its reserves are adequate and monitors such
adequacy by examining current delinquencies, lease portfolio characteristics,
economic conditions and trends and management's expectations of future trends.
The cash flows ultimately available to the securitization residual interest are
largely dependent upon the actual charge-off rates experienced on the leases
sold to the grantor trust.  The Company holds the securitization residual
interest and is typically entitled to receive from 15.0% to 20.0% of the cash
flows, net of charge-offs, of the trust.  Losses incurred on leases held by the
trust are borne solely by the securitization residual interest.  As a result,
relatively small fluctuations which are in excess of estimated charge-off rates
and other factors impacting cash flows of the leases could have a material
adverse effect on the Company's ability to realize its recorded basis in the
securitization residual interest.  In such event, the Company would be required
to reduce the carrying amount of the securitization residual interest and
record a charge to earnings in the period in which the event occurred or became
known to management.

         In each securitization transaction, the Company is entitled to
substitute performing leases for non-performing leases, subject to certain
limitations.  The right of lease substitution is exercised from time to time by
the Company in order to prevent non-performing leases from exceeding specified
limitations in each securitization transaction.  Should those





                                       16
<PAGE>   17
limitations be exceeded, the trustee has the right to accelerate the repayment
of the principal outstanding under the lease-backed notes or certificates,
which would materially adversely affect the Company's receipt of cash flow from
the securitization residual interest.  As a result of the Company's exercise of
the right of substitution in prior periods, direct financing leases with full
recourse to the Company have higher delinquency rates than delinquency rates
experienced by non-recourse or limited recourse leases that have been sold to
third parties or securitized.

         Upon closing a securitization completed through the sale of
lease-backed equity securities, such as the Company's November 1996 and March
1997 securitizations, (i) the assigned leases are removed from the Company's
consolidated balance sheet, (ii) the investment in the assigned leases is
allocated between cost of leases sold and the securitization residual interest
on a relative fair value basis on the date of sale (iii) the resulting sales of
leases and cost of leases sold are reflected in the consolidated statement of
operations and (iv) the difference between the excess cash flows received from
the trust and the securitization residual interest is recognized as income over
the life of the securitized leases using the interest method.  Prior to the
adoption of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS No. 125"), a securitization
completed through the sale of lease-backed debt securities, such as the
Company's April 1996 securitization, was accounted for as a collateralized
borrowing.  As a result, upon closing the April 1996 securitization the Company
recorded direct financing leases assigned to lender of $24.8 million (which
represents the Company's investment in the assigned leases) and recorded limited
recourse Class A Notes payable of $21.7 million (which represents the principal
amount of the Class A Notes, as well as the gross securitization proceeds paid
to the Company).  Gain or loss is not recognized upon the closing of such a
securitization.  Rather, income is recognized over the term of the assigned
leases consistent with the accounting treatment which is applied to direct
financing leases.  The Company adopted SFAS No. 125 on January 1, 1997. Pursuant
to SFAS No. 125, future securitizations completed through the issuance of
lease-backed debt securities will generally be accounted for as sales under the
method described above for equity securities.

         Sales of Leases.  In addition to disposing of leases through
securitization transactions, the Company has sold on a non-recourse and limited
recourse basis lease portfolios to institutional purchasers including an
affiliate.  Sales to the affiliate are subject to the affiliate's recourse to
the Company with respect to the entirety of any leases under which a first
payment default occurs, any shortfall in the aggregate estimated residual
equipment value of the leases where there is no firm purchase obligation on the
part of the lessee, and with respect to sales of any Global Finance leases, a
restricted cash reserve account in the amount of $0.6 million at August 31,
1997.  Sales of leases reflect proceeds received by the Company, net of related
selling expenses, and the cost of leases sold reflect the Company's net
investment in the related leases.  At June 30, 1997, the Company's aggregate
residual equipment value guarantees were $827,000.  See Note 3 to the
Consolidated Financial Statements.

RESULTS OF OPERATIONS

         The Company was formed on February 21, 1995.  The following discussion
compares operating results for the 1997 fiscal year with those of the 1996
fiscal year.  There are no comparisons for the period from inception to June
30, 1995, during which time the Company had limited operations.





                                       17
<PAGE>   18
         Fiscal Year ended June 30, 1997 compared to Fiscal Year ended June 30,
1996.

         Revenues.  Sales of leases were $78.9 million representing 94.6% of
total revenues in the 1997 fiscal year, an increase of $58.3 million over sales
of leases of $20.6 million representing 94.4% of total revenues in the 1996
fiscal year.  The increase in sales of leases is due to the consistent increase
in the volume of leases funded by the Company since its inception.  The Company
funded a total of 3,035 leases during the 1997 fiscal year as compared to 1,381
leases during the 1996 fiscal year.  Income from direct financing leases was
$4.5 million in the 1997 fiscal year, or an increase of $3.3 million from $1.2
million in the 1996 fiscal year.  Income from direct financing leases primarily
consists of the accretion of income on leases retained by the Company and on
the Company's securitization residual interest.  Income from direct financing
leases also includes servicing fees, which to date have been nominal.  Income
from direct financing leases represented 5.4% of total revenues in the 1997
fiscal year as compared to 5.6% of total revenues in the 1996 fiscal year.

         Expenses.  Cost of leases sold were $73.4 million or 87.9% of total
revenues in the 1997 fiscal year, an increase of $54.1 million from cost of
leases sold of $19.3 million or 88.3% of total revenues in the 1996 fiscal
year.  The increase in cost of leases sold is directly related to the increase
in leases funded.  Cost of leases sold includes all direct costs of funding the
leases and commissions and fees paid to the Company's independent lease
originators.

         Provision for credit losses for direct financing leases and direct
financing leases assigned to lenders was $665,000 in the 1997 fiscal year, an
increase of $570,000 from $95,000 in the prior fiscal year.  Provision for
credit losses represented less than 1.0% of total revenues in each fiscal year.
The increase in the absolute amount of the provision reflects the significant
increase in the volume of leases held prior to sale.  The Company maintains an
allowance for credit losses which is established through a charge to earnings
in the period in which it is probable a lease asset is impaired and the amount
can be reasonably estimated.

         Interest expense was $2.0 million in the 1997 fiscal year, compared to
$551,000 in the 1996 fiscal year.  Interest expense for the 1997 fiscal year
and the 1996 fiscal year was 2.5% of total revenues.  The increase in interest
expense reflects increased borrowings under the Company's credit facilities and
under the $21.7 million limited recourse note issued in the April 1996
securitization.  The increased borrowing levels were required to support growth
in the number of leases funded by the Company.

         Salaries and benefits were $1.7 million in the 1997 fiscal year, an
increase of $1.1 million over salaries and benefits of $643,000 in the 1996
fiscal year.  As a percentage of total revenues, salaries and benefits were
2.0% and 2.9% in the 1997 and 1996 fiscal years, respectively.  The increase
reflects the addition of staff necessary to support growth in the Company's
business as well as certain salary increases for existing personnel.  General
and administrative expenses were $1.6 million in the 1997 fiscal year, an
increase of $1.1 million from general and administrative expenses of $472,000
in the 1996 fiscal year.  Those expenses were 2.0% and 2.2% of total revenues
in the 1997 and 1996 fiscal years, respectively.  General and administrative
expenses include operational expenses such as office overhead, accounting,
legal and other expenses not directly attributable to personnel.  The increase
is due to the overall growth in the Company's business.  Depreciation and
amortization increased to $264,000 in the 1997 fiscal year, an increase of
$223,000 from $41,000 in the 1996 fiscal year.  This increase was due to the
addition of office and computer equipment necessary to support continued growth
in the Company's business.

         Net Income.  During the 1997 fiscal year, pro forma net income was
$2.1 million, compared to pro forma net income of $481,000 in the 1996 fiscal
year.  As Granite Financial, LLC was not subject to federal and state income
taxes, net income represents the difference between gross profit and other
expenses.  To allow comparisons with C Corporations, pro forma federal and
state income taxes have been assumed at statutory rates.  Additionally, in
October 1996, the Company recorded a one-time charge against earnings of
approximately $100,000 for income taxes associated with the Company's
restructuring.  Based on the foregoing assumptions, the Company would have
incurred income taxes of $1.4 million in the 1997 fiscal year and $282,000 in
the 1996 fiscal year.





                                       18
<PAGE>   19
LIQUIDITY AND CAPITAL RESOURCES

         The Company requires capital to fund increases in its lease portfolio,
fund acquisitions of complementary small-ticket equipment finance companies and
independent lease originators, support securitizations through retention of
securitization residual interests, provide for normal operating expenses and
for general working capital purposes.  The capital sources available to the
Company include cash from operating activities, borrowings under bank and other
credit facilities, cash from lease sales, advances in connection with lease
securitizations and capital provided by sales of equity securities.

         Net cash used in operating activities was $5.9 million during the 1997
fiscal year compared to $7.0 million during the 1996 fiscal year.  For the 1997
fiscal year, this was primarily the result of a $10.1 million increase in
securitization residual interests and a $1.4 million net reduction in direct
financing leases available for sale.  Net cash provided by investing activities
was $3.1 million during the 1997 fiscal year compared to net cash used in
investing activities of $23.0 million in the previous fiscal year.  The net
cash invested in the 1996 fiscal year reflects $24.8 million of leases assigned
to lender which was partially offset by $2.2 million of payments received on
said leases.  The net cash provided by investing activities of $3.1 million
during the 1997 fiscal year was largely the result of payments received on
leases assigned to lender of $7.1 million and $2.6 million paid for the
acquisition of two companies.  Net cash provided by financing activities during
the 1997 fiscal year was $3.5 million compared to $29.5 million in the 1996
fiscal year.  Proceeds from bank and other credit facilities provided cash of
approximately $1.0 million in the 1997 fiscal year, a decrease of $3.3 million
from the 1996 fiscal year.  This decrease is due to the Company's success in
obtaining other sources of financing, including proceeds from the initial
issuance of common stock, in the 1997 fiscal year, whereas the Company was
primarily reliant on bank financing, the Class A note issued in the April 1996
securitization and lease sales in the 1996 fiscal year.  Principal payments on
notes payable used cash of $4.5 million during the 1997 fiscal year and
$208,000 in the 1996 fiscal year.  Principal payments in the 1997 fiscal year
included $6.0 million paid on the Class A note issued in the April 1996
securitization and $4.5 million paid on other notes payable.

         Subsequent to June 30, 1997, the Company's liquidity improved
substantially when it completed a secondary public offering of 2,100,000 shares
of common stock at $8.25 per share.  Additionally, the Company granted to the
underwriters a 30-day option to purchase up to an additional 315,000 shares of
common stock to cover over-allotments.  The option was exercised by the
underwriters within the 30-day option period.  The proceeds of the offering
were approximately $18,148,000, net of offering costs of $1,776,000.
Additionally, the Company issued warrants to the underwriters to purchase
150,000 shares of common stock exercisable at $10.31 per share.

         Bank and Other Credit Facilities.  The Company obtains, renews or
replaces its bank credit facilities consistent with its objectives of obtaining
the lowest possible cost of funds and maintaining diverse funding sources.  At
June 30, 1997, the Company maintained seven credit facilities which permitted
borrowings in the aggregate amount of approximately $48.5 million.  Subsequent
to June 30, 1997, two credit facilities were not renewed by the Company and the
current outstanding balance of four other facilities were repaid in full.  At
June 30, 1997, the Company's borrowings under its then existing credit
facilities were approximately $11.3 million.  The following table presents
certain information regarding the Company's credit facilities at June 30, 1997.





                                       19
<PAGE>   20
<TABLE>
<CAPTION>
                                                                                    AMOUNT OUTSTANDING                   
         LENDER                  TYPE OF FACILITY     AMOUNT         INTEREST RATE   AT JUNE 30, 1997    EXPIRATION      
         -------                 ----------------     ------         -------------   ----------------   ---------------  
                                                   (IN MILLIONS)                      (IN THOUSANDS)                     
<S>                               <C>                 <C>            <C>                    <C>           <C>               
CoreStates Bank, N.A. and                                                                                                
  participating lenders(1)(7) .   Revolving line          $36.0      Bank reference      $ 4,561        February 1998    
                                                                     rate plus 0.63%                                     
Colorado National Bank,                                                                                                  
   N.A.(2)(7) . . . . . . . . .   Revolving line           $2.0      Bank reference      $ 2,000        January 1998     
                                                                     rate plus 0.75%                                     
FBS Business Finance                                                                                                     
  Corporation(3)  . . . . . . .   Term loan                $3.0      Treasury bill            -         June 1997        
                                                                     rate plus 3.0%                                      
Norwest Equipment Finance                                                                                                
  Corporation(4)  . . . . . . .   Revolving line/          $3.0      Treasury bill       $   772        July 1997        
                                  term loan                          rate plus 3.85%                                     
                                                                                                                         
LaSalle National Bank(5)  . . .   Term loan                $2.2      8.72%               $ 1,722        May 1999         
                                                                                                                         
LaSalle National Bank(5)(6)(7).   Revolving line           $0.8      Bank reference      $   771        May 1997         
                                                                     rate plus 1.0%                                      
                                                                                                                         
Sirrom Capital, L.P.(5)(7)  . .   Term loan                $1.5      13.0%               $ 1,471        January 2000     
</TABLE>

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

    (1)  Established in February 1997 as the Company's principal warehouse
         credit facility.  The Company may borrow an amount equal to the lesser
         of 95.0% (90.0% for Global Finance leases) of the present value of
         lease payments discounted at CoreStates' reference rate plus 0.63% per
         annum or 75.0% (70.0% for Global Finance leases) of the remaining lease
         receivables under the leases which form the borrowing base, up to a
         maximum of $36.0 million.  Of the maximum amount of $36.0 million,
         Global Finance leases may account for an amount up to $5.0 million.
         Borrowings are collateralized by security interests in the leases
         against which the borrowing applies and the underlying equipment and
         all cash and non-cash proceeds therefrom.  The lender has recourse
         against the Company and the Company must make all payments regardless
         of the performance of the pledged leases or availability of other
         collateral.  The Company retains ownership of the equipment during the
         term of the leases, subject to the lenders' security interest.

    (2)  Established in January 1997 to enable the Company to borrow up to a
         maximum of $2.0 million for working capital purposes on an unsecured
         basis.  Borrowings may not exceed a borrowing base equal to the
         present value of total payments due under all unencumbered leases
         owned by the Company, discounted at the lender's reference rate plus
         .75% per annum.

    (3)  The Company elected not to renew this facility upon the expiration
         date for funding in June 1997.  No amounts were outstanding under this
         facility and no leases were held by this lender at the expiration
         date.

    (4)  The Company elected not to renew this facility upon the expiration
         date for funding in July 1997; however, the lender will continue to
         hold leases in its portfolio through expiration or termination dates
         for the leases financed.  The lender has full recourse against the
         Company should the collateral prove to be insufficient.

    (5)  Assumed by the Company on closing of the acquisition of Global
         Finance.

    (6)  In May 1997, the lender committed to increase this revolving line to
         $5.0 million and to extend the term of the facility to November 1,
         1998.  The commitment provided that the Company may at its election
         convert amounts outstanding under the revolving line to fully
         amortizing four-year term loans.  The Company is currently negotiating
         the terms of a new agreement under this facility.

    (7)  The Company used a portion of the proceeds of its July 1997 Offering
         to repay the current outstanding balance of such credit facility.

               Securitizations.  The Company has completed three securitizations
which provide for aggregate funding in the amount of approximately $114.2
million.  As of June 30, 1997, the Company had funded an aggregate amount of
$73.0 million under a lease-backed note and certificates.





                                       20
<PAGE>   21
         The table below documents the Company's history of lease
securitizations by fundings through the end of the 1997 fiscal year.

                        STRUCTURED LEASE SECURITIZATIONS

<TABLE>
<CAPTION>
                NOTE OR CERTIFICATE
PERIOD FUNDED      DOLLAR AMOUNT      RATINGS    RATING AGENCY         POOL NAME
-------------      -------------      -------    -------------         ---------
                   (IN MILLIONS)                                  
<S>                    <C>            <C>         <C>             <C>
April 1996             $ 21.7         Aaa/AAA     Moody's/S&P     GF Funding Corp. I
November 1996             7.2         Aaa/AAA     Moody's/S&P     GF Funding Corp. II
December 1996             1.9         Aaa/AAA     Moody's/S&P     GF Funding Corp. II
January 1997              2.1         Aaa/AAA     Moody's/S&P     GF Funding Corp. II
February 1997             2.8         Aaa/AAA     Moody's/S&P     GF Funding Corp. II
March 1997                1.5         Aaa/AAA     Moody's/S&P     GF Funding Corp. II
March 1997               15.2         Aaa/AAA     Moody's/S&P     GF Funding Corp. III
April 1997                2.1         Aaa/AAA     Moody's/S&P     GF Funding Corp. II
April 1997                4.2         Aaa/AAA     Moody's/S&P     GF Funding Corp. III
May 1997                  1.7         Aaa/AAA     Moody's/S&P     GF Funding Corp. II
June 1997                 4.5         Aaa/AAA     Moody's/S&P     GF Funding Corp. II
June 1997                 8.1         Aaa/AAA     Moody's/S&P     GF Funding Corp. III
</TABLE>

         The Company intends in the future to undertake additional
securitization transactions because securitizations generally offer a lower
cost of capital than is available through other sources.  The Company's ability
to complete additional securitizations will depend upon a number of factors,
including general conditions in the credit markets, the performance of already
outstanding asset-backed securities issued by the Company and other factors,
some of which may be beyond the Company's control.  Additional asset-backed
securitizations will likely be subject to the Company's ability to obtain
favorable ratings from rating agencies, to provide credit enhancements such as
insurance policies or "overcollateralization" through the securitization
residual interest, or to deposit cash or other collateral which may have the
effect of increasing the Company's effective cost of capital.

ASSET QUALITY AND STATIC POOL ANALYSIS

         The Company's underwriting criteria are intended to result in a
diverse customer base which does not exhibit dependence on a particular
geographic market or industry segment.  Because the Company commenced
operations in February 1995, there is limited performance data available with
respect to the Gross Servicing Portfolio and, consequently, historical
delinquency and charge-off statistics are not necessarily indicative of future
performance.

         The Company estimates defaults on direct financing leases and
securitized leases and establishes reserves for expected losses on leases the
Company either owns or has sold on a recourse or limited recourse basis.  The
Company regularly reviews its reserves and defaults are continuously monitored
on a portfolio and individual pool basis.  The Company examines factors such as
current delinquencies, lease portfolio characteristics, economic conditions and
trends, historical default experience and management's expectations of future
trends in establishing reserves.  The Company's reserve for credit losses on
its lease portfolio approximated $3.4 million as of June 30, 1997 ($0.5 million
of which was a reserve for credit losses for Global Finance).  Included within
this reserve was approximately $1.2 million in estimated losses which were
established in the assumptions underlying the accounting for the securitization
residual interest for the securitizations conducted in November 1996 and March
1997.  The Company believes its current reserves for credit losses are adequate
to provide for expected losses in the existing lease portfolio.  See Note 2 to
Consolidated Financial Statements.

         Since its inception, the Company has monitored its underwriting and
collection performance using "static pool" analysis.  Static pool analysis is a
statistical monitoring methodology by which each month's lease originations are
treated as a unique pool and the performance of this pool is tracked
separately.  The measure of performance is based on several factors which
include delinquencies 31 or more days past due and net charge-offs.





                                       21
<PAGE>   22
         The following table documents lease delinquencies 31 or more days past
due as of June 30, 1997.  The table presents the delinquent leases for the
quarters presented as a percentage of the remaining lease receivable balance
for that pool.
                            STATIC POOL REPORTING(1)
                              31+ DAYS DELINQUENT

<TABLE>
<CAPTION>
                    ORIGINAL                                 PERCENTAGE OF REMAINING LEASE RECEIVABLE
                     LEASE                                   ----------------------------------------
CALENDAR PERIOD    RECEIVABLE   QTR 1   QTR 2    QTR 3    QTR 4   QTR 5   QTR 6    QTR 7   QTR 8    QTR 9   QTR 10
---------------    ----------  ------   ------   -----   ------   -----   -----    -----   -----    -----   ------
                 (IN THOUSANDS)
                               
<S>               <C>            <C>      <C>     <C>      <C>     <C>      <C>     <C>      <C>     <C>      <C>
1995:
---- 
1st Quarter       $     31       0.0%     0.0%    0.0%     0.0%    0.0%     0.0%    0.0%     0.0%    0.0%     0.0%
2nd Quarter          1,748       0.0      0.0     0.0      0.4     0.4      0.3     0.9      2.1     4.6
3rd Quarter          6,082       0.0      2.5     2.1      3.5     3.9      5.6     3.0      2.6
4th Quarter         10,444       0.0      0.9     2.4      3.0     5.3      3.1     4.8

1996:
---- 
1st Quarter         15,906       0.0      0.8     2.0      3.3     3.4      2.8
2nd Quarter         16,849       0.0      1.2     2.6      3.8     5.4
3rd Quarter         15,467       0.0      0.8     2.0      2.2
4th Quarter         22,220       0.0      0.4     2.2

1997:
---- 
1st Quarter         32,361       0.0      0.6
2nd Quarter         38,478       0.0
</TABLE>

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

(1) Excludes data for Global Finance.  Lease delinquencies are calculated on a 
    monthly basis.  Monthly calculations are then averaged to create an average 
    delinquency rate for the period.

         The following table documents net charge-offs for each quarter
presented as a percentage of original net investment in leases for that
quarter.  Negative net charge-off amounts indicate that recoveries exceeded
charge-offs during the quarter.
                            STATIC POOL REPORTING(1)
                           NET INVESTMENT CHARGE-OFF

<TABLE>
<CAPTION>
                             
                   ORIGINAL                                  PERCENTAGE OF ORIGINAL INVESTMENT VALUE
                  INVESTMENT                                 ---------------------------------------
CALENDAR PERIOD     VALUE       QTR 1   QTR 2    QTR 3    QTR 4   QTR 5   QTR 6    QTR 7   QTR 8    QTR 9   QTR 10
---------------     -----       -----   -----   ------    -----   -----   -----    -----   -----   ------   ------
                 (IN THOUSANDS)
<S>               <C>           <C>       <C>     <C>     <C>      <C>      <C>    <C>       <C>     <C>      <C>
1995:
---- 
1st Quarter       $     23       0.0%     0.0%    0.0%     0.0%    0.0%     0.0%    0.0%     0.0%    0.0%     0.0%
2nd Quarter          1,337       0.0      0.0     0.0      0.0     1.0      0.0    (0.4)     0.8     1.0
3rd Quarter          4,755       0.0      0.0     0.0      0.0     0.0      0.5     0.6      0.9
4th Quarter          8,107       0.0      0.0     0.2      0.2     2.4      0.8    (0.1)

1996:
---- 
1st Quarter         12,377       0.0      0.0     0.1      1.0     1.6      1.3
2nd Quarter         13,174       0.0      0.0     1.1     (0.1)    1.3
3rd Quarter         12,077      (0.1)     0.0     0.6      0.5
4th Quarter         17,338       0.0      0.0     0.4

1997:
---- 
1st Quarter         25,309       0.0      0.0
2nd Quarter         30,231       0.0
</TABLE>

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

(1)  Excludes data for Global Finance and data related to leases sold to
     Heartland Bank.





                                       22
<PAGE>   23
RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."  SFAS
No. 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively.  This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a financial-components approach
that focuses on control.  SFAS No. 125 distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings.  The Company
adopted SFAS No. 125 effective January 1, 1997.


ITEM 7.  FINANCIAL STATEMENTS

         The financial statements begin on page F-1.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.





                                       23
<PAGE>   24
                                    PART III


ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT


ITEM 10.  EXECUTIVE COMPENSATION


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company will file a definitive Proxy Statement pursuant to
Regulation 14A for its annual meeting of shareholders.  The information called
for by the above Items will be included in such definitive Proxy Statement
under "Election of Directors," "Management and Directors," "Executive
Compensation and Other Remuneration," "Security Ownership of Certain Beneficial
Owners and Management" and "Certain Relationships and Related Transactions,"
which is incorporated herein by reference.  If such definitive Proxy Statement
is not filed with the Commission within 120 days after the end of the fiscal
year covered by this report, then the information described above will be filed
as an amendment to this report before the end of such 120-day period.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)     EXHIBITS

         The following documents are filed herewith or have been included as
exhibits to previous filings with the Securities and Exchange Commission and
are incorporated herein by this reference:

EXHIBIT NO.
-----------

+   2.1     Exchange Memorandum, dated October 7, 1996 regarding the
            reorganization of the Registrant from a Colorado limited liability
            company to a Delaware corporation (the "Exchange Memorandum").

+   3.1     Certificate of Incorporation of the Company as filed on June 20,
            1996 with the Secretary of State of the State of Delaware.

+   3.2     By-laws of the Company.

+   4.1.1   Form of specimen certificate for Common Stock of the Company.

+   4.1.2   Form of Representative's Warrant issued by the Company to
            Cruttenden Roth Incorporated in connection with the Company's
            initial public offering.

*   4.1.3   Underwriters' Warrant issued by the Company to Piper Jaffray Inc.
            and Cruttenden Roth Incorporated.

*  10.1.1   Form of Employment Agreement, dated April 1, 1997, by and between
            William W. Wehner and the Company.

*  10.1.2   Employment Agreement, dated April 28, 1997, by and between Larry K.
            White and the Company.

+  10.2     Form of Indemnification Agreement entered into between the Company
            and each officer and director of the Company.





                                       24
<PAGE>   25
+ 10.3      1996 Omnibus Stock Option Plan, as amended effective April 24,
            1997, authorizing 900,000 shares of Common Stock for issuance
            pursuant to the Plan.

+ 10.4.1    Membership Units Purchase Agreement, dated January 31, 1996, by and
            among Heartland Leasing Corporation of Missouri, Granite Financial,
            LLC, James E. Lewis, William W. Wehner, Andrew S. Love, Jr.,
            Laurence A. Schiffer and Heartland Bank.

+ 10.4.2    Members' Agreement of Granite Financial, LLC, dated January 31,
            1996, by and among Granite Financial, LLC, James E. Lewis, William
            W. Wehner and Heartland Leasing Corporation of Missouri.

+ 10.4.3    Lease Purchase Agreement, dated June 14, 1995, by and between
            Granite Financial, LLC and Heartland Bank.

+ 10.4.4    Lease Sale Agreement, dated April 1, 1996, by and between Heartland
            Bank and Granite Financial, LLC.

+ 10.4.5    Lease Service Agreement, dated June 14, 1995, by and between
            Heartland Bank and Granite Financial, LLC.

x 10.4.6    Lease Purchase Agreement, dated June 30, 1997, by and between
            Heartland Bank and Granite Financial Acquisition Corp. I.

o 10.5.1    Loan and Security Agreement, dated February 4, 1997, by and between
            CoreStates Bank, N.A. and Granite Financial, Inc.

o 10.5.2    Unsecured Revolving Credit Agreement, dated January 30, 1997, by and
            between Colorado National Bank, and Granite Financial, Inc.

+ 10.6      Lease of Space, dated June 26, 1995, by and between Arbor Lake
            Limited Partnership, a Colorado limited partnership, and Granite
            Financial, LLC.

+ 10.7      Form of Broker/Lessor Partnership Agreement, dated various dates,
            by and between Lease Originators and Granite Financial, LLC.

+ 10.8.1    Servicing Agreement, dated April 1, 1996, by and among GF Funding
            Corp. I, Norwest Bank Minnesota, National Association and Granite
            Financial, LLC.

+ 10.8.2    Indenture, dated April 1, 1996, by and among GF Funding Corp. I,
            Norwest Bank Minnesota, National Association and Granite Financial,
            LLC.

+ 10.8.3    Lease Acquisition Agreement, dated April 10, 1996, by and between
            Granite Financial, LLC and GF Funding Corp. I.

++10.9.1    Trust and Security Agreement, dated November 1, 1996, among G.F.
            Funding Corp. II, the Company, Norwest Bank Minnesota, National
            Association.

++10.9.2    Lease Acquisition Agreement, dated November 1, 1996, between the
            Company and G.F. Funding Corp. II.

++10.9.3    Servicing Agreement, dated November 1, 1996, among G.F. Funding
            Corp. II, the Company, Norwest Bank Minnesota, National
            Association.

o 10.10.1   Trust and Security Agreement, dated March 1, 1997, by and among GF
            Funding Corp. III, the Company and Norwest Bank Minnesota, National
            Association.

o 10.10.2   Lease Acquisition Agreement, dated March 1, 1997, by and between the
            Company and GF Funding Corp. III.

o 10.10.3   Servicing Agreement, dated March 1, 1997, by and among the Company,
            GF Funding Corp. III and Norwest Bank Minnesota, National
            Association.





                                       25
<PAGE>   26
+   10.11.1  CreditDesk(R) License Agreement, dated September 22, 1995, by and
             between Fair, Isaac and Company, Inc. and Granite Financial, LLC.

+   10.11.2  InfoLease License Agreement, dated October 5, 1995, by and between
             Decision Systems, Inc. and Granite Financial, LLC.

o   10.12    Asset Purchase Agreement, dated March 31, 1997, by and among
             Granite Financial Acquisition Corp. I, Global Finance & Leasing,
             Inc. and Thomas Mannes.

*   10.13    Agreement, dated December 13, 1996, by and between BrokerWare,
             Inc. and the Company.

*   10.14    Standard Form Industrial Lease, dated June 6, 1997, by and between
             General American Life Insurance Company and the Company.

x   11.1     Computation of Earnings Per Share.

    13.      Not applicable.

    16.      Not applicable.

    18.      Not applicable.

*   21.      List of Subsidiaries.

    22.      Not applicable.

    23.      Not applicable.

    24.      Not applicable.

x   27.      Financial Data Schedule.

+    Incorporated by reference from the Company's Registration Statement on
     Form SB-2 (S.E.C. File No. 333-5264-D).

*    Incorporated by reference from the Company's Registration Statement on
     Form SB-2 (S.E.C. File No. 333-29303).

++   Incorporated by reference from the Company's Form 10-QSB filed February
     14, 1997 (S.E.C. File No. 0-21591).

o    Incorporated by reference from the Company's Form 10-QSB filed May 15,
     1997 (S.E.C. File No. 0-21591).

x    Filed herewith.


         (b)     REPORTS ON FORM 8-K

         The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year ended June 30, 1997.





                                       26
<PAGE>   27





                                   SIGNATURES

       In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



                                                 GRANITE FINANCIAL, INC.



       Date:  September 26, 1997                 By:  /s/ WILLIAM W. WEHNER   
              ------------------                    ---------------------------
                                                    William W. Wehner,
                                                    Chairman of the Board and
                                                    Chief Executive Officer



       In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                       TITLE                                     DATE          
---------                       -----                                     ----
<S>                             <C>                                   <C>
  /s/ WILLIAM W. WEHNER         Chairman of the Board and Chief       September 29, 1997
---------------------------     Executive Officer (Principal                            
      William W. Wehner         Executive Officer)          
                                                            
  /s/ WILLIAM S. COBB           Senior Vice President of Corporate    September 29, 1997
---------------------------     Development and Chief Financial                         
      William S. Cobb           Officer                        
                                                               
  /s/ MARK A. MIYASAKI          Vice President and Chief              September 29, 1997
---------------------------     Accounting Officer                                      
      Mark A. Miyasaki                            
                                
  /s/ JAMES E. LEWIS            Director                              September 29, 1997
---------------------------                                                             
      James E. Lewis            
                                
  /s/ LAURENCE A. SCHIFFER      Director                              September 29, 1997
---------------------------                                                             
      Laurence A. Schiffer      
                                
  /s/ ANDREW S. LOVE, JR.       Director                              September 29, 1997
---------------------------                                                             
      Andrew S. Love, Jr.       
                                
  /s/ SAMUEL R. FREEMAN         Director                              September 29, 1997
---------------------------                                                             
      Samuel R. Freeman         
</TABLE>





                                       27
<PAGE>   28
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES






                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                   Page
<S>                                                                                <C>
Independent Auditors' Report....................................................... F-2

Consolidated Financial Statements

        Consolidated Balance Sheets................................................ F-3

        Consolidated Statements of Operations...................................... F-4

        Consolidated Statement of Changes in Members'/Stockholders' Equity......... F-5

        Consolidated Statements of Cash Flows...................................... F-6

Notes to Consolidated Financial Statements......................................... F-8
</TABLE>




                                      F-1
<PAGE>   29
                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Granite Financial, Inc. and Subsidiaries
Golden, Colorado


We have audited the accompanying consolidated balance sheet of Granite
Financial, Inc. and Subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, changes in members'/stockholders' equity
and cash flows for years ended June 30, 1996 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Granite Financial,
Inc. and Subsidiaries as of June 30, 1997 and the results of their operations
and their cash flows for the years ended June 30, 1996 and 1997 in conformity
with generally accepted accounting principles.

As described in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.




                                           Ehrhardt Keefe Steiner & Hottman P C
August 20, 1997
Denver, Colorado



                                      F-2
<PAGE>   30



                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                              June 30,
                                                                                1997        Pro Forma
                                                                             -----------   -----------
                                                                                            (Note 13)
                                     ASSETS
<S>                                                                          <C>           <C>        
Cash and cash equivalents                                                    $   680,529   $ 9,996,596
Restricted cash                                                                1,715,964     1,715,964
Direct financing leases (Notes 2 and 3)                                        9,906,746     9,906,746
Direct financing leases assigned to lender (Note 2)                           15,510,859    15,510,859
Securitization residual interest (Note 2)                                     10,138,341    10,138,341
Other receivables                                                              1,193,609     1,193,609
Prepaid and other assets                                                       1,441,319     1,441,319
Deferred offering costs                                                          253,281       253,281
Furniture and equipment, net of accumulated depreciation of $293,332             964,710       964,710
Goodwill, net of accumulated amortization of $36,207                           3,941,219     3,941,219
                                                                             -----------   -----------

Total assets                                                                 $45,746,577   $55,062,644
                                                                             ===========   ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Line-of-credit (Note 4)                                                      $ 7,331,983   $      --
Accounts payable and accrued expenses                                          1,856,035     1,856,035
Security deposit                                                                 692,196       692,196
Due to trustee                                                                   350,525       350,525
Deferred income taxes payable (Note 7)                                         1,066,324     1,066,324
Limited recourse Class A note payable (Note 2)                                14,770,561    14,770,561
Notes payable (Note 4)                                                         3,964,513     2,464,513
Related party note payable (Note 9)                                              250,000       250,000
                                                                             -----------   -----------
                                                                              30,282,137    21,450,154
                                                                             -----------   -----------
Commitments and contingency (Notes 3 and 5)

Stockholders' equity (Note 6)
    Preferred stock, $.01 par value, 2,000,000 shares authorized; none
     issued or outstanding                                                          --            --
    Common stock, $.001 par value; 20,000,000 shares authorized; 3,725,000
     (6,140,000 pro forma) shares issued and outstanding                           3,725         6,140
    Additional paid-in capital                                                13,757,059    31,902,694
    Retained earnings                                                          1,703,656     1,703,656
                                                                             -----------   -----------
        Total stockholders' equity (Note 6)                                   15,464,440    33,612,490
                                                                             -----------   -----------

Total liabilities and stockholders' equity                                   $45,746,577   $55,062,644
                                                                             ===========   ===========
</TABLE>



                See notes to consolidated financial statements.


                                      F-3
<PAGE>   31
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF OPERATIONS




<TABLE>
<CAPTION>
                                                            Year Ended
                                                             June 30,
                                                     -------------------------
                                                        1996          1997
                                                     -----------   -----------
<S>                                                  <C>           <C>        
Revenues
   Sales of leases (Notes 2 and 3)                   $20,638,040   $78,947,771
   Income from direct financing leases                 1,223,798     4,509,325
                                                     -----------   -----------
       Total revenues                                 21,861,838    83,457,096
                                                     -----------   -----------

Costs
   Cost of leases sold (Notes 2 and 3)                19,296,885    73,364,404
   Provision for credit losses                            95,107       665,165
   Interest expense                                      550,776     2,041,830
   Amortization                                             --         299,043
                                                     -----------   -----------
       Total costs                                    19,942,768    76,370,442
                                                     -----------   -----------

Gross profit                                           1,919,070     7,086,654

Other expenses
   Salaries and benefits                                 642,556     1,683,870
   General and administrative                            472,144     1,640,981
   Depreciation and amortization                          40,963       263,801
                                                     -----------   -----------
       Total other expenses                            1,155,663     3,588,652
                                                     -----------   -----------

Net income (1996) - Income before income taxes (1997)    763,407     3,498,002

Pro forma adjustment (1996) - provision for income
  taxes (1997) (Note 7)                                  282,000     1,430,827
                                                     -----------   -----------

Pro forma net income (1996) - Net income (1997)      $   481,407   $ 2,067,175
                                                     ===========   ===========

Pro forma net income per share                       $       .24   $       .63
                                                     ===========   ===========

Weighted average number of pro forma shares
  outstanding (Notes 1 and 6)                          2,000,000     3,264,973
                                                     ===========   ===========
</TABLE>

                See notes to consolidated financial statements.


                                      F-4
<PAGE>   32




                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

       CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS'/STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                                                          Total 
                                                                                           Additional                    Members'/
                                                   Members'             Common Stock         Paid-in       Retained   Stockholders'
                                                   Equity          Shares         Amount     Capital       Earnings       Equity
                                                ------------    ------------   ---------   ------------   ----------   ------------
<S>                                             <C>             <C>            <C>         <C>            <C>          <C>         
Balance June 30, 1995                           $    767,450            --     $    --     $       --     $     --     $    767,450

Equity contribution, net of costs of $76,482       1,228,518            --          --             --           --        1,228,518

Net income for the year                              763,407            --          --             --           --          763,407
                                                ------------    ------------   ---------   ------------   ----------   ------------

Balance June 30, 1996                              2,759,375            --          --             --           --        2,759,375

Net income for the period July 1, 1996 to
  October 25, 1996                                   363,519            --          --             --           --          363,519

Distribution to members                             (111,000)           --          --             --           --         (111,000)

Restructuring of Granite Financial, LLC into
  Granite Financial, Inc.                         (3,011,894)      2,000,000       2,000      3,009,894         --             --

Issuance of common stock pursuant to initial
  public offering (net of offering costs of
  $2,188,608)                                           --         1,725,000       1,725     10,747,165         --       10,748,890

Net income for the period October 26, 1996 to
  June 30, 1997                                         --              --          --             --      1,703,656      1,703,656
                                                ------------    ------------   ---------   ------------   ----------   ------------

Balance June 30, 1997                           $       --         3,725,000   $   3,725   $ 13,757,059   $1,703,656   $ 15,464,440
                                                ============    ============   =========   ============   ==========   ============
</TABLE>



                See notes to consolidated financial statements.



                                      F-5
<PAGE>   33
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                    Year Ended
                                                                                     June 30,
                                                                           ----------------------------
                                                                               1996            1997
                                                                           ------------    ------------
<S>                                                                        <C>             <C>         
Cash flows from operating activities
   Net income                                                              $    763,407    $  2,067,175
                                                                           ------------    ------------
       Adjustments to reconcile net income to net cash used in operating
        activities
       Provision for losses                                                      95,107       1,338,992
       Loan fees amortized                                                       54,984         822,073
       Depreciation and amortization                                             40,963         263,801
       Changes in operating assets and liabilities
           Restricted cash                                                         --        (1,715,964)
           Direct financing leases                                           (8,453,921)      1,410,622
           Securitization residual interest                                        --       (10,138,341)
           Other receivables                                                       --        (1,182,262)
           Prepaids and other assets                                            (20,224)       (539,948)
           Securitization loan fees                                                --        (1,078,173)
           Accounts payable and accrued expenses                                553,537         777,879
           Due to trustee                                                          --           350,525
           Current and deferred income taxes                                       --         1,045,327
           Security deposits                                                       --           692,196
                                                                           ------------    ------------
                                                                             (7,729,554)     (7,953,273)
                                                                           ------------    ------------
                 Net cash used in operating activities                       (6,966,147)     (5,886,098)
                                                                           ------------    ------------

Cash flows from investing activities
   Leases assigned to lender                                                (24,793,127)           --
   Payments received on leases assigned to lender                             2,217,300       7,064,968
   Acquisition of companies, net of cash acquired                                  --        (2,594,725)
   Expenditures for organization costs                                           (6,826)           --
   Expenditures for goodwill                                                       --          (750,425)
   Purchase of furniture and equipment                                         (382,742)       (626,701)
                                                                           ------------    ------------
                 Net cash provided by (used in) investing activities        (22,965,395)      3,093,117
                                                                           ------------    ------------

Cash flows from financing activities
   Checks written in excess of bank balance                                     288,848        (288,848)
   Proceeds from notes payable                                                4,298,418       1,002,875
   Principal payments on notes payable                                         (207,600)     (4,528,866)
   Net proceeds from line-of-credit                                           3,690,618       2,870,515
   Proceeds from Class A note payable                                        21,688,993            --
   Principal payments on Class A note payable                                  (927,208)     (5,991,224)
   Expenditures for loan origination fees                                      (505,326)        (73,316)
   Members' equity contribution net of related costs                          1,228,518            --
   Net proceeds of common stock issuance                                           --        10,846,655
   Distribution to members                                                         --          (111,000)
   Deferred offering costs paid                                                 (67,376)       (253,281)
                                                                           ------------    ------------
                 Net cash provided by financing activities                   29,487,885       3,473,510
                                                                           ------------    ------------

Net increase (decrease) in cash                                                (443,657)        680,529

Cash and cash equivalents - beginning of period                                 443,657            --
                                                                           ------------    ------------

Cash and cash equivalents - end of period                                  $       --      $    680,529
                                                                           ============    ============

Supplemental disclosure of cash flow information:
   Cash paid for interest                                                  $    471,130    $  1,970,304
                                                                           ============    ============

   Cash paid for income taxes                                              $       --      $    385,500
                                                                           ============    ============
</TABLE>

Continued on the following page.



                See notes to consolidated financial statements.



                                      F-6
<PAGE>   34
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


Continued from previous page.

Noncash investing and financing activities:
         Deferred offering costs of $30,389 are included in accrued expenses at
         June 30, 1996.

Concurrently with the consummation of the initial public offering and the
related restructuring from an LLC to a regular corporation, members' equity of
$3,011,894 was reclassified to common stock of $2,000 and additional paid-in
capital of $3,009,894. In addition, deferred offering costs of $97,765 were
reclassified to additional paid-in capital upon consummation of the initial
public offering.

For additional disclosures on acquisitions during the year, see Note 11.


                See notes to consolidated financial statement.

                                      F-7
<PAGE>   35



                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Granite Financial, LLC. ("LLC") was organized in Colorado on February 21, 1995.
The LLC was principally engaged in the business of originating and selling
lease contracts. The lease contracts provide financing primarily for the
acquisition of computer, office products, medical equipment and other business
equipment. All equipment leased is acquired from unrelated parties.

In June 1996, Granite Financial, Inc. (the "Company") was incorporated.
Concurrently with the consummation of the public offering (Note 6), the Company
exchanged 2,000,000 shares of its common stock for all of the outstanding
membership interests of the LLC, as a result of which the Company was the sole
member of the LLC. Contemporaneously, the Company caused the LLC to be
liquidated and the assets of the LLC were distributed to the Company as the
sole member.

Principles of Consolidation

The Company's consolidated financial statements include the accounts of Granite
Financial, Inc. and its wholly-owned subsidiaries, GF Funding Corp. I ("GF
Funding I"), GF Funding Corp. II ("GF Funding II"), GF Funding Corp. III ("GF
Funding III") and Granite Financial Acquisition Corp. I ("Granite
Acquisitions"). All intercompany accounts and transactions have been eliminated
in consolidation. The assets of GF Funding I, GF Funding II, and GF Funding III
are not available to satisfy creditors of the Company.

Restricted Cash

The Company sold a pool of leases which required all lease payments received to
be deposited in restricted accounts and the distribution of funds to be
controlled by the trustee.

The Company also sold pools of leases which required a portion of the proceeds
from the sales to be held in a separate restricted account to cover any
defaults of the leases sold.

Direct Financing Leases

The Company has entered into various lease agreements which, in accordance with
Statement No. 13 of the Financial Accounting Standards Board, meet the criteria
of capitalization and are accounted for as direct financing leases. Under this
method, the amount by which gross lease rentals exceed the cost of the related
assets, less the estimated recoverable residual value at the expiration of the
lease, is recognized as income from direct financing leases over the life of
the lease using the interest method. Any permanent reduction in the estimated
residual equipment value of leased property is charged to operations in the
period it occurs.



                                      F-8
<PAGE>   36

                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

Sales of Leases

The Company generally sells the leases it acquires or originates through
securitization transactions or on a portfolio basis to Heartland Bank on a
non-recourse basis. The Company may also sell leases to other financial
institutions either on a recourse or nonrecourse basis. In a securitization
transaction, the Company sells and transfers a pool of leases to a
wholly-owned, bankruptcy remote, special purpose subsidiary. This subsidiary in
turn simultaneously sells and transfers its interest in the leases to a trust
which issues beneficial interests in the leases in the form of senior and
subordinated securities. The Company generally retains the right to receive any
excess cash flows of the trust (the Securitization Residual Interest).

Proceeds from the sale of leases sold through securitization transactions are
reflected as sales of leases. The cost basis of the leases is allocated between
the portion sold and the securitization residual interest in the cash flows
based on a relative fair value basis on the date of sale. The fair value of the
portion sold is based on the price at which the related securities are sold
through private placement transactions, while the fair value of the
securitization residual interest is based on the Company's estimate of its fair
value using a risk adjusted discounted cash flow approach.

On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
125"). SFAS 125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
Under SFAS 125, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS 125 prohibits early
application and, accordingly, the Company adopted this standard for
transactions which occurred after December 31, 1996. Under SFAS 125, a transfer
of lease assets in which the transferor surrenders control of the lease assets
is accounted for as a sale and the transferred lease assets are removed from
the balance sheet with the resulting gain or loss on sale reflected in the
statement of operations.

Direct Financing Leases Assigned to Lender

As SFAS 125 prohibits early application, prior to January 1, 1997, direct
financing leases sold prior to that date as part of a securitization to a
special-purpose entity that issued debt securities were accounted for as
collateralized borrowings. The securitized leases, recorded as Direct Financing
Leases Assigned to Lender, and the related debt are reflected in the
consolidated balance sheet.



                                      F-9
<PAGE>   37
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Securitization Residual Interest

Securitization residual interest represents the excess cash flow resulting from
the difference between lease payments received in the Trust, net of defaults,
and the payment of principal and interest to investors in lease backed notes or
certificates and servicing, backup servicing, trustee fees and other
securitization expenses. Income from the securitization residual interest is
recognized over the life of the securitized leases using the interest method.

Furniture and Equipment

Furniture and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the equipment ranging
from five to seven years.

Organization Costs

Organization costs are recorded at cost and will be amortized on a
straight-line basis over five years.

Goodwill

Goodwill is recorded as the difference between net assets acquired and the
related purchase price and will be amortized over an estimated life of twenty 
years.

Loan Origination Fees

Fees incurred to originate loans are deferred and amortized to interest expense
on the interest method over the terms of the loans.

Lease Acquisition Costs and Broker Commissions

Lease acquisition costs consist of broker bonuses and commissions paid upon the
origination of the lease contracts. These costs are included in direct
financing leases held for sale and are amortized to expense over the life of
the related lease contracts on the interest method.

Income Taxes

Granite Financial, LLC was taxable as a partnership under federal and state
income tax laws. As such, it was not subject to income taxes as a separate
entity and its income or loss was required to be included in the income tax
returns of its members. Upon consummation of the public offering (Note 6),
Granite Financial, LLC was liquidated and the successor corporation, Granite
Financial, Inc., is taxed as a regular corporation. The statements of 
operations reflect pro-forma information for the year ended June 30, 1996, 
which present proforma income taxes as if computed at the statutory rate.



                                     F-10
<PAGE>   38

                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

Income Taxes (continued)

Upon liquidation of the LLC, the successor Company applied FAS 109, "Accounting
for Income Taxes". Under FAS 109, the Company recognizes deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits, that based on available evidence,
are not expected to be realized.

Allowance for Credit Losses

An allowance for credit losses is maintained at a level which is estimated by
the Company to be necessary and adequate to provide for expected losses in the
existing portfolio of leases the Company either owns or has sold on a recourse
basis. The leases are collateralized by the equipment under lease and lessees
generally are required to personally guarantee lease payments. The Company's
risk of loss is partially mitigated by recovering collateral and enforcing
guarantees. However, the resale value of leased equipment generally declines at
a rate greater than the principal of the lease, so full recovery on defaulted
leases is not usually possible.

Net Income Per Common Share

The computation of net income per common and common equivalent share is based
upon the Treasury Stock Method using the weighted average number of common
shares outstanding during the period plus (in periods in which they have a
dilutive effect) the effect of common shares contingently issuable, primarily
from stock options and warrants.

Stock Option Plan

Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principal Board ("APB") Opinion
No. 25, accounting for stock issued to employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value based methods defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and to provide the pro forma disclosure
provisions of SFAS No. 123.



                                     F-11
<PAGE>   39
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

Accounting Standards Not Yet Adopted

In February, 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings per Share" which established new standards for computing and
presenting earnings per share (EPS). The statement simplifies the standards for
computing earnings per share previously found in APB No. 15 and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. The standard is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods.

In June 1997, the Financial Accounting Standards Board issued Statement No. 130
"Reporting Comprehensive Income" which establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general purpose financial statements. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement
and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of a statement of financial position. This Statement is effective for
fiscal years beginning after December 15, 1997.

In June 1997, the Financial Accounting Standards Board issued Statement No. 131
"Disclosures about Segments of an Enterprise and Related Information". This
statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement is effective for
financial statements for periods beginning after December 15, 1997.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.



                                     F-12
<PAGE>   40
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - DIRECT FINANCING LEASES

The Company's direct financing leases at June 30, 1997 consist of the
following:
                                                                           
<TABLE>
<CAPTION>
                                                                         Direct
                                                                        Financing
                                                         Direct          Leases
                                                        Financing      Assigned to
                                                         Leases          Lender
                                                      ------------    ------------
<S>                                                   <C>             <C>         
     Minimum lease payments receivable                $ 11,636,228    $ 18,005,874
     Estimated residual values of leased property        2,562,926         790,929
     Lease acquisition costs and broker commissions      1,186,523         337,810
     Unearned income                                    (3,239,737)     (3,298,666)
     Reserve for credit losses                          (2,003,096)       (181,024)
     Security deposits                                    (236,098)       (144,064)
                                                      ------------    ------------

     Net direct financing leases                      $  9,906,746    $ 15,510,859
                                                      ============    ============
</TABLE>

Scheduled collections of minimum lease payments receivable are as follows:

<TABLE>
<CAPTION>
                                                                         Direct
                                                                        Financing
                                                         Direct          Leases
                                                        Financing      Assigned to
              Year Ending June 30,                       Leases          Lender
              --------------------                    ------------    ------------
<S>                                                   <C>             <C>         
                     1998                             $  3,553,744    $  7,596,984
                     1999                                3,158,940       5,506,430
                     2000                                2,586,619       3,656,563
                     2001                                1,564,347       1,187,863
                     2002                                  772,578          58,034
                                                      ------------    ------------

                                                      $ 11,636,228    $ 18,005,874
                                                      ============    ============
</TABLE>

The Company is required to estimate the amount of leases expected to result in
default and to estimate the amount of loss that will be incurred under each
default. The Company currently provides allowances for these losses based on
the historical performance of the leases. These losses relate both to leases
that are held by the Company to maturity along with losses that could result on
leases sold to third parties. The actual losses incurred could differ
materially from the amounts that the Company has estimated in preparing the
historical financial statements.



                                     F-13
<PAGE>   41
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - DIRECT FINANCING LEASES (CONTINUED)

Securitization residual interest consists of the following at June 30, 1997:

<TABLE>
<S>                                                                <C>            
Future remaining cash flows                                        $    15,368,441
Estimated losses                                                        (1,173,386)
                                                                   --------------- 
Future remaining cash flows, net of estimated losses                    14,195,055
Unearned income                                                         (4,056,714)
                                                                   --------------- 

Securitization residual interest                                   $    10,138,341
                                                                   ===============
</TABLE>

Asset Securitization

The Company funds leases with the intention of selling the leases to investors
or securitizing the leases through lease-backed securities. The Company has
completed three securitizations which provide for aggregate funding in the
amount of approximately $114,000,000. In each securitization, the Company
transfers leases to a wholly-owned, bankruptcy remote special purpose
subsidiary established for the limited purpose of purchasing the Company's
leases. The subsidiary then sells the leases to a grantor trust, which in turn
sells lease-backed notes or certificates to institutional investors. Proceeds
from the sale of lease-backed notes or certificates are used by the trust to
purchase leases from the subsidiary, which uses such proceeds to purchase the
leases from the Company. The securitization may also be completed by the
subsidiary without the use of a trust, in which case the subsidiary issues the
lease-backed security directly to the investor. The lease-backed securities are
promissory notes or equity certificates which are generally collateralized by
or represent an undivided interest in the leases, the leased equipment and
certain collateral accounts. Payments due under the lease-backed securities
issued in each of the Company's securitizations have been insured by a
financial guaranty policy which provides an unconditional guarantee of Class A
note payments in the case of defaults or prepayments on the lease assets.

In April 1996, the Company's wholly-owned subsidiary, GF Funding I, issued
$21,688,993 of 6.33% Class A Lease-Backed Term Note due November 20, 2001 (the
Note) in a private placement. The Note is collateralized by (i) payments to
be made under leases contributed by Granite Financial, LLC to GF Funding I,
(ii) all of GF Funding I's rights and interest in the leased equipment, (iii) a
cash collateral account (which generally does not increase the overall level of
credit enhancement, but rather accommodates changes that may occur from time to
time in the form of credit enhancement from excess implicit principal balance
of lease receivables to cash) and (iv) a financial guaranty insurance policy.
Under the terms of the insurance policy, the monthly payments of interest and
final payment of principal and maturity are unconditionally guaranteed. As this
securitization was completed through the issuance of a debt security prior to
the adoption of SFAS 125, the transaction is accounted for as a collateralized
borrowing. Accordingly, the underlying lease assets, recorded as direct
financing leases assigned to lender, and the related limited recourse note
payable are reflected in the accompanying consolidated balance sheets. The
underlying assets are comprised of the Company's net investment in the leases
of $15,510,859 as of June 30, 1997. The related limited recourse note payable
was $14,770,561 as of June 30, 1997.



                                     F-14
<PAGE>   42
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - DIRECT FINANCING LEASES (CONTINUED)

Asset Securitization (continued)

In November 1996, GF Funding II was formed to establish the Company's second
securitization facility. The facility provides for the issuance of up to $65
million in aggregate principal amount of Class A Lease-Backed Certificates due
June 20, 2003 (the 1996 Certificates) in a private placement. For purposes of
computing interest, the 1996 Certificates are issued in two tranches,
consisting of the Floating Rate Tranche and the Fixed Rate Tranche. The
principal amount of the Floating Rate Tranche will generally convert to the
Fixed Rate Tranche on a quarterly basis. The Floating Rate Tranche bears
interest at an annual rate equal to the LIBOR Rate, as adjusted from time to
time, plus .50%. The Fixed Rate Tranche bears interest at an annual rate equal
to the Treasury Rate, as adjusted form time to time, plus .70%. The annual
interest rate on each tranche is subject to a maximum annual rate of 10%. The
1996 Certificates represent an undivided interest in a trust estate created by
GF Funding II comprised of (i) payments to be made under leases contributed to
GF Funding II, (ii) all of GF Funding II's right and interest in the leased
equipment, (iii) a cash collateral account and (iv) a financial guaranty
insurance policy. The initial funding under the securitization facility was
approximately $7,200,000. The Company is required to sell a minimum of
$1,500,000 in leases to the securitization facility per month. As this
securitization was completed through the issuance of equity certificates and
the Company and GF Funding II have surrendered control over the future cash
flows from these lease assets for the benefit of the holders of the
Certificates, the transfer of the lease assets is accounted for as a sale.
Accordingly, the portion of the underlying lease assets sold were removed from
the consolidated balance sheet and the resulting sales of leases and cost of
leases sold are reflected in the consolidated statement of operations. The
sales of leases represent the gross proceeds from the certificate holders and
the cost of leases sold represent the Company's net investment in the portion
of the lease assets sold. The Company has recorded sales of leases and a cost
of leases sold with respect to this securitization of $26,664,807 and
$24,298,140, respectively, during the year ended June 30, 1997. Included in the
consolidated balance sheet is the allocated portion of the Company's net
investment in the lease assets which represents the securitization residual
interest retained in the lease assets. The allocation between the cost of
leases sold and the securitization residual interest retained is based on their
relative fair values on the date of sale. The securitization residual interest
for this securitization was $5,200,368 at June 30, 1997.




                                     F-15
<PAGE>   43

                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - DIRECT FINANCING LEASES (CONTINUED)

Asset Securitization (continued)

In March 1997, GF Funding III was formed to establish the Company's third
securitization facility. The facility provides for the issuance of up to
$27,500,000 in the aggregate principal amount of 6.82% Class A Lease-Backed
Certificates due December 20, 2002 (the 1997 Certificates) in a private
placement. The 1997 Certificates represent an undivided interest in a trust
estate created by GF Funding III comprised of (i) payments to be made under
leases contributed to GF Funding III, (ii) all of GF Funding III's right and
interest in the leased equipment, (iii) a cash collateral account, a capitalized
interest account, a prefunding account and a collection account and (iv) a
financial guaranty insurance policy. The Company and GF Funding III have
surrendered control over all future cash flows of the underlying lease assets
and, under SFAS 125, the securitization is accounted for as a sale. The Company
has recorded sales of leases and cost of leases sold with respect to this
transfer of $28,080,295 and $26,427,723, respectively, during the year ended
June 30, 1997. Included in the consolidated balance sheet is the allocated
portion of the Company's net investment in the lease assets which represents the
securitization residual interest retained in the lease assets. The allocation
between the cost of leases sold and the securitization residual interest
retained is based on their relative fair values on the date of sale. The
securitization residual interest for this securitization was $4,937,973 at June
30, 1997.


The source of repayment for the Note and Certificates is the stream of payments
to be made on the equipment leases included in the corresponding pool of
transferred leases. The value of the securitization residual interest of the
collateral enhancement leases in the pool will be realized by the Company on a
monthly basis once all principal and interest due under the Note or
Certificates and associated expenses are paid. The collateral enhancement
leases are not a separate and distinct pool of individual leases, but rather
are part of the undifferentiated pool of leases.


NOTE 3 - SALE OF LEASES

The Company entered into agreements with certain financial institutions to sell,
on an ongoing basis, certain leases either on a recourse or non-recourse basis.
The purchase price of the leases is determined on a transaction by transaction
basis. Revenue is recognized on the date of sale based upon the present value of
the payments to be received under the lease. The Company retains servicing of
substantially all leases under the agreements. During the year ended June 30,
1996 and 1997, the Company sold leases of $19,296,885 and $73,364,404,
respectively. The related sales proceeds were $20,638,040 and $78,947,771 during
the year ended June 30, 1996 and 1997, respectively.



                                     F-16
<PAGE>   44

                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - SALE OF LEASES (CONTINUED)

Sales and cost of leases sold to Heartland Bank during the year ended June 30,
1996 and 1997 are $19,259,557 and $18,044,325 and $23,250,014 and $21,735,167,
respectively. Heartland Bank purchased an equity interest in the Company in
January 1996. The costs and related sales amounts are included in the
accompanying consolidated statements of operations. With respect to the leases
sold to Heartland Bank, there is recourse to the Company for the amount of the
equipment residual guarantees of approximately $827,000 and a reserve account
balance of approximately $477,000 (included in restricted cash) at June 30,
1997.


NOTE 4 - CREDIT FACILITIES

Lines-of-Credit

<TABLE>
<CAPTION>
                                                                       June 30,
                                                                         1997
                                                                      -----------
<S>                                                                   <C>        
 $36,000,000  line-of-credit to a consortium of lenders, due
 February  1998.  Interest at the lead  lender's  prime rate
 plus 5/8 of one percent  (9.125% at June 30, 1997)  payable
 monthly.  The line is  collateralized  by a first  security
 interest in  specific  leases  pledged  and the  underlying
 equipment.   The  balance  outstanding  at  June  30,  1997
 consists  of  actual  net  borrowings  of  $1,696,948  plus
 advance borrowings on the  line-of-credit of $2,864,185.             $ 4,561,133

 $2,000,000  unsecured  line-of-credit to a bank due January
 1998.  Interest is at the bank's  reference  rate plus .75%
 (9.25% at June 30, 1997) payable monthly.                              2,000,000

 $800,000  line-of-credit to a bank, due May 1997.  Interest
 at the prime rate plus 1% (9.5% at June 30,  1997)  payable
 monthly.  The line is  collateralized  by all  tangible and
 intangible  property of a subsidiary.  The balance was paid
 in full in August 1997 using  proceeds  from the  secondary
 offering (Note 6).                                                       770,850
                                                                      -----------
                                                                      $ 7,331,983
                                                                      ===========
</TABLE>



                                     F-17
<PAGE>   45
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - CREDIT FACILITIES (CONTINUED)

<TABLE>
<CAPTION>
                                                                     June 30,
Notes Payable                                                          1997
                                                                    ------------
<S>                                                                 <C>         
Note payable to bank,  payable in monthly  installments  of
$28,303,  including interest of 9.80% through January 2000.
The note is  collateralized  by certain leases  including a
security interest in the underlying equipment.  The Company
has a total of a $3,000,000 line-of-credit with the bank to
be funded in increments of $500,000 or more.                        $    772,373

Note  payable to a limited  partnership,  monthly  interest
only payments at 13%. All unpaid principal and interest due
at maturity in January 2000. The note is  collateralized by
all equipment, inventory, lease receivables and intangibles 
of a subsidiary.  The note was paid in full  in  July  1997 
using proceeds from the secondary offering (Note 6).                   1,470,615

Note payable to a bank, payable in monthly  installments of
$83,000,  including interest at 8.72% through May 1999. The
note  is  collateralized  by all  tangible  and  intangible
property of a subsidiary.                                              1,721,525
                                                                    ------------

                                                                    $  3,964,513
                                                                    ============
</TABLE>

Maturities due on the notes payable as of June 30, 1997 are as follows:

<TABLE>
<CAPTION>
             Year Ending June 30,
             --------------------
<S>                                                                 <C>         
                      1998                                          $  1,154,900
                      1999                                             1,147,193
                      2000                                             1,662,420
                                                                    ------------

                                                                    $  3,964,513
                                                                    ============
</TABLE>

Each of the Company's available credit facilities contain certain financial and
reporting  covenants.  As of June 30, 1997, the Company was not in violation of
any reporting covenants.



                                     F-18
<PAGE>   46
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5 - COMMITMENTS

Leases

The company has entered into various operating lease agreements for office
space and equipment and has an annual commitment for a software license.

The minimum scheduled lease payments are as follows:

<TABLE>
<CAPTION>
         Year Ending June 30,
         --------------------
<S>                                                       <C>         
                     1998                                 $    183,471
                     1999                                      191,646
                     2000                                      186,704
                     2001                                      182,898
                     2002                                      170,425
                     Thereafter                                 12,361
                                                          ------------

                                                          $    927,505
                                                          ============
</TABLE>

Rental expense included in general and administrative costs was $60,717 and
$90,774 for the year ended June 30, 1996 and 1997, respectively.

Employment Contract

The Company has entered into various employment agreements with officers of the
Company. These agreements require a specified salary to be paid to the officer,
and in some cases include incentive compensation arrangements. The agreements
contain non-compete provisions. The terms of the agreements range from two to
three years and normally contain extension provisions.

Other

The Company approved contingent fundings of approximately $34.2 million in
leases at June 30, 1997.



                                     F-19
<PAGE>   47
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - STOCKHOLDERS' EQUITY

Initial Public Offering

In October 1996, the Company completed a public offering of 1,725,000 shares of
common stock at $7.50 per share. The proceeds of the offering were
approximately $10,747,000, net of offering costs of $2,189,000. Additionally,
the Company issued warrants to the underwriter to purchase 150,000 shares at
$10.50.

Secondary Public Offering - Subsequent Event

In July 1997, the Company completed a second public offering of 2,100,000
shares of common stock at $8.25 per share. Additionally, the Company granted to
the Underwriters a 30-day option to purchase up to an additional 315,000 shares
of common stock to cover over-allotments. The option was exercised by the
Underwriters within the 30-day option period. The proceeds of the offering were
approximately $18,148,000, net of offering costs of $1,776,000. The Company
also issued warrants to the Underwriters to purchase 150,000 shares of common
stock exercisable at $10.31 per share.

Stock Option Plans

In June 1996, the Company adopted a Stock Option Plan (the Plan) allowing for
the issuance of qualified and non-qualified stock options to purchase an
aggregate of 450,000 shares of common stock to directors, officers, employees,
agents and consultants of the Company. The Plan is administered by the Board of
Directors. The Plan provides that qualified stock options be granted at an
exercise price equal to fair market value of the common shares of the Company
on the date of the grant, and must be at least 110% of fair market value when
granted to a 10% or more shareholder. The term of all qualified stock options
granted under the Plan may not exceed ten years, except the term of qualified
stock options granted to a 10% or more shareholder which may not exceed five
years.

The Plan provides that non-qualified stock options be granted at an exercise
price not less than 85% of the fair market value of the common shares of the
Company on the date of grant. The term of all non-qualified stock options
granted under the Plan may not exceed ten years, except the term of
non-qualified stock options granted to a 10% or more shareholder which may not
exceed five years.




                                     F-20
<PAGE>   48

                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

Stock Option Plans (continued)

In April  1997,  the Plan was amended  and  restated  in order to make  certain
technical  modifications  thereto  and was  further  amended  in  June  1997 to
increase the shares of common  stock  reserved for issuance to 900,000 of which
492,500 shares are available to be granted.

In connection with the initial public offering, the Company issued, to an
underwriter, warrants to purchase up to 150,000 shares of common stock
commencing one year from the date of the initial public offering (October 25,
1997) until October 25, 2001 at an exercise price of $7.50 per share. No
warrants were exercised at June 30, 1997.

The following is a summary of options and warrants:

<TABLE>
<CAPTION>
                                                                       Exercise        Weighted
                                        Options       Warrants           Price         Average
                                       ----------    -----------    ---------------   -----------
<S>                                       <C>        <C>            <C>               <C> 
Outstanding, June 30, 1996                250,000           --      $  5.95 to 6.55   $      6.35
Granted
     Price equals fair value              120,000        150,000    $ 8.38 to 10.45          9.02
     Price greater than fair value         50,000           --      $         10.45         10.45
Canceled                                  (12,500)          --      $  5.95 to 9.50          8.79
                                       ----------    -----------    ---------------   -----------

Outstanding, June 30, 1997                407,500        150,000    $ 5.95 to 10.45   $      7.56
                                       ==========    ===========    ===============   ===========
</TABLE>

The total options exercisable at June 30, 1996 and 1997 was 185,000 and
302,500, respectively, which had a weighted average exercise price of $6.49 and
$7.64, respectively.

The Company has adopted the disclosure-only provisions of Statement of
Financing Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plan. Had compensation cost for the Company's stock option plan
been determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                           Year Ended
                                                                            June 30,
                                                                      1996             1997
                                                                  -------------    -------------
<S>                                                               <C>              <C>          
Net income applicable to common stockholders - as reported        $     481,407    $   2,067,175
                                                                  =============    =============
Net income (loss) applicable to common stockholders - pro forma        (366,234)       1,618,128
                                                                  =============    =============
Earnings per share - as reported                                            .24              .63
                                                                  =============    =============
Earnings (loss) per share - pro forma                             $        (.18)             .50
                                                                  =============    =============
</TABLE>



                                     F-21
<PAGE>   49
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

Stock Option Plans (continued)

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 0%; expected volatility of
37.8%; discount rate of 9.0%; and expected lives up to 10 years.


NOTE 7 - INCOME TAXES

The Company's status as an LLC was terminated upon the completion of the
initial public offering. At that time, any deferred tax assets and liabilities
were recorded, and a charge to earnings of approximately $100,000 was included
in continuing operations during the period of the change in tax status. The
Company distributed $111,000 to certain members of the LLC to provide the
members with sufficient funds to pay tax liabilities arising as a result of
income received prior to the date of the public offering.

The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                                                 June 30,
                                                                  1997
                                                               -----------
<S>                                                            <C>        
Current tax provision
         Federal                                               $   285,000
         State                                                      45,000
Deferred tax provision
         Federal                                                   994,310
         State                                                     106,517
                                                               -----------

                                                               $ 1,430,827
                                                               ===========
</TABLE>

Deferred taxes result from sales treatment of securitized leases for financial
reporting purposes and debt treatment for tax purposes, reserve for bad debts
and depreciation for tax purposes in excess of depreciation for financial
reporting purposes. The income tax effects of items comprising deferred income
tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                 June 30,
                                                                  1997
                                                               ----------- 
<S>                                                            <C>          
Net operating loss                                             $  (736,158)
Lease accounting                                                 1,501,927
Bad debts                                                           75,140
Depreciation and other                                             225,415
                                                               ----------- 

                                                               $ 1,066,324
                                                               =========== 
</TABLE>

The Company had a net deferred tax liability of $0 and $1,066,324 as of June
30, 1996 and 1997, respectively.



                                     F-22
<PAGE>   50
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - INCOME TAXES (CONTINUED)

The difference  between the Company's  effective income tax rate and the United
States Statutory rate is as follows:

<TABLE>
<CAPTION>
                                                                        June 30,
                                                                         1997
                                                                       --------
<S>                                                                        <C>  
United States statutory rate                                               34.0%
State income tax, net of federal income tax benefit                         3.3
Change in tax status                                                        2.9
Other                                                                        .7
                                                                       --------

                                                                           40.9%
                                                                       ========
</TABLE>


NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the line-of-credit and bank notes payable at June 30, 1997
approximated the carrying value because of the short-term nature of these
instruments. The fair value of the Class A lease-backed term note is
determined based upon current market rates.

<TABLE>
<CAPTION>
                                                        June 30, 1997
                                                 ------------------------------
                                                  Carrying            Fair
                                                   Amount             Value
                                                 ------------      ------------
<S>                                              <C>               <C>         
Cash and cash equivalents                        $    680,529      $    680,529
Line-of-credit                                     (7,331,983)       (7,331,983)
Notes payable                                      (3,964,513)       (3,964,513)
Limited recourse Class A note payable             (14,770,561)      (15,150,991)
</TABLE>

The preceding methods and assumptions were used to estimate the fair value to
each class of financial instruments for which it is practicable to estimate
that value. Fair value estimates are made at a specific point in time for the
Company's financial instruments; they are subjective in nature and involve
uncertainties, matters of significant judgment and, therefore, cannot be
determined with precision. Fair value estimates do not reflect the total value
of the Company as a going concern.



                                     F-23
<PAGE>   51
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - RELATED PARTY TRANSACTIONS

An officer and director of the Company devoted approximately 50% of his time to
the operations of Granite Financial, LLC, but did not receive any compensation
from the Company. The officer's salary has been paid in full since February
1995 by a related company. The Company has agreed to reimburse the related
company $76,000 paid to the officer through June 30, 1996 on the Company's
behalf.

In September 1996, the members of Granite Financial, LLC advanced an aggregate
of $300,000 to Granite Financial LLC. The promissory notes were unsecured,
accrued interest at the rate of 11% per annum and were repaid out of the
proceeds of the initial public offering.

In June 1997, the Company acquired certain assets and liabilities of SFR
Funding, Inc. for an aggregate purchase price of $550,000 of which $300,000 was
paid for in cash and the remaining $250,000 is recorded as a note payable to
SFR Funding, Inc. The note is payable with interest at 9% per annum, in ten
quarterly installments beginning October 1, 1997 until paid in full. Required
principal payments are $75,000 in 1998, $100,000 in 1999 and $75,000 in 2000.


NOTE 10 - MAJOR SUPPLIER

The Company's leases are originated through a network of approximately 65
independent lease originators located throughout the United States.
Transactions generated by a single independent lease originator accounted for
approximately 17.9% and 13.9% of the Company's leases funded during the year
ended June 30, 1996 and 1997, respectively. Transactions generated by the
Company's ten largest independent lease originators accounted for approximately
58.3% and 60.8% of leases funded during the year ended June 30, 1996 and 1997.


NOTE 11 - ACQUISITIONS

On March 31, 1997, the Company acquired the assets and recorded liabilities of
Global Finance & Leasing, Inc. (Global), a micro ticket equipment leasing
company, for an aggregate cash purchase price of $2,334,000. The acquisition
has been accounted for using the purchase method of accounting. Under the
purchase method of accounting, the results of Global will be included in the
Company's results from the acquisition date (March 31, 1997). The allocation of
the purchase price to the fair market value of the net assets is based on
preliminary estimates of fair market value and may be revised as additional
information is obtained.

The acquisition agreement provides for additional contingent consideration of
$916,000 based on the collection of certain receivables. The Company believes
the collection of the certain receivables is remote; therefore, no liability is
recorded at this time.



                                     F-24
<PAGE>   52
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - ACQUISITIONS (CONTINUED)

The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and Global for the periods shown as if the
acquisitions had taken place at the beginning of periods shown. Appropriate
adjustments have been made to reflect the cost basis used in recording these
acquisitions. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would have resulted had the combinations been in effect on the dates
referred to above, that have resulted since the dates of the acquisitions or
that may result in the future (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                 Year Ended
                                                                  June 30,
                                                             -------------------
                                                              1996       1997
                                                             --------   --------
<S>                                                            <C>        <C>   
Revenues                                                       24,427     85,468

Net income allocated to common stockholders                       734      3,203

Income per common and common equivalent share                     .37        .98
</TABLE>

On June 20, 1997, the Company acquired certain assets and liabilities of SFR
Funding, Inc. a small ticket equipment leasing company, for cash of $300,000
and a note payable of $250,000. The acquisition has been accounted for under
the purchase method of accounting. From the date of acquisition through June 30,
1997, the results of operations were not significant to the operations of
Granite Financial, Inc.


NOTE 12 - SUBSEQUENT EVENT

In addition to a subsequent event disclosed in Note 6, in July 1997, the Company
received a $250,000 term loan with a bank, with an interest rate at the bank's
reference rate plus 0.75%. This note was repaid in August 1997 with the
proceeds from the secondary offering.


NOTE 13 - PRO FORMA BALANCE SHEET

The Company completed its secondary offering subsequent to year end which
provided net proceeds of $18,523,050 which are net of underwriting fees of
$1,400,750. The accompanying consolidated pro forma balance sheet as of June 30,
1997 was prepared assuming the secondary offering had been completed in June
1997.



                                     F-25
<PAGE>   53
                    GRANITE FINANCIAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - PRO FORMA BALANCE SHEET (CONTINUED)

The summarized effect of the pro forma adjustments are as follows:

<TABLE>
<CAPTION>
                                                                        Pro Forma
                            June 30,             Pro Forma               June 30, 
                             1997                Adjustments              1997
                          ------------          ------------          ------------
<S>                       <C>                   <C>                   <C>         
Assets                    $ 45,746,577          $  9,316,067          $ 55,062,644
Liabilities               $ 30,282,137          $ (8,831,983)         $ 21,450,154
Equity                    $ 15,464,440          $ 18,148,050          $ 33,612,490
</TABLE>




                                     F-26
<PAGE>   54
                              INDEX TO EXHIBITS



<TABLE>
<CAPTION>
EXHIBIT
NUMBER                   DESCRIPTION
-------                  -----------
<S>         <C>
+   2.1     Exchange Memorandum, dated October 7, 1996 regarding the
            reorganization of the Registrant from a Colorado limited liability
            company to a Delaware corporation (the "Exchange Memorandum").

+   3.1     Certificate of Incorporation of the Company as filed on June 20,
            1996 with the Secretary of State of the State of Delaware.

+   3.2     By-laws of the Company.

+   4.1.1   Form of specimen certificate for Common Stock of the Company.

+   4.1.2   Form of Representative's Warrant issued by the Company to
            Cruttenden Roth Incorporated in connection with the Company's
            initial public offering.

*   4.1.3   Underwriters' Warrant issued by the Company to Piper Jaffray Inc.
            and Cruttenden Roth Incorporated.

*  10.1.1   Form of Employment Agreement, dated April 1, 1997, by and between
            William W. Wehner and the Company.

*  10.1.2   Employment Agreement, dated April 28, 1997, by and between Larry K.
            White and the Company.

+  10.2     Form of Indemnification Agreement entered into between the Company
            and each officer and director of the Company.
</TABLE>

<PAGE>   55
<TABLE>
<S>         <C>
+ 10.3      1996 Omnibus Stock Option Plan, as amended effective April 24,
            1997, authorizing 900,000 shares of Common Stock for issuance
            pursuant to the Plan.

+ 10.4.1    Membership Units Purchase Agreement, dated January 31, 1996, by and
            among Heartland Leasing Corporation of Missouri, Granite Financial,
            LLC, James E. Lewis, William W. Wehner, Andrew S. Love, Jr.,
            Laurence A. Schiffer and Heartland Bank.

+ 10.4.2    Members' Agreement of Granite Financial, LLC, dated January 31,
            1996, by and among Granite Financial, LLC, James E. Lewis, William
            W. Wehner and Heartland Leasing Corporation of Missouri.

+ 10.4.3    Lease Purchase Agreement, dated June 14, 1995, by and between
            Granite Financial, LLC and Heartland Bank.

+ 10.4.4    Lease Sale Agreement, dated April 1, 1996, by and between Heartland
            Bank and Granite Financial, LLC.

+ 10.4.5    Lease Service Agreement, dated June 14, 1995, by and between
            Heartland Bank and Granite Financial, LLC.

x 10.4.6    Lease Purchase Agreement, dated June 30, 1997, by and between
            Heartland Bank and Granite Financial Acquisition Corp. I.

o 10.5.1    Loan and Security Agreement, dated February 4, 1997, by and between
            CoreStates Bank, N.A. and Granite Financial, Inc.

o 10.5.2    Unsecured Revolving Credit Agreement, dated January 30, 1997, by and
            between Colorado National Bank, and Granite Financial, Inc.

+ 10.6      Lease of Space, dated June 26, 1995, by and between Arbor Lake
            Limited Partnership, a Colorado limited partnership, and Granite
            Financial, LLC.

+ 10.7      Form of Broker/Lessor Partnership Agreement, dated various dates,
            by and between Lease Originators and Granite Financial, LLC.

+ 10.8.1    Servicing Agreement, dated April 1, 1996, by and among GF Funding
            Corp. I, Norwest Bank Minnesota, National Association and Granite
            Financial, LLC.

+ 10.8.2    Indenture, dated April 1, 1996, by and among GF Funding Corp. I,
            Norwest Bank Minnesota, National Association and Granite Financial,
            LLC.

+ 10.8.3    Lease Acquisition Agreement, dated April 10, 1996, by and between
            Granite Financial, LLC and GF Funding Corp. I.

++10.9.1    Trust and Security Agreement, dated November 1, 1996, among G.F.
            Funding Corp. II, the Company, Norwest Bank Minnesota, National
            Association.

++10.9.2    Lease Acquisition Agreement, dated November 1, 1996, between the
            Company and G.F. Funding Corp. II.

++10.9.3    Servicing Agreement, dated November 1, 1996, among G.F. Funding
            Corp. II, the Company, Norwest Bank Minnesota, National
            Association.

o 10.10.1   Trust and Security Agreement, dated March 1, 1997, by and among GF
            Funding Corp. III, the Company and Norwest Bank Minnesota, National
            Association.

o 10.10.2   Lease Acquisition Agreement, dated March 1, 1997, by and between the
            Company and GF Funding Corp. III.

o 10.10.3   Servicing Agreement, dated March 1, 1997, by and among the Company,
            GF Funding Corp. III and Norwest Bank Minnesota, National
            Association.
</TABLE>
<PAGE>   56
<TABLE>
<S>          <C>
+   10.11.1  CreditDesk(R) License Agreement, dated September 22, 1995, by and
             between Fair, Isaac and Company, Inc. and Granite Financial, LLC.

+   10.11.2  InfoLease License Agreement, dated October 5, 1995, by and between
             Decision Systems, Inc. and Granite Financial, LLC.

o   10.12    Asset Purchase Agreement, dated March 31, 1997, by and among
             Granite Financial Acquisition Corp. I, Global Finance & Leasing,
             Inc. and Thomas Mannes.

*   10.13    Agreement, dated December 13, 1996, by and between BrokerWare,
             Inc. and the Company.

*   10.14    Standard Form Industrial Lease, dated June 6, 1997, by and between
             General American Life Insurance Company and the Company.

x   11.1     Computation of Earnings Per Share.

    13.      Not applicable.

    16.      Not applicable.

    18.      Not applicable.

*   21.      List of Subsidiaries.

    22.      Not applicable.

    23.      Not applicable.

    24.      Not applicable.

x   27.      Financial Data Schedule.
</TABLE>

+    Incorporated by reference from the Company's Registration Statement on
     Form SB-2 (S.E.C. File No. 333-5264-D).

*    Incorporated by reference from the Company's Registration Statement on
     Form SB-2 (S.E.C. File No. 333-29303).

++   Incorporated by reference from the Company's Form 10-QSB filed February
     14, 1997 (S.E.C. File No. 0-21591).

o    Incorporated by reference from the Company's Form 10-QSB filed May 15,
     1997 (S.E.C. File No. 0-21591).

x    Filed herewith.