<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

                  QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
                                -----------------

                       Commission file number: 33-49261-D

                        TRANSITION AUTO FINANCE II, INC.
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

          TEXAS                                        75-2753067
(State of incorporation)                 (I.R.S. employer identification number)

   8144 Walnut Hill Lane, SUITE 680,
            DALLAS, TEXAS                                75231
(Address of principal executive offices)              (Zip code)

                   Issuer's telephone number, including area code: (214)360-9966

Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 [ ]

State the number of shares outstanding of each of the issuer's classes of Common
equity, as of the latest practicable date: As September 30, 2004, the issuer'
had 1,000 shares of common stock

    TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMS (CHECK ONE): YES [ ] NO [X]

<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                                   FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2004

<TABLE>
<CAPTION>
                                                                                                             Page No.
                                                                                                             --------
<S>                                                                                                          <C>
PART I.  FINANCIAL INFORMATION

         ITEM 1.  Financial Statements

                  Balance Sheets..............................................................................    3
                    September 30, 2004 (Unaudited) and December 31, 2003

                  Statements of Income (Unaudited)............................................................    5
                    Quarter and nine months ended September 30, 2004 and September 30, 2003

                  Statements of Cash Flows (Unaudited)........................................................    6
                    Nine Months ended September 30, 2004 and September 30, 2003

                  Notes to Financial Statements (Unaudited)...................................................    7

         ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.......   12

         ITEM 3.  Controls and Procedures.....................................................................   14

PART II. OTHER INFORMATION

         ITEM 1.  Legal Proceedings...........................................................................   14

         ITEM 2.  Changes in Securities and Use of Proceeds...................................................   14

         ITEM 3.  Defaults Upon Senior Securities.............................................................   14

         ITEM 4.  Submission of Matters to a Vote of Security Holders.........................................   14

         ITEM 5.  Other Information...........................................................................   15

         ITEM 6.  Exhibits and Reports on Form 8-K............................................................   15

         Signatures...........................................................................................   16
</TABLE>

      In the opinion of management, all adjustments necessary to fair statement
of the results for interim periods presented have been reflected in these
financial statements.

<PAGE>

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                        TRANSITION AUTO FINANCE II, INC.

                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                           9 months ended      FYE
                                                                              9/30/2004     12/31/2003
                                                                             (unaudited)   (See Note 1)
                                                                             -----------   ------------
<S>                                                                        <C>             <C>
CURRENT ASSETS
  Cash and cash equivalents                                                   $ 184,686      $ 225,140
  Accounts receivable, net of allowance for doubtful accounts of $107,000
   and $ -0- respectively                                                       266,339        266,767
  Vehicles held for sale                                                            -0-         10,598
  Other Assets                                                                    9,318          9,689
                                                                              ---------      ---------
      Total Current Assets                                                      460,343        512,194
                                                                              ---------      ---------

PROPERTY, at cost
  Vehicles leased                                                                97,424        380,584
  Less accumulated depreciation                                                 (69,246)      (252,634)
                                                                              ---------      ---------
      Net Property                                                               28,178        127,950
                                                                              ---------      ---------
OTHER ASSETS
  Due from an affiliate                                                             -0-            -0-
                                                                              ---------      ---------
       Total other assets                                                           -0-            -0-
                                                                              ---------      ---------
TOTAL ASSETS                                                                  $ 488,521      $ 640,144
                                                                              =========      =========
</TABLE>

                                       3
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                           BALANCE SHEETS (Continued)

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                9 Months Ended         FYE
                                                   9/30/2004        12/31/2003
                                                  (Unaudited)      (See Note 1)
                                                  -----------      ------------
<S>                                             <C>                <C>
CURRENT LIABILITIES
  Accrued liabilities                             $       -0-      $    17,860
  Investor notes payable                            4,961,200        5,086,800
  Deferred revenue                                     15,202           14,164
                                                  -----------      -----------
        Total Current Liabilities                   4,976,402        5,118,824
                                                  -----------      -----------

OTHER LIABILITIES
  Due to affiliate                                     64,113           61,553
                                                  -----------      -----------
      Total Other Liabilities                          64,113           61,553
                                                  -----------      -----------
TOTAL LIABILITIES                                   5,040,515        5,180,377
                                                  -----------      -----------
SUBORDINATED DEBT TO AFFILIATE                        371,330          371,330
                                                  -----------      -----------

STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock, $.10 par value, 1,000 shares
      authorized, issued and outstanding                  100              100
   Additional paid-in capital                             900              900
   Retained earnings (deficit)                     (4,924,324)      (4,912,563)
                                                  -----------      -----------
       Total Stockholders' Equity (Deficit)        (4,923,324)      (4,911,563)
                                                  -----------      -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT)                                      $   488,521      $   640,144
                                                  ===========      ===========
</TABLE>

Note 1: The balance sheet at December 31, 2003, as presented, is derived from
the audited financial statements at that date.

See accompanying notes to financial statements.

                                       4
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                              STATEMENTS OF INCOME

                                   (Unaudited)

<TABLE>
<CAPTION>
                                          Quarter Ended       Nine Months Ended        Quarter Ended        Nine Months Ended
                                        September 30, 2004    September 30, 2004     September 30, 2003     September 30, 2003
                                        ------------------    ------------------     ------------------     ------------------
<S>                                     <C>                   <C>                    <C>                    <C>
REVENUES
  Vehicle monthly lease payments            $   9,333              $  46,059              $  46,685              $ 200,613
  Amortization of down payments                   187                  1,126                  3,266                 33,933
                                            ---------              ---------              ---------              ---------

        Total Revenues                          9,520                 47,185                 49,951                234,546
                                            ---------              ---------              ---------              ---------

OPERATING EXPENSES

  Operating costs                                 220                  1,966                  4,062                 15,407
  General and administrative                    2,520                 27,177                  1,425                 49,959
  Depreciation and amortization                 5,355                 25,821                 27,955                123,270
                                            ---------              ---------              ---------              ---------
        Total Operating Expenses                8,095                 54,964                 33,442                188,636
                                            ---------              ---------              ---------              ---------

Operating Income (Loss)                         1,425                 (7,779)                16,509                 45,910
                                            ---------              ---------              ---------              ---------

OTHER INCOME (EXPENSE)

Investment income                                 348                    489                    397                  1,683
Other income (expense)                            -0-                      3                      1                     18
Loss on sale of inventory                      (7,391)                (4,473)               (10,652)               (73,752)
                                            ---------              ---------              ---------              ---------
       Total Other Income (Expense)            (7,043)                (3,982)               (10,254)               (72,051)
                                            ---------              ---------              ---------              ---------

Provision for Federal Income Taxes                -0-                    -0-                    -0-                    -0-
                                            ---------              ---------              ---------              ---------

Net Profit (Loss)                           $  (5,618)             $ (11,761)             $   6,255              $ (26,141)
                                            =========              =========              =========              =========

Profit (Loss) per share (basic and
diluted)                                    $   (5.62)             $  (11.76)             $    6.26              $  (26.14)
                                            =========              =========              =========              =========
</TABLE>

See accompanying notes to financial statements.

                                       5
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                  9 Months Ended        9 Months Ended
                                                                September 30, 2004    September 30, 2003
                                                                ------------------    ------------------
<S>                                                             <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                            ($ 11,761)             ($ 26,141)
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization                                     25,821                123,270
     Amortization of down payments                                     (1,126)               (33,933)
     Impairment loss                                                      -0-                    -0-
     Provision for allowance for doubtful accounts                        -0-                  2,579
     (Gain) loss on sale of property                                    4,473                 73,752
Net changes in operating assets and liabilities:
     Accounts receivable                                                  428                 (1,701)
     Other Assets                                                         371                 21,376
     Accrued liabilities                                              (17,860)               (23,372)
     Deferred revenue                                                   2,164                (34,722)
                                                                    ---------              ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                        2,510                101,108

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets                                               -0-                    -0-
   Cash proceeds from sale of property                                 80,076                305,393
                                                                    ---------              ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                       80,076                305,393

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from issuance of common stock                                 -0-                    -0-
   Net advances (payments) to affiliates                                2,560                 25,336
   Debt issuance costs                                                    -0-                    -0-
   Proceeds from notes payable                                            -0-                    -0-
   Payments of Notes Payable                                         (125,600)              (722,200)
                                                                    ---------              ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES                            (123,040)              (696,864)
                                                                    ---------              ---------

NET INCREASE (DECREASE) IN CASH                                       (40,454)              (290,363)
CASH AND CASH EQUIVALENTS, beginning of period                        225,140                573,137
                                                                    ---------              ---------

CASH AND CASH EQUIVALENTS, end of period                             $184,686               $282,774
                                                                    =========              =========
CASH PAID DURING THE YEAR FOR
   Interest                                                          $    -0-               $    -0-
   Income taxes                                                      $    -0-               $    -0-

    NON-CASH INVESTING ACTIVITIES
    No activity for 2004
</TABLE>

Vehicle purchases during the nine months ended September 30, 2003 with a net
book value of $52,382 were reclassified from vehicles leased to vehicles held
for sale.

See accompanying notes to financial statements.

                                       6
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE 1: BUSINESS ACTIVITY

      The Company was established to purchase motor vehicles and automobile
      lease contracts, collect and service automobile lease contracts and
      remarket motor vehicles upon termination of their leases. A summary of the
      significant accounting policies consistently applied in the preparation of
      the accompanying financial statements follows. Transition Leasing
      Management, Inc. (TLMI) owns 100% of the Company's common stock.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      CASH AND CASH EQUIVALENTS

            For purposes of the statement of cash flows, the Company considers
            all highly liquid investments with maturity of three months or less
            when purchased to be cash equivalents.

            The Company maintains cash balances at financial institutions in
            Dallas, Texas. Accounts at the institutions are insured by the
            Federal Deposit Insurance Corporation up to $100,000. The Company
            has not experienced any losses in such accounts and believes it is
            not exposed to any significant credit risk to cash and cash
            equivalents.

            As of September 30, 2004, all cash balances are restricted in nature
            and managed by Trust Management due to Company in default of their
            Indenture Agreement. All cash distributions from these accounts must
            be authorized by the Trust Management and are for the sole purpose
            of repaying investor notes payable after any authorized expenses
            have been paid.

      REVENUE

            The vehicles are leased to individuals under leases with terms
            ranging from thirty-six to forty-two months. The leases are
            considered to be operating leases. At the end of the lease period,
            the lessee may purchase the equipment at the contractual residual
            value plus any other outstanding items due. Monthly lease payments
            are recognized as revenue in the month that the payments are due.
            The vehicle leases require a down payment from the lessee at the
            inception of the lease.

            The down payments are initially recorded as deferred revenue and
            then recognized as income over the term of the leases on a
            straight-line basis.

                                       7
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

      ACCOUNTS RECEIVABLE

            The Company provides for uncollectible accounts receivable using the
            allowance method of accounting for bad debts. Under this method of
            accounting, a provision for uncollectible accounts is charged to
            earnings. The allowance account is increased or decreased based on
            past collection history and management's evaluation of accounts
            receivable. All amounts considered uncollectible are charged against
            the allowance account and recoveries of previously charged-off
            accounts are added to the allowance.

      VEHICLES HELD FOR SALE

            Vehicles held for sale are leased vehicles in which the lease term
            has expired or that have been repossessed. Vehicles held for sale
            are valued at the lower of cost or fair value. Cost of these
            vehicles is the net book value of the vehicle after it has been
            returned to the Company either through repossession or early
            termination of the lease. Generally the Company will sell these
            vehicles at auction.

      PROPERTY

            Property consists of leased vehicles, which are stated at cost less
            accumulated depreciation. Depreciation is provided in amounts
            sufficient to relate the cost of depreciable assets to operations
            over their estimated service lives using the straight-line-method.
            Leased vehicle depreciation is calculated over the term of the
            vehicle lease, using the cost of the vehicle less the estimated
            residual value of the vehicle at the end of the lease. Present
            leases have terms ranging from thirty-six to forty-two months.

      OTHER ASSETS

            Other assets include debt issuance costs incurred in connection with
            the Company's offering of securities filed with the Securities and
            Exchange Commission. These costs are being amortized, on a
            straight-line basis, over the term of the debt securities, which
            matured on June 30, 2002. These were fully amortized as of December
            31,2002.

      DEFERRED REVENUE

            Deferred revenue consists of down payments made by lessees at the
            inception of the lease. The down payments are amortized over the
            lease term. Lease terms range from thirty-six to forty-two months.

                                       8
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

      FAIR VALUE OF FINANCIAL INSTRUMENTS

            Fair values of financial instruments are estimated to approximate
            the related book value, unless otherwise indicated, based on market
            information available to the Company.

      USE OF ESTIMATES

            In preparing the Company's financial statements, management is
            required to make estimates and assumptions that affect the reported
            amounts of assets and liabilities, the 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 these estimates.

      CONCENTRATION OF CREDIT RISK

            A majority of the lessees are residents of the Dallas/Fort Worth
            Metroplex. Vehicles are used as collateral for leases.

NOTE 3: INVESTOR NOTES PAYABLE

      The Company has issued fixed rate redeemable asset-backed notes (Investor
      Notes). During the third Quarter ended September 30, 2004, approximately
      $0 was repaid to investors. The remaining balance as of September 30, 2004
      was $4,961,200.

      These Investor Notes were issued pursuant to a public offering on Form
      SB-2 under the Securities Act of 1933. The Investor Notes bear interest at
      the rate of 11%. Interest is payable monthly on the 15th day of each
      month.

      The Investor Notes were issued at various times during 1999 and 1998,
      however the maturity date for all of the Investor Notes is June 30, 2002.
      The Investor Notes are collateralized by the following:

            1.    Automobile contracts for the leasing of new or late model
                  automobiles.

            2.    The leased vehicles.

      The Investors Notes matured on June 30, 2002 and the Company was unable to
      pay the remaining debt. The Company is in default on the Investor Notes
      Payable as of September 30, 2004. As of that date all income from leasing
      activities is used to repay Investor Notes. All Company disbursements
      require approval of Trust Management.

                                       9
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

NOTE 4: INCOME TAX

      The Company is a corporation subject to federal and state income taxes.
      The Company and its parent intend to file a consolidated tax return. Each
      company in the consolidated group determines its taxable income or loss,
      on a separate company basis, and the consolidated tax liability is
      allocated to each company with taxable income in proportion to the total
      of the taxable income amounts.

      The Company has a deferred tax asset of approximately $1,670,000 and
      $413,000 as of December 31, 2003 and 2002 (primarily from net operating
      loss carry-forward), which has been completely offset by recognition of a
      valuation allowance.

      The Company has a net operating loss (NOL) carry-forward of approximately
      $4,913,000 and $2,000,000 for the year ended December 31, 2003 and the
      year ended December 31, 2002, respectively. The Company's NOL
      carry-forward expires between December 31, 2012 and December 31, 2023.

NOTE 5: RELATED PARTIES

      The Company has entered into a Servicing Agreement with TLMI. TLMI will be
      entitled to a servicing fee of $20 per month per contract and a payment of
      $150 per contract purchased. TLMI will receive, as a marketing fee, 57.5%
      of the down payment made by the customers with respect to contracts it
      originates. TLMI will receive from the Company a Releasing Fee of 57.5% of
      the down payment with respect to a new contract following repossession of
      a leased vehicle. The Company had $61,553 accrued as payable to TLMI in
      2003 for servicing, documentation and marketing fees. The Company has a
      payable to TLMI for $64,113 as of September 30, 2004.

NOTE 6: SUBORDINATED DEBT TO AFFILIATE

      The Company assumed a liability of $371,330 due to TLMI. This debt is
      subordinated to all other Company liabilities and cannot be repaid before
      any other creditors or investors.

                                       10
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

NOTE 7: GOING CONCERN

      The accompanying financial statements have been prepared in conformity
      with U.S. generally accepted accounting principles, which contemplates
      continuation of the Company as a going concern. The Company has sustained
      recurring losses from operations, negative working capital, a negative
      equity position and has defaulted on investor notes payable that were due
      in 2002. Management intends to service existing leases and attempt to
      raise additional capital and or secure additional financing in order to
      continue repayment of the investor notes payable. Management recognizes
      that full payment may take several years to complete and that full
      repayment may not occur. This situation raises substantial doubt about the
      Company's ability to continue as a going concern.

                                       11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The following discussions and analysis relates to factors that have
affected the operating results of the Company for the quarter ended and
nine-month period ended September 30, 2004. The balance sheet at December 31,
2003, as presented, is derived from the audited financial statements at that
date.

General.

      As of December 31, 1999, the Company had sold $10,000,000 of its 11%
Redeemable Secured Notes. In February of 1999 the Company also purchased 116
lease contracts from Transition Auto Finance, Inc. for $2,883,000.

As of September 30, 2004 Transition Auto Finance II had only three active leases
and it is anticipated that by December 31, 2004 the Company will have no active
leases. As a result of TAF II winding down its leasing operations, any financial
comparison of results for the September 30, 2004 period to prior periods would
be meaningless.

Results of Operations: Three months ended September 30, 2004, compared to three
months ended September 30,2003

      For the three months ended September 30, 2004 the company had received
monthly contract lease payments of $9,333 and amortization of down payments of
$187. For the same period in 2003, the Company had contract lease income of
$46,685 and amortization of down payments of $3,266.

      Operating costs including general and administrative expenses were $2,740
for the third quarter of 2004 compared to $5,487 for the same period in 2003.

      Depreciation and amortization was $5,355 for the three months ended
September 30, 2004, compared to $27,955 for the same period in 2003.

      Interest expense for the three months ended September 30, 2004, was $-0-
compared to $-0- for the same period in 2003. As a result of the Company's
default on June 30, 2002, all funds received, after allowed expenses, are paid
to the Trustee, and interest is no longer accrued or paid.

      Loss on sale of inventory for the third quarter of 2004 was $7,391
compared to a loss of $10,652 for the same period in 2003. Loss on sale of
inventory occurs when the book value of the asset exceeds the market value of
the repossessed vehicle.

      The net loss for the third quarter ended September 30, 2004 was $5,618
compared to a profit of $6,255 for the same period in 2003.

Results of Operations: Nine- month period ended September 30, 2004 compared to
the nine months ended September 30, 2003

      Total revenue for the nine months ended September 30, 2004 was $47,185
compared to $234,546 for the same period in 2003.

      Operating costs and expenses were $29,143 for the nine-month period ended
September 30, 2004 compared to $65,366 for the same period in 2003.

      Depreciation and amortization for the nine months ended September 30, 2004
was $25,821 compared to $123,270 for the same period in 2003.

      Interest expense for the nine months ended September 30, 2003 was $-0-
compared to $-0- for the same period in 2003. As a result of the Company's
default on June 30, 2002 interest is no longer paid or accrued.

      Loss on sale of inventory for the nine month ended September 30, 2004 was
$4,473 compared to $73,752 loss for the same period in 2003.

                                       12
<PAGE>

      The Company had a loss of $11,761 for the nine months ended September 30,
2004 compared to a loss of $26,141 for the same period in 2003.

      On June 30, 2002, TAF II, Inc. defaulted on its $10,000,000 11% Redeemable
Secured Notes. At the time of the default the company had paid to investors a
total of $7,058,413. This figure was comprised of $3,338,413 in interest and
$3,720,000 of principal. As of September 30, 2004 the total amount paid to
note-holders was $8,377,213. The Company estimates that its remaining lease
portfolio will generate approximately $25,000 in additional funds. The Trustee
currently holds $147,416 in note-holder funds.

      The adverse economic effects of the current recession and events of
September 11,resulted in an unusually high number of early lease payoffs and
automobile repossessions. The major reasons for the excessive early payoffs and
repossessions appear to have been (1) the weak economy, and (2) low - cost
incentive financing (such as "zero financing") offered by new car manufacturers.
The weak economy hurt the personal finances of many customers causing an
increased number of repossessions, while low-cost incentive financing enticed
many other customers to purchase new cars, which resulted in these customers
paying off their leases early. Additionally, low-cost financing negatively
impacted used car prices by flooding the market with late model cars.

      The early payoffs and repossessions were not, by themselves,
extraordinary. What was extraordinary - and unprecedented - was the pace and
rate at which these early payoffs and repossessions occurred. Most damaging,
however, was the timing of the excessive early payoffs and repossessions, which
began to accelerate in September 2000. Under the terms of the indenture that
governs the notes, all payments after August 2000, from early payoffs and
repossessions had to be returned to the note-holders rather than retained by the
company for further investment. This "sinking fund" provision in the indenture
had a devastating effect on the company's capital, and stripped the company of
its ability to generate sufficient cash flow to repay the notes.

      The company worked on a plan that would have extended the maturity of the
notes and the reinvestment period, and lowered the interest rate. The effect of
these changes should have increased the ultimate amount of funds available for
note repayment but since these modifications would require 100% approval of the
note-holders, the plan was never submitted to the note-holders.

Liquidity and Capital Resources

      During the nine months ended September 30, 2004 the Company provided cash
of $80,076 in its investing activities from the sale of property and used
$123,040 in its financing activities. For the same period in 2003, the Company
utilized cash of $305,393 in its investing activities and used $696,864 in its
financing activities.

      The Company's portfolio, which consisted of 477 leases, included 389
leases which resulted in early terminations and 3 leases that are currently
active. The Company had 85 leases which went to term. The information on the
Company's experience with respect to early terminations is set forth below:

<TABLE>
<CAPTION>
                                                                      Vehicle                                   Total
                # of   Gross Cost   Misc.       Total      Down         Sale    Sales Tax Warranty Marketing    Amount     Profit
             Contracts Of Vehicle Expenses    Payments    Payment      Amount     Credit   Rebate   Fee Paid   Received    (Loss)
<S>          <C>       <C>        <C>        <C>         <C>         <C>        <C>       <C>      <C>        <C>         <C>
Repossession   236     $5,698,567  $150,480  $2,858,964  $1,136,054  $2,501,636  $111,712  $59,687 $  630,483 $ 6,037,570 $  188,523
Early Payoff   153     $3,384,547  $  6,422  $1,927,434  $  710,091  $2,091,726  $100,647  $15,805 $  391,073 $ 4,454,630 $1,063,661
               ---     ----------  --------  ----------  ----------  ----------  --------  ------- ---------- ----------- ----------
Total          389     $9,083,114  $156,902  $4,786,398  $1,846,145  $4,593,362  $212,359  $75,492 $1,021,556 $10,492,200 $1,252,184
</TABLE>

Note: The above results on early termination does not include any allowance for
      interest expense

      At September 30, 2003 the company had 3 active leases remaining on its
books. If all of the 3 leases go to term, they would generate approximately
$25,000.

      This report contains various forward looking statements and information
that are based on management's belief as well as assumptions made by and
information currently available to management. Although the Company

                                       13
<PAGE>

believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those expected. Among the key factors that may have a direct
bearing on the Company's operating results are fluctuations in the economy and
in the level of activity in the automobile and consumer finance industry, demand
for the Company's products, the impact of competition and interest rate
fluctuations.

ITEM 3. CONTROLS AND PROCEDURES

      Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-14(C) and 15d under
the Securities Exchange Act of 1934, within 90 days of the filing date of this
report (the "Evaluation Date"). Based upon this evaluation, our principal
executive and principal financial officers concluded as of the Evaluation Date
that our disclosure controls and procedures were effective such that the
material information required to be included in our Securities and Exchange
Commission ("SEC") reports is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms relating to the
Company.

      In addition, there were no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the Evaluation Date. We have not identified any significant deficiencies or
material weaknesses in our internal controls and therefore, there were no
corrective actions taken.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      Although the Company is not a party to any material legal proceedings, it
is possible that one or more note-holders may institute legal action against the
company in light of the default of the company's notes.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

      (a) Not Applicable

      (b) Not Applicable

      (c) Not Applicable

      (d) The company applied 90% of the gross proceeds from the sale of the
      Notes to the purchase or acquisition of the Leased Vehicles and the
      contracts. The Company paid to the Underwriter sales commissions of 6% of
      the principal amount of the Notes sold by the Underwriter. Additionally,
      the Company reimbursed the Underwriter for certain expenses incurred in
      connection with its due diligence activities with regard to the Offering
      of 2.5% of the aggregate principal amount of the Notes sold. The Company
      also used 1.5% of the gross proceeds from the sale of the Notes to pay
      offering and organizational expenses, including filing and registration
      fees, legal fees of the Company's counsel, accounting fees, trustee's
      fees, escrow agent's fees, "blue sky" expenses and printing expenses.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

      On June 30, 2002, the Company defaulted on its $10,000,000 11% Redeemable
Secured Notes.

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

      No matters were submitted to a vote of the Company's sole stockholder
during the third quarter of 2004.

                                       14
<PAGE>

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Financial Statements

            The following financial statements are filed as a part of this Form
            10-QSB:

                  Exhibits

      The following exhibits are filed as exhibits to this report on Form
      10-QSB:

            The information required is set forth in the Index to Exhibits
            accompanying this Form 10-QSB.

(b)   Reports on Form 8-K

      No reports on Form 8-K were filed during the nine months ended September
      30, 2004.

                                       15
<PAGE>

                                   SIGNATURES

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

                                               TRANSITION AUTO FINANCE II, INC.
                                              ----------------------------------
                                                        (Registrant)

Date: November 6, 2004                           /s/ Kenneth C. Lowe
                                              ----------------------------------
                                                  Kenneth C. Lowe, President/
                                                  Chief Executive Officer

Date: November 6, 2004                           /s/ Kenneth C. Lowe
                                              ----------------------------------
                                                  Kenneth C. Lowe, President/
                                                  Chief Operating Officer

Date: November 6, 2004                           /s/ Kenneth C. Lowe
                                              ----------------------------------
                                                  Kenneth C. Lowe, President/
                                                  Chief Financial Officer

                                       16
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                          DESCRIPTION
<S>      <C>
3.1      Articles of Incorporation of Transition Auto Finance II, Inc. *

3.2      Bylaws of Transition Auto Finance II, Inc. *

4.1      Form of Indenture between Transition Auto Finance II, Inc. and Trust
         Management, Inc., as Trustee ***

4.2      Form of Secured Note Due June 30, 2002 (included in Article Two of
         Indenture filed as Exhibit 4.1)

10.1     Form of Master Contract Purchase Agreement between Transition Auto
         Finance II, Inc. and Transition Leasing Management, Inc.**

10.2     Form of Servicing Agreement between Transition Leasing Management, Inc.
         and Transition Auto Finance II, Inc. **

31       Certification of Reporting Officer Pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002

32       Certification of Reporting Officer pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002
</TABLE>

*     Incorporated by reference from Registration Statement on Form SB-2 of
      Transition Auto Finance II, Inc. Registration No. 33-49261-D, filed April
      2, 1998.

**    Incorporated by reference from Amendment No. 1 to Registration Statement
      on Form SB-2 of Transition Auto Finance II, Inc., Registration No.
      33-49261-D, filed June 19, 1998.

***   Incorporated by reference from Amendment No. 2 to Registration Statement
      on Form SB-2 of Transition Auto Finance II, Inc., Registration No.
      33-49261-D, filed July 9, 1998.

                                       17