<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 MARCH 31, 1999

                                   ----------

                       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)

        5422 ALPHA RD., SUITE 100,
              DALLAS, TEXAS                                      75240
(Address of principal executive offices)                       (Zip code)

         Issuer's telephone number, including area code: (972) 404-0042

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 | |  No |X|

State the number of shares outstanding of each of the issuer's classes of Common
equity, as of the latest practicable date: As of March 31, 1999, 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 MARCH 31, 1999
<TABLE>
<CAPTION>

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

         ITEM 1.  Financial Statements

                  Balance Sheets...............................................................................      3
                    March 31, 1999 (Unaudited) and December 31, 1998

                  Statements of Income (Unaudited).............................................................      5
                    Three months ended March 31, 1999

                  Statements of Cash Flows (Unaudited).........................................................      6
                    Three months ended March 31, 1999

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

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

PART II. OTHER INFORMATION

         ITEM 1.  Legal Proceedings............................................................................     13

         ITEM 2.  Changes in Securities and Use of Proceeds....................................................     13

         ITEM 3.  Defaults Upon Senior Securities..............................................................     13

         ITEM 4.  Submission of Matters to a Vote of Security Holders..........................................     13

         ITEM 5.  Other Information............................................................................     13

         ITEM 6.  Exhibits and Reports on Form 8-K.............................................................     13

         Signatures............................................................................................     14
</TABLE>

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


                                       2
<PAGE>

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                        TRANSITION AUTO FINANCE II, INC.

                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>

                                                                       3 months ended         FYE
                                                                         3/31/1999         12/31/1998
                                                                        (unaudited)       (See Note 1)
                                                                       --------------     ------------
<S>                                                                    <C>                <C>
CURRENT ASSETS
  Cash and cash equivalents                                             $ 3,057,328       $ 3,227,839
  Accounts receivable                                                           -0-               -0-
  Vehicles held for sale                                                    142,542           142,542
                                                                        -----------       -----------
      Total Current Assets                                                3,199,870         3,370,381
                                                                        -----------       -----------
PROPERTY, at cost
  Vehicles leased                                                         4,200,222           950,236
  Less accumulated depreciation                                            (196,828)          (40,813)
                                                                        -----------       -----------
      Net Property                                                        4,003,394           909,423
                                                                        -----------       -----------
OTHER ASSETS
  Debt issuance costs, net of amortization of $113,977 and $67,587          732,334           473,112
                                                                        -----------       -----------
TOTAL ASSETS                                                            $ 7,935,598       $ 4,752,916
                                                                        ===========       ===========
</TABLE>


                                       3
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                           BALANCE SHEETS (Continued)

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                               FYE
                                                              3 Months Ended                12/31/1998
                                                                 3/31/1999                 ------------
                                                                (Unaudited)                (See Note 1)
                                                              --------------               ------------
<S>                                                            <C>                         <C>
CURRENT LIABILITIES
  Accrued liabilities                                          $     75,524                $    43,817
  Current portion of deferred revenue                                94,993                        -0-
                                                               ------------                -----------
        Total Current Liabilities                                   170,517                     43,817
                                                               ------------                -----------

OTHER LIABILITIES
  Due to affiliate                                                  (45,219)                    84,627
  Deferred revenue                                                  136,698                    157,548
  Investor notes payable                                          8,239,000                  4,780,000
                                                               ------------                -----------
      Total Other Liabilities                                     8,330,479                  5,022,175
                                                               ------------                -----------

TOTAL LIABILITIES                                                 8,500,996                  5,065,992
                                                               ------------                -----------

SUBORDINATED DEBT TO AFFILIATE                                          -0-                        -0-
                                                               ------------                -----------

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)                                     (566,398)                  (314,076)
                                                               ------------                -----------
    Total Stockholders' Equity (Deficit)                           (565,398)                  (313,076)
                                                               ------------                -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT)                                                   $  7,935,598                $ 4,752,916
                                                               ============                ===========
</TABLE>

Note 1: The balance sheet at December 31, 1998, as presented, is derived from
the audited financial statements at that date.


                                       4
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                               STATEMENT OF INCOME

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 3 Months Ended
                                                                 March 31, 1999
                                                                 --------------
<S>                                                              <C>
REVENUES
  Vehicle monthly lease payments                                    $ 163,012
   Amortization of down payments                                       16,852
                                                                    ---------
        Total Revenues                                                179,864
                                                                    ---------

OPERATING EXPENSES
  Operating costs                                                      51,703
  General and administrative                                            3,680
  Depreciation and amortization                                       203,738
  Impairment loss                                                         -0-
                                                                    ---------
        Total Operating Expenses                                      259,121
                                                                    ---------

Operating Income (Loss)                                               (79,257)
                                                                    ---------

OTHER INCOME (EXPENSE)
Investment income                                                       1,720
Other expense                                                             -0-
Interest expense                                                     (174,785)
Loss on sale of inventory                                                 -0-
                                                                    ---------
        Total Other Income (Expense)                                 (173,065)
                                                                    ---------
Provision for Federal Income Taxes                                        -0-
                                                                    ---------
Net Loss                                                            $(252,322)
                                                                    =========

Loss per share (basic and diluted)                                  $  252.32
</TABLE>


                                       5
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                             STATEMENT OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                 3 Months Ended
                                                                 March 31, 1999
                                                                 --------------
<S>                                                              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                            $  (252,322)
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization                                      203,738
     Amortization of down payments                                      (16,852)
     Impairment loss                                                        -0-
     Provision for allowance for doubtful accounts                          -0-
     (Gain) loss on sale of property                                        -0-
Net changes in operating assets and liabilities:
     Accounts receivable                                                    -0-
     Accrued liabilities                                                 31,707
     Deferred revenue                                                    90,995
                                                                    -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                         57,266
                                                                    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets                                          (3,276,319)
   Cash proceeds from sale of property                                   25,000
                                                                    -----------
NET CASH (USED) BY INVESTING ACTIVITIES                              (3,251,319)
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from issuance of common stock                                   -0-
   Net advances (payments) to affiliates                               (129,846)
   Debt issuance costs                                                 (305,612)
   Proceeds from notes payable                                        3,459,000
                                                                    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                             3,023,542
                                                                    -----------

NET INCREASE (DECREASE) IN CASH                                        (170,511)

CASH AND CASH EQUIVALENTS, beginning of period                        3,227,839
                                                                    -----------

CASH AND CASH EQUIVALENTS, end of period                            $ 3,057,328
                                                                    ===========
CASH PAID DURING THE YEAR FOR
   Interest                                                         $   143,158
                                                                    ===========
   Income taxes                                                     $       -0-
                                                                    ===========
</TABLE>


                                       6
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                 MARCH 31, 1999

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 a 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 on
                  cash and cash equivalents.

            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.

            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 book value or market
                  value. Generally these vehicles will be sold at auction by the
                  Company.


                                       7
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                 MARCH 31, 1999

NOTE 2:     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

            EQUIPMENT AND LEASED VEHICLES

                  Equipment and leased vehicles 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 mature on June 30, 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.

            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.


                                       8
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                 MARCH 31, 1999

NOTE  2:    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

            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) as follows:

<TABLE>
<S>                                                  <C>
                           1999 (YTD)                $3,459,000
                           1998                       4,780,000
                                                     ----------
                                                     $8,239,000
                                                     ==========
</TABLE>

            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.


                                       9
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                 MARCH 31, 1999


NOTE 3:     INVESTOR NOTES PAYABLE (CONTINUED)

            The following table represents Investor Notes outstanding at March
            31, 1999:

<TABLE>
<CAPTION>
                 Origination Date              Number of Notes      Note Amount
                 ----------------              ---------------      -----------
<S>                                            <C>                  <C>
                   July 1998                         44             $  493,000
                   August 1998                      154              1,564,000
                   September 1998                    65                474,000
                   October 1998                      65                717,000
                   November 1998                    141              1,129,000
                   December 1998                     37                403,000
                   January 1999                      48                551,000
                   February 1999                     58                837,000
                   March 1999                       164              2,071,000
                         Totals                     775             $8,239,000
                                                    ===             ==========
</TABLE>

NOTE 4:     INCOME TAXES

            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 as of December 31, 1998
            (primarily from net operating loss carryforward), which has been
            completely offset by recognition of a valuation allowance.

            The Company has a net operating loss (NOL) carryforward of
            approximately $260,000 for the year ended December 31, 1998. The
            Company's NOL carryforward expires between December 31, 2011 and
            December 31, 2018.


                                       10
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                 MARCH 31, 1999

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.


                                       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 March
30, 1999. The Company had no active operations for the comparable periods in
1998. The balance sheet at December 31, 1998, as presented, is derived from the
audited financial statements at that date.

General.

      As of March 31,1999, the Company had sold $8,239,000 of its 11% Redeemable
Secured Notes and had originated a total of 62 leases at a cost of approximately
$1,328,748. In February of 1999 the Company also purchased 116 lease contracts
from Transition Auto Finance, Inc. for $2,883,000.

Results of Operations: Three months ended March 31, 1999

      For the three months ended March 31, 1999, the company had received
monthly contract lease payments of $163,012 and amortization of down payments of
$16,852.

      Operating costs including general and administrative expenses were $55,383
for the first quarter of 1999.

      Depreciation and amortization was $203,738 for the three months ended
March 31, 1999.

      Interest expense for the three months ended March 31, 1999, was $174,785.

      There was no loss on sale of inventory for the first quarter of 1999. 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 first quarter ended March 31, 1999, was $252,322.

Liquidity and Capital Resources

      During the three months ended March 31, 1999, the Company used cash of
$3,251,319 in its investing activities and received cash of $3,023,542 in its
financing activities.

      The Company's only source of liquidity in the future will be from the sale
of notes and its monthly lease payments after interest and other allowed
expenses.

      The Company's portfolio, which consisted of 178 leases, included 4 leases
which resulted in early terminations. 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      4       $75,284     $2,160   $15,941   $12,995    $45,100    $2,819     $1,052     $7,472    $70,435   ($7,008)
                  -       -------     ------   -------   -------    -------    ------     ------     ------    -------    ------
Early Payoff      0       $     0     $    0   $     0   $     0    $     0    $    0     $    0     $    0    $     0    $    0
                  -       -------     ------   -------   -------    -------    ------     ------     ------    -------    ------
Total             4       $75,284     $2,160   $15,941   $12,995    $45,100    $2,819     $1,052     $7,472    $70,435   ($7,008)
</TABLE>

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

      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 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.


                                       12
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      The Company is not a party to any material legal proceedings, and no
material legal proceedings have been threatened by or, to the best of the
Company's knowledge, instituted against the Company.

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

None

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 first quarter of 1999.

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-KSB:

            The Index to Financial Statements is set out in Item 7 herein.

      Exhibits

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

            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 three months ended March 31,
1999


                                       13
<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: March 19, 2002                           /s/ KENNETH C. LOWE
      ---------------------------         --------------------------------------
                                                   Kenneth C. Lowe, President/
                                                   Chief Executive Officer


Date: March 19, 2002                           /s/ KENNETH C. LOWE
      ---------------------------         --------------------------------------
                                                   Kenneth C. Lowe, President/
                                                   Chief Operating Officer


Date: March 19, 2002                           /s/ KENNETH C. LOWE
      ---------------------------         --------------------------------------
                                                   Kenneth C. Lowe, President/
                                                   Chief Financial Officer


                                       14
<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.**

</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.



                                       15