<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 JUNE 30, 2004

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


                       Commission file number: 33-49261-D

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

<TABLE>
<S>                                               <C>
                 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)
</TABLE>

                   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 June 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 JUNE 30, 2004


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

    ITEM 1. Financial Statements

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

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

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

            Notes to 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 ................................................        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 ................................................        14

    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>
                                                                   6 months ended         FYE
                                                                      6/30/2004        12/31/2003
                                                                     (unaudited)      (See Note 1)
                                                                      ---------       ------------
<S>                                                                <C>                <C>
CURRENT ASSETS
  Cash and cash equivalents ......................................    $ 173,524          $ 225,140
  Accounts receivable, net of $107,000 and $107,000 respectively .      264,009            266,767
  Vehicles held for sale .........................................            0             10,598
  Other Assets ...................................................        9,319              9,689
                                                                      ---------          ---------
      Total Current Assets .......................................      446,852            512,194
                                                                      ---------          ---------

PROPERTY, at cost
  Vehicles leased ................................................      160,355            380,584
  Less accumulated depreciation ..................................     (115,844)          (252,634)
                                                                      ---------          ---------
      Net Property ...............................................       44,511            127,950
                                                                      ---------          ---------

OTHER ASSETS
 Due from an affiliate ...........................................          -0-                -0-
                                                                      ---------          ---------
       Total other assets ........................................          -0-          $       0
                                                                      ---------          =========


TOTAL ASSETS                                                          $ 491,363          $ 640,144
                                                                      =========          =========
</TABLE>


                                       3
<PAGE>
                        TRANSITION AUTO FINANCE II, INC.

                           BALANCE SHEETS (Continued)

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                 6 Months Ended          FYE
                                                    6/30/2004         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 ............................         12,997            14,164
                                                   -----------       -----------
        Total Current Liabilities .............      4,974,197         5,118,824
                                                   -----------       -----------
OTHER LIABILITIES
  Due to affiliate ............................         63,542            61,553
                                                   -----------       -----------
      Total Other Liabilities .................         63,542            61,553
                                                   -----------       -----------
TOTAL LIABILITIES                                    5,037,739         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) ................     (4,918,706)       (4,912,563)
                                                   -----------       -----------
       Total Stockholders' Equity (Deficit) ...     (4,917,706)       (4,911,563)
                                                   -----------       -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT) ..................................    $   491,363       $   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    Six Months Ended     Quarter Ended   Six Months Ended
                                               June 30, 2004      June 30, 2004      June 30, 2003     June 30, 2003
                                               -------------      -------------      -------------     -------------
<S>                                            <C>              <C>                  <C>             <C>
REVENUES
  Vehicle monthly lease payments                 $  12,682          $  36,726          $  66,724          $ 153,928
  Amortization of down payments                        187                939              9,946             30,668
                                                 ---------          ---------          ---------          ---------
    Total Revenues                                  12,869             37,665             76,670            184,596
                                                 ---------          ---------          ---------          ---------
OPERATING EXPENSES
  Operating costs                                      686              1,746              4,150             11,345
  General and administrative                         4,765             24,657             26,400             48,534
  Depreciation and amortization                      8,089             20,466             41,332             95,315
                                                 ---------          ---------          ---------          ---------
    Total Operating Expenses                        13,540             46,869             71,882            155,194
                                                 ---------          ---------          ---------          ---------
Operating Income (Loss)                               (671)             4,788             (9,204)            29,402
                                                 ---------          ---------          ---------          ---------
OTHER INCOME (EXPENSE)
Investment income                                       39                140                514              1,286
Other income (expense)                                   3                  3                  4                 17
Interest expense                                       -0-                -0-                -0-                -0-
Gain (Loss) on sale of inventory                     6,613              2,918            (24,668)           (63,100)
                                                 ---------          ---------          ---------          ---------
    Total Other Income (Expense)                     6,655              3,061            (24,150)           (61,797)
                                                 ---------          ---------          ---------          ---------
Provision for Federal Income Taxes                     -0-                -0-                -0-                -0-
                                                 ---------          ---------          ---------          ---------
Net Income (Loss)                                $   5,984          $  (6,143)         $ (19,362)         $ (32,395)
                                                 =========          =========          =========          =========
Profit (Loss) per share (basic and diluted)      $    5.98          $   (6.14)         $($19.36)          $  (32.40)
</TABLE>


See accompanying notes to financial statements.


                                       5
<PAGE>
                        TRANSITION AUTO FINANCE II, INC.

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              6 Months Ended     6 Months Ended
                                                              June 30, 2004      June 30, 2003
                                                              -------------      -------------
<S>                                                           <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ....................................................    $  (6,143)         $ (32,395)
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization ..........................       20,466             95,315
     Amortization of down payments ..........................         (939)           (30,668)
     Provision for allowance for doubtful accounts ..........          -0-                -0-
     (Gain) loss on sale of property ........................       (2,918)             2,579
Net changes in operating assets and liabilities:
     Accounts receivable ....................................        2,758               (518)
     Other Assets ...........................................          370                510
     Accrued liabilities ....................................      (17,860)              (127)
     Deferred revenue .......................................         (228)           (31,269)
                                                                 ---------          ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ............       (4,494)            66,527

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets .................................          -0-                -0-
   Cash proceeds from sale of property ......................       76,489            232,340
                                                                 ---------          ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES ............       76,489            232,340

CASH FLOWS FROM FINANCING ACTIVITIES
   Net advances (payments) to affiliates ....................        1,989             21,145
   Payments of notes payable ................................     (125,600)          (502,400)
                                                                 ---------          ---------
NET CASH (USED) BY FINANCING ACTIVITIES .....................     (123,611)          (481,255)
                                                                 ---------          ---------

NET INCREASE (DECREASE) IN CASH .............................      (51,616)          (182,388)

CASH AND CASH EQUIVALENTS, beginning of period ..............      225,140            573,137
                                                                 ---------          ---------

CASH AND CASH EQUIVALENTS, end of period ....................    $ 173,524          $ 390,749
                                                                 =========          =========

CASH PAID DURING THE YEAR FOR
   Interest .................................................    $     -0-          $     -0-
   Income taxes .............................................    $     -0-          $     -0-
</TABLE>

NON-CASH INVESTING ACTIVITIES

Vehicle with a net book value of $15,050 were reclassified from vehicles held
for sale to vehicles leased as of June 30, 2003.

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 June 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 second Quarter ended June 30, 2004,
            approximately $0 was repaid to investors. The remaining balance as
            of June 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 June 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 $17,950 accrued as payable to TLMI in 2003 for
            servicing, documentation and marketing fees. The Company also has a
            payable to TLMI for $63,542 as of June 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
six-month period ended June 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.

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

      For the three months ended June 30, 2004 the company had received monthly
contract lease payments of $12,682 and amortization of down payments of $187.
For the same period in 2003, the Company had contract lease income of $66,724
and amortization of down payments of $9,946. The drop in monthly contract lease
payments for the three month period ended June, 30, 2004, compared to the same
period in 2003, was the result of a decline in the number of active leases due
to repossessions, early terminations and matured leases.

      Operating costs including general and administrative expenses were $5,451
for the second quarter of 2004 compared to $30,550 for the same period in 2003.

      Depreciation and amortization was $8,089 for the three months ended June
30, 2004, compared to $41,332 for the same period in 2003. The decline of
$33,243, for the second quarter of 2004 was due to fewer active leases, the
result of repossessions, early terminations and matured leases.

      Interest expense for the three months ended June 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.

      Gain on sale of inventory for the second quarter of 2004 was a $6,613,
which was the result of one repossession and one early pay off, compared to a
loss of $24,668 for the same period in 2003. The loss in the 2003 period was
comprised of four repossessions and one early payoff. Loss on sale of inventory
occurs when the book value of the asset exceeds the market value of the
repossessed vehicle.

      The net income for the second quarter ended June 30, 2004 was $5,984
compared to a loss of $19,362 for the same period in 2003. The profit for the
2004 period was primarily the results of a decrease in operating costs and
depreciation.

Results of Operations: Six- month period ended June 30, 2004 compared to six
months ended June 30, 2003.

      Total revenue for the six months ended June 30, 2004 was $37,665 compared
to $184,596 for the same period in 2003. The decrease in revenue for the 2004
period was the result of fewer leases on the books resulting in lower monthly
payments and amortization of down payments.

      Operating costs and expenses were $26,403 for the six-month period ended
June 30, 2004, compared to $59,879 for the same period in 2003. The decrease in
operating costs in 2004 was primarily the result of fewer active leases in the
2004 period and the lower costs of servicing those leases.

      Depreciation and amortization for the six months ended June 30, 2004 was
$20,466 compared to $95,315 for the same period in 2003. The decrease in
depreciation for the 2004 period was due to a smaller portfolio of leases and
the lower costs of servicing that portfolio.

      Interest expense for the six months ended June 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 interest is no longer paid or accrued.


                                       12
<PAGE>
      Gain on sale of inventory for the six month ended June 30, 2004 was $2,918
compared to a $63,100 loss for the same period in 2003. The profit for the 2004
period was the result of a smaller portfolio of leases and a stronger used
vehicle market for the 2004 period.

      The Company had a loss of $6,143 for the six months ended June 30, 2004
compared to a loss of $32,395 for the same period in 2003. The decreased loss
for the 2004 period was primarily the reduction in expenses and depreciation for
2004 which was brought about by the smaller portfolio in the 2004 period.

      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 is comprised of $3,338,413 in interest and
$3,720,000 of principal. As of June 30, 2004 the total amount paid to
note-holders was $8,377,213. The Company estimates that its remaining lease
portfolio will generate approximately $126,644 in additional funds. The exact
amount of additional funds is indeterminable since the number of leases that
will go to term is unknown at this time. The trustee currently holds $102,091 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.

      Management does not expect inflation to have a material impact on revenue.


Liquidity and Capital Resources

      During the six months ended June 30, 2004 the Company provided cash of
$76,489 in its investing activities from the sale of property and used $123,611
in its financing activities. For the same period in 2003, the Company provided
cash of $232,340 in its investing activities and used $481,255 in its financing
activities.

      The Company's portfolio, which consisted of 478 leases, included 389
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        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


                                       13
<PAGE>
      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.

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 Second quarter of 2004.

ITEM 5. OTHER INFORMATION

None


                                       14
<PAGE>
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 six months ended June 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: August 6, 2004                    /s/
                                 -----------------------------------------------
                                           Kenneth C. Lowe, President/
                                             Chief Executive Officer


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


Date: August 6, 2004                    /s/
                                 -----------------------------------------------
                                           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