<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, 2002

                                   ----------


                       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 [ ] 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 June 30, 2002, 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, 2002


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

         ITEM 1.  Financial Statements

              Balance Sheets......................................................................................3
                June 30, 2002 (Unaudited) and December 31, 2001

              Statements of Income (Unaudited)....................................................................5
                Quarter and six months ended June 30, 2002 and June 30, 2001

              Statements of Cash Flows (Unaudited)................................................................6
                Six Months ended June 30, 2002 and June 30, 2001

              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.


                                       2
<PAGE>

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                        TRANSITION AUTO FINANCE II, INC.

                                 BALANCE SHEETS

                                     ASSETS

<Table>
<Caption>
                                                                                    6 months ended         FYE
                                                                                      6/30/2002         12/31/2001
                                                                                     (unaudited)       (See Note 1)
                                                                                    --------------     ------------
<S>                                                                                 <C>                <C>
CURRENT ASSETS
  Cash and cash equivalents                                                          $    193,812      $    263,633
  Accounts receivable                                                                     536,485           512,086
  Vehicles held for sale                                                                  381,640           170,306
  Other Assets                                                                                -0-             2,082
                                                                                     ------------      ------------
      Total Current Assets                                                              1,111,937           948,107
                                                                                     ------------      ------------

PROPERTY, at cost
  Vehicles leased                                                                       2,619,566         4,006,800
  Less accumulated depreciation                                                        (1,381,871)       (1,570,410)
                                                                                     ------------      ------------
      Net Property                                                                      1,237,695         2,436,390
                                                                                     ------------      ------------

OTHER ASSETS
  Debt issuance costs, net of amortization of $1,118,932 and $962,153                         -0-           156,779
  Due from an affiliate                                                                    89,813            52,255
                                                                                     ------------      ------------
       Total other assets                                                                  89,813           209,034
                                                                                     ------------      ------------

TOTAL ASSETS                                                                         $  2,439,445      $  3,593,531
                                                                                     ============      ============
</Table>



                                       3
<PAGE>
                        TRANSITION AUTO FINANCE II, INC.

                           BALANCE SHEETS (Continued)

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<Table>
<Caption>
                                                                                    6 Months Ended         FYE
                                                                                      6/30/2002         12/31/2001
                                                                                     (Unaudited)       (See Note 1)
                                                                                    --------------     ------------
<S>                                                                                 <C>                <C>
CURRENT LIABILITIES
  Accrued liabilities                                                                $      6,852      $     72,603
  Investor notes payable                                                                6,280,000         6,736,000
  Current portion of deferred revenue                                                      85,957           196,932
                                                                                     ------------      ------------
        Total Current Liabilities                                                       6,372,809         7,005,535
                                                                                     ------------      ------------

OTHER LIABILITIES
  Due to affiliate                                                                          3,566           116,804
  Deferred revenue                                                                         59,921            84,432
                                                                                     ------------      ------------
        Total Other Liabilities                                                            63,487           201,236
                                                                                     ------------      ------------

TOTAL LIABILITIES                                                                       6,346,296         7,206,771
                                                                                     ------------      ------------

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)                                                         (4,369,181)       (3,985,570)
                                                                                     ------------      ------------
        Total Stockholders' Equity (Deficit)                                           (4,368,181)       (3,984,570)
                                                                                     ------------      ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT)                                                                         $  2,439,445      $  3,593,531
                                                                                     ============      ============
</Table>

Note 1: The balance sheet at December 31, 2001, 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, 2002      June 30, 2002    June 30, 2001      June 30, 2001
                                                 -------------   ----------------    -------------   ----------------
<S>                                              <C>            <C>                  <C>            <C>

REVENUES
  Vehicle monthly lease payments                  $    197,856      $    447,596      $    401,607      $    939,290
   Amortization of down payments                        68,416           150,263           189,390           422,761
                                                  ------------      ------------      ------------      ------------
        Total Revenues                                 266,272           597,859           590,997         1,362,051
                                                  ------------      ------------      ------------      ------------

OPERATING EXPENSES
  Operating costs                                       12,022            33,484           (17,413)           (8,287)
  General and administrative                            24,709            53,612            34,619            48,170
  Depreciation and amortization                        203,765           434,129           343,214           727,619
  Impairment loss                                          -0-               -0-               -0-               -0-
                                                  ------------      ------------      ------------      ------------
        Total Operating Expenses                       240,496           521,225           360,420           767,502
                                                  ------------      ------------      ------------      ------------
Operating Income (Loss)                                 25,776            76,634           230,577           594,549
                                                  ------------      ------------      ------------      ------------


OTHER INCOME (EXPENSE)

Investment income                                           75               228             1,334             2,801
Other income (expense)                                      26                65                43                95
Interest expense                                      (117,609)         (301,602)         (223,410)         (475,883)
Loss on sale of inventory                              (44,917)         (158,937)         (126,837)         (247,402)
                                                  ------------      ------------      ------------      ------------
        Total Other Income (Expense)                  (162,425)         (460,246)         (348,870)         (720,389)
                                                  ------------      ------------      ------------      ------------

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

Net Loss                                          $   (136,649)     $   (383,612)     $   (118,293)     $   (125,840)
                                                  ============      ============      ============      ============

Profit (Loss) per share (basic and diluted)       $    (136.65)     $    (383.61)     $    (118.29)     $    (125.84)
</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, 2002      June 30, 2001
                                                                      --------------     --------------
<S>                                                                   <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                               $   (383,612)     $   (125,840)
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization                                          434,129           727,619
     Amortization of down payments                                         (150,263)         (422,761)
     Impairment loss                                                            -0-               -0-
     Provision for allowance for doubtful accounts                              -0-               -0-
     (Gain) loss on sale of property                                        158,937           247,402
Net changes in operating assets and liabilities:
     Accounts receivable                                                    (24,399)          135,947
     Other Assets                                                             2,082               -0-
     Accrued liabilities                                                    (65,752)          (79,179)
     Deferred revenue                                                        14,777           (41,049)
                                                                       ------------      ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                            (14,101)          442,139

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets                                                    (800)              -0-
   Cash proceeds from sale of property                                      476,760         1,300,580
                                                                       ------------      ------------
NET CASH (USED) BY INVESTING ACTIVITIES                                     475,960         1,300,580
                                                                       ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from issuance of common stock                                       -0-               -0-
   Net advances (payments) to affiliates                                    (75,680)          (43,410)
   Debt issuance costs                                                          -0-               -0-
   Proceeds from notes payable                                                  -0-               -0-
   Payments of Notes Payable                                               (456,000)       (1,699,000)
                                                                       ------------      ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                  (531,680)       (1,742,410)
                                                                       ------------      ------------
NET INCREASE (DECREASE) IN CASH                                             (69,821)              309

CASH AND CASH EQUIVALENTS, beginning of period                              263,633      $    446,662
                                                                       ============      ============

CASH AND CASH EQUIVALENTS, end of period                               $    193,812      $    446,971
                                                                       ============      ============

CASH PAID DURING THE YEAR FOR
   Interest                                                            $    363,348      $    490,370
                                                                       ============      ============
   Income taxes                                                        $        -0-      $        -0-
</Table>

NON-CASH INVESTING ACTIVITIES

Vehicle purchases during the three months ended June 30, 2002 with a net book
value of $216,484 were reclassified from vehicles leased to vehicles held for
sale.

Vehicles purchased during the six months ended June 30, 2001 with a net book
value of $245,298 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
                                   (Unaudited)

                                  JUNE 30, 2002

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 these 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)

                                  JUNE 30, 2002


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.

                  The Company adopted Financial Accounting Standards Board
                  issued Statement No. 121, Accounting for the Impairment of
                  Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
                  which requires impairment losses to be recorded on long-lived
                  assets used in operations when indicators of impairment are
                  present. No impairment has been recorded in these financial
                  statements.

         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)

                                  JUNE 30, 2002


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.

         ACCOUNTING PRONOUNCEMENTS

                  During 2001, the Financial Accounting Standards Board (FASB)
                  issued SFAS No. 143, "Accounting for Asset Retirement
                  Obligations," which is effective for financial statements
                  issued for fiscal years beginning after June 15, 2002. The
                  pronouncement addresses the recognition and re-measurement of
                  obligations associated with the retirement of tangible
                  long-lived assets. In 2001, the FASB issued SFAS No. 144,
                  "Accounting for the Impairment of Disposal of Long-Lived
                  Assets," which is effective for financial statements issued
                  for fiscal years beginning after December 15, 2001. SFAS No.
                  144 supersedes SFAS No. 121, "Accounting for the Impairment of
                  Long-Lived Assets and for Long-Lived Assets to be Disposed
                  Of," and applies to all long-lived assets (including
                  discontinued operations). The Company does not expect these
                  standards to have a material impact on future financial
                  statements or results of operations.

NOTE 3:  INVESTOR NOTES PAYABLE

         The Company has issued fixed rate redeemable asset-backed notes
         (Investor Notes) as of December 1999 in the amount of $10,000,000.
         During the second quarter ended June 30, 2002, approximately $319,000
         was repaid to investors. The remaining balance as of June 30, 2002 was
         $6,280,000.



                                       9
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                  JUNE 30, 2002


         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.

         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. The Company
         estimates that its remaining lease portfolio will generate
         approximately $1,500,000 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.

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, 2001 and 2000
         (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 $5,400,000 and $1,450,000 for the year ended December 31,
         2001 and the year ended December 31, 2000, respectively. The Company's
         NOL carry forward expires between December 31, 2013 and December 31,
         2021.



                                       10
<PAGE>

                        TRANSITION AUTO FINANCE II, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                  JUNE 30, 2002


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. For the six month
         period ending June 30, 2002, the Company paid TLMI $26,268 for these
         fees and owes TLMI another $3,566.

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.

NOTE 7:  GOING CONCERN

         The accompanying consolidated 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 TAF II has substantial
         investor notes payable in 2002. Management of TAF II intends to attempt
         to continue leasing vehicles, raise additional capital and or secure
         additional financing in order to continue repayment of the investor
         notes payable. Management recognizes that full repayment may take
         several years to complete and that full repayment may not occur. This
         situation raises substantial doubt about TAF II's ability to continue
         as a going concern. TLMI and its other subsidiaries in the consolidated
         group are not responsible or obligated to repay any investor notes
         payable that TAF II cannot repay.



                                       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, 2002. The balance sheet at December 31, 2001, 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, 2002, compared to three
months ended June 30, 2001

         For the three months ended June 30, 2002 the company had received
monthly contract lease payments of $197,856 and amortization of down payments of
$68,416. For the same period in 2001, the Company had contract lease income of
$401,607 and amortization of down payments of $189,390. The drop in monthly
contract lease payments of $203,751 for the three month period ended June, 30,
2002, compared to the same period in 2001, was the result of a decline in the
number of active leases due to increased repossessions, early terminations and
matured leases. Until the economy improves, the company believes that increased
levels of repossessions will continue.

         Operating costs including general and administrative expenses were
$36,731 for the second quarter of 2002 compared to $17,206 for the same period
in 2001.

         Depreciation and amortization was $203,765 for the three months ended
June 30, 2002, compared to $343,214 for the same period in 2001. The decline of
$139,449, for the second quarter of 2002 was due to fewer active leases, the
result of repossessions, early terminations and matured leases.

         Interest expense for the three months ended June 30, 2002, was $117,609
compared to $223,410 for the same period in 2001. The reduction in interest
expense for the second quarter of 2002 was due to a reduction in Notes
outstanding at June 30, 2002, compared to the same period in 2001.

         Loss on sale of inventory for the second quarter of 2002 was $44,917
compared to a loss of $126,837 for the same period in 2001. Loss on sale of
inventory occurs when the book value of the asset exceeds the market value of
the repossessed vehicle. This change is primarily the result of fewer units
being sold during 2002.

         The net loss for the second quarter ended June 30, 2002 was $136,649
compared to a loss of $118,293 for the same period in 2001. The nominal change
in the loss is primarily the results of an increase in operating cost as a
percent of revenue from 2001 to 2002.

Results of Operations: Six-month period ended June 30, 2002 compared to six
months ended June 30, 2001

         Total revenue for the six months ended June 30, 2002 was $597,859
compared to $1,362,051 for the same period in 2001. The decrease in revenue for
the 2002 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 $87,096 for the six-month period
ended June 30, 2002 compared to $39,883 for the same period in 2001. The
increase in operating costs in 2002 was primarily the additional costs incurred
in collections and repossessions and negative operating cost in 2001, which was
the result of a returned insurance check that had been booked in a prior period.

         Depreciation and amortization for the six months ended June 30, 2002
was $434,129, compared to $727,619 for the same period in 2001. The decrease in
depreciation for the 2002 period was due to a smaller portfolio of leases.

         Interest expense for the six months ended June 30, 2002 was $301,602
compared to $475,883 for the same period in 2001. The decrease in interest
expense of $174,281 was due to a reduction of notes outstanding at June 30, 2002
compared to the same period in 2001.



                                       12
<PAGE>

         Loss on sale of inventory for the six month ended June 30, 2002 was
$158,937 compared to $247,402 loss for the same period in 2001. The decrease of
$88,465 for the second quarter of 2002 was the result of an improvement of used
car prices.

         The Company had a loss of $383,612 for the six months ended June 30,
2002 compared to a loss of $125,840 for the same period in 2001. The increased
loss of $257,772 was primarily due to a lack of funds to invest in new leases,
which caused total revenues to be down substantially while expenses as a percent
of revenues increased from 56% to 87% during the six months ended June 30, 2001
and 2002 respectively.

         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. The Company estimates that its remaining
lease portfolio will generate approximately $1,500,000 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 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 was not, by itself, 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 is working on a plan that would extend the maturity of the
notes and the reinvestment period, and lower the interest rate. The effect of
these changes should increase the ultimate amount of funds that will be repaid
on the notes. This plan, if submitted to note-holders, is unlikely to be
approved since the indenture requires that these modifications would have to be
approved by 100% of the note-holders.

Liquidity and Capital Resources

         During the six months ended June 30, 2002 the Company used cash of
$475,960 in its investing activities from the sale of property and used $531,680
in its financing activities. For the same period in 2001, the Company utilized
cash of $1,300,580 in its investing activities and used $1,742,410 in its
financing activities. For the six months ended June 30, 2002, the Company
purchased no additional vehicles and reduced its notes payable by $456,000. For
the same period in 2001, the Company reduced its notes payable by $1,699,000

         The Company's portfolio, which consisted of 436 leases, included 321
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
                       # of       Gross Cost        Misc.          Total          Down           Sale         Sales Tax
                    Contracts     Of Vehicle      Expenses       Payments        Payment        Amount         Credit
                   -----------    -----------    -----------    -----------    -----------    -----------    -----------
<S>                <C>            <C>            <C>            <C>            <C>            <C>            <C>
Repossession               193    $ 4,543,566    $   110,060    $ 2,008,139    $   893,704    $ 2,090,867    $    96,352
Early Payoff               128    $ 2,834,405    $     3,944    $ 1,381,103    $   597,681    $ 1,913,719    $    92,819
                   -----------    -----------    -----------    -----------    -----------    -----------    -----------
Total                      321    $ 7,377,971    $   114,004    $ 3,389,242    $ 1,491,385    $ 4,004,586    $   189,171

<Caption>
                                                   Total
                    Warranty       Marketing       Amount          Profit
                     Rebate        Fee Paid       Received         (Loss)
                   -----------    -----------    -----------    -----------
<S>                <C>            <C>            <C>            <C>
Repossession       $    40,163    $   495,548    $ 4,633,677    $   (19,949)
Early Payoff       $    15,805    $   326,734    $ 3,674,394    $   836,046
                   -----------    -----------    -----------    -----------
Total              $    55,968    $   822,282    $ 8,308,071    $   816,097
</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 2002.

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-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 six months ended June 30,
2002



                                       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:       9/19/02                         /s/ KENNETH C. LOWE
     ----------------------          ---------------------------------------
                                         Kenneth C. Lowe, President/
                                         Chief Executive Officer


Date:       9/19/02                         /s/ KENNETH C. LOWE
     ----------------------          ---------------------------------------
                                         Kenneth C. Lowe, President/
                                         Chief Operating Officer


Date:       9/19/02                         /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.
                         **

   99.1                  Certification of Reporting Officer
</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