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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-22525

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

SIERRACITIES.COM INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 76-0438432
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

600 TRAVIS STREET
SUITE 7050
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 221-8822

Indicate by check mark 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 preceding 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 [ ]

The number of shares of the registrant's common stock outstanding on
August 1, 2000 was 19,048,640.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SIERRACITIES.COM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

JUNE 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)

Lease financing receivables, net ................................................. $ 924,106 $ 871,948
Cash and cash equivalents ........................................................ 28,646 57,083
Other receivables ................................................................ 8,666 7,613
Investment in trust certificates ................................................. 11,690 9,808
Marketable securities ............................................................ 2,406 3,460
Goodwill and other intangible assets, net ........................................ 42,250 43,500
Property and equipment, net ...................................................... 10,836 11,723
Other assets ..................................................................... 12,121 8,627
Current tax receivables .......................................................... 503 590
Deferred income tax asset ........................................................ 3,578 --
------------- -----------
Total assets ................................................................ $ 1,044,802 $ 1,014,352
============= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Debt:
Nonrecourse debt .............................................................. $ 810,650 $ 766,095
Other debt .................................................................... 24,972 27,425
Subordinated notes payable .................................................... 1,000 1,000
Other liabilities:
Accounts payable and accrued liabilities ...................................... 16,812 23,620
Holdback reserves payable ..................................................... 28,627 27,883
Accrued branch restructuring costs ............................................ 3,397 --
Deferred income taxes ......................................................... -- 375
------------- -----------
Total liabilities ........................................................... 885,458 846,398
------------- -----------

Redeemable preferred stock ....................................................... -- 70

Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 19,048,640
shares and 19,025,311 shares issued and outstanding, respectively ....... 190 190
Additional paid-in capital .................................................. 158,864 158,654
Retained earnings ........................................................... 1,579 9,147
Accumulated other comprehensive loss ........................................ (1,289) (107)
------------- -----------
Total stockholders' equity .................................................. 159,344 167,884
------------- -----------
Total liabilities and stockholders' equity .................................. $ 1,044,802 $ 1,014,352
============= ===========

The accompanying notes are an integral part of these condensed
consolidated financial statements.

1
3

SIERRACITIES.COM INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

FOR THE THREE MONTHS
ENDED JUNE 30,
--------------------------
2000 1999
----------- -----------

Gains from direct sales of lease financing receivables ........................... $ 957 $ 3,504
Interest income .................................................................. 23,941 17,154
Servicing income ................................................................. 2,091 1,956
Other income ..................................................................... 931 1,110
----------- -----------
Total revenues ................................................................ 27,920 23,724
----------- -----------

Salaries and benefits ............................................................ 5,115 5,791
Interest expense ................................................................. 14,374 8,945
Provision for credit losses on lease financing receivables ....................... 5,531 2,057
Depreciation and amortization .................................................... 1,636 1,299
Other general and administrative ................................................. 6,295 4,967
Bank application expenses ........................................................ 864 --
Branch restructuring charge ...................................................... 6,013 --
----------- -----------
Total expenses ................................................................ 39,828 23,059
----------- -----------

Income (loss) before provision (benefit) for income taxes ........................ (11,908) 665
Provision (benefit) for income taxes ............................................. (4,194) 413
----------- -----------
Net income (loss) ................................................................ $ (7,714) $ 252
=========== ===========
Earnings (loss) per common share, basic .......................................... $ (0.40) $ 0.02
=========== ===========
Earnings (loss) per common share, diluted ........................................ $ (0.40) $ 0.02
=========== ===========

The accompanying notes are an integral part of these condensed
consolidated financial statements.

2
4

SIERRACITIES.COM INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------------
2000 1999
----------- -----------

Gain on sale of lease financing receivables through securitization transactions .. $ 1,727 $ --
Gains from direct sales of lease financing receivables ........................... 3,301 6,674
Interest income .................................................................. 49,292 30,319
Servicing income ................................................................. 3,924 3,603
Other income ..................................................................... 2,327 2,496
----------- -----------
Total revenues ................................................................ 60,571 43,092
----------- -----------

Salaries and benefits ............................................................ 11,533 10,877
Interest expense ................................................................. 28,379 15,265
Provision for credit losses on lease financing receivables ....................... 10,455 4,144
Depreciation and amortization .................................................... 3,189 2,559
Other general and administrative ................................................. 11,720 9,294
Bank application expenses ........................................................ 864 --
Branch restructuring charge ...................................................... 6,013 --
----------- -----------
Total expenses ................................................................ 72,153 42,139
----------- -----------

Income (loss) before provision (benefit) for income taxes ........................ (11,582) 953
Provision (benefit) for income taxes ............................................. (4,014) 670
----------- -----------
Net income (loss) ................................................................ $ (7,568) $ 283
=========== ===========
Earnings (loss) per common share, basic .......................................... $ (0.40) $ 0.02
=========== ===========
Earnings (loss) per common share, diluted ........................................ $ (0.40) $ 0.02
=========== ===========

The accompanying notes are an integral part of these condensed
consolidated financial statements.

3
5

SIERRACITIES.COM INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------
2000 1999
---------- ----------

Cash Flows from Operations:
Net income (loss) ............................................................. $ (7,568) $ 283
Reconciliation of net income (loss) to cash provided by operations:
Depreciation and amortization ............................................. 3,189 2,559
Provision for credit losses on lease financing receivables ................ 10,455 4,144
Gain on sale of lease financing receivables ............................... (5,028) (6,674)
Funding of lease financing receivables, held for sale ..................... (111,035) (138,942)
Principal payments received on lease financing receivables, held for
sale..................................................................... 6,501 4,675
Proceeds from sales of lease financing receivables, net of trust
certificates and marketable securities retained, if any ................. 310,444 150,572
Deferred income taxes (credit) ............................................ (3,853) 280
Branch restructuring charge ............................................... 6,013 --
Bank application expenses ................................................. 864 --
Accumulated translation adjustments ....................................... (1,182) (384)
Changes in assets and liabilities, net of effects from acquisitions:
Decrease (increase) in other receivables ............................ (1,063) 6,851
Increase in other assets ............................................ (3,912) (1,145)
Increase (decrease) in accounts payable and accrued liabilities ..... (7,714) 5,148
Increase in holdback reserve payable ................................ 744 7,536
Increase in income taxes ............................................ 83 1,813
---------- ----------
Net Cash Provided by Operations ................................ 196,938 36,716
---------- ----------
Cash Flows from Investing Activities:
Funding of lease financing receivables, held for investment ............... (400,588) (392,003)
Principal payments received on lease financing receivables, held
for investment .......................................................... 148,253 53,936
Expenditures for property and equipment ................................... (2,935) (1,810)
Expenditures for acquisitions, including acquisition costs,
less cash acquired ...................................................... (12,347) (12,369)
---------- ----------
Net Cash Used in Investing Activities .......................... (267,617) (352,246)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from securitized warehouse facilities, net of repayments ......... 42,102 311,124
Proceeds from issuance of common stock, net and exercise of stock
options.................................................................. 140 68,408
---------- ----------
Net Cash Provided by Financing Activities ...................... 42,242 379,532
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents ............................. (28,437) 64,002
Cash and Cash Equivalents at January 1, .......................................... 57,083 7,928
---------- ----------
Cash and Cash Equivalents at June 30, ............................................ $ 28,646 $ 71,930
========== ==========

The accompanying notes are an integral part of these condensed
consolidated financial statements.

4
6

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. THE COMPANY

Organization

SierraCities.com Inc. ("SierraCities.com"), formerly First Sierra
Financial, Inc., is a leading provider of e-finance solutions for small
businesses. Through our Internet-based technology platform, we offer on-line
end-to-end business financing fulfillment solutions for specific equipment
purchases and for general corporate purposes. We were formed in June 1994 to
acquire, originate, sell and service equipment leases relating to a wide range
of equipment, including computers and peripherals, software, telecommunications
and diagnostic equipment as well as other specialized equipment for the
healthcare, automotive, food and hospitality industries. The equipment we
finance generally has a purchase price of less than $250,000, with an average of
approximately $30,000 for leases originated in 1999 and $31,000 for leases
originated during the first six months of 2000. We fund the acquisition or
origination of our leases from working capital or through our securitized
warehouse facilities. From time to time, depending on market conditions, we
securitize the leases in our portfolio that meet pre-established eligibility
criteria by packaging them into a pool and selling beneficial interests in the
leases through public offerings and private placement transactions.

Prior to July 1, 1998, we structured our securitization transactions to
meet the criteria for sales of lease financing receivables under generally
accepted accounting principles. Thus, for all securitizations completed prior to
such date, we recorded a gain on sale of lease financing receivables when the
receivables were included in a securitization. Effective as of July 1, 1998, we
made a strategic decision to alter the structure of our future securitization
transactions so as to retain leases acquired and originated on our balance sheet
as long-term investments rather than selling such leases through securitization
transactions. We also modified the structure of our securitized warehouse
facilities such that they would be considered debt under generally accepted
accounting principles. The primary effect from this move to emphasize portfolio
lending is a shift from the recognition of an immediate gain upon sale of the
lease receivables to the recognition of net interest margin over the lives of
the receivables. In the fourth quarter of 1999, we began to de-emphasize the
origination channels that generate lower return on equity and to reduce the
amount of lower yielding assets on our balance sheet, the objective of which is
to utilize our capital more effectively. In connection with this objective, in
March 2000, we completed the securitization sales process of certain lower
yielding Private Label assets which met the criteria for sales of lease
financing receivables under generally accepted accounting principles. Unlike
securitizations completed prior to July 1, 1998 in which we retain a trust
certificate interest in assets sold, for the gain on sale securitizations
completed in the fourth quarter 1999 and the Series 2000-1 completed in April
2000, we received 100% of the present value of the remaining scheduled payments
of the equipment leases securitized. We elected securitization as the sales
structure to reduce the amount of lower yielding assets on our balance sheet
since it provides us with the highest amount of sales proceeds and the most
efficient execution. We will continue to evaluate different structuring
alternatives including the possibility of reinstituting gain on sale accounting
in order to provide the best execution and operating results.

We acquire and originate leases primarily through our Private Label, Retail
and Captive Finance programs. Under the Private Label program, we are provided
protection from credit losses on defaulted leases through a first lien security
interest in the underlying equipment, recourse to the source of the lease (the
"Source"), which is generally supported by holdback reserves withheld from
amounts paid to the Source upon purchase of the lease, or a combination of the
above. Leases acquired through the Retail and Captive Finance programs are
originated through relationships with equipment vendors and individual lessees.
In addition, we have in the past generated, and may in the future generate,
income through the acquisition of lease portfolios and the subsequent sale of
such portfolios at a premium.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

All dollar amounts in the tabulations in the notes to the condensed
consolidated financial statements are stated in thousands unless otherwise
indicated. All dollar amounts included in the text are in whole dollars, unless
otherwise

5
7

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

indicated. Certain reclassifications have been made to the 1999 condensed
consolidated financial statements to conform with the 2000 presentation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
the rules and regulations of the Securities and Exchange Commission for interim
financial statements. Accordingly, the interim statements do not include all of
the information and disclosures required for annual financial statements. In the
opinion of our management, all adjustments (consisting solely of adjustments of
a normal recurring nature) necessary for a fair presentation of these interim
results have been included. All significant intercompany accounts and
transactions have been eliminated in consolidation. These condensed consolidated
financial statements and related notes should be read in conjunction with the
audited consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K. The results for the interim periods are not
necessarily indicative of the results to be expected for the entire year.

Gain on Sale of Lease Financing Receivables

Gain on sale of leases sold through securitization transactions is recorded
as the difference between the proceeds received from the sale of senior and
subordinated securities, net of related issuance expenses, and the cost basis of
the leases allocated to the securities sold. The cost basis of the leases is
allocated to the senior and subordinated securities, the trust certificate and
the servicing asset on a relative fair value basis on the date of sale. The fair
value of the senior and subordinated securities which have been sold is based on
the price at which such securities are sold through public issuances and private
placement transactions, while the fair market value of the trust certificate,
the subordinated securities which have been retained and the servicing asset is
based on our estimate of our fair value using a discounted cash flow approach.

Gain on portfolio sales of leases is calculated as the difference between
the proceeds received, net of related selling expenses, and the carrying amount
of the related leases adjusted for our ongoing recourse obligations, if any. At
June 30, 2000, we believe that we do not have any material recourse obligations
related to receivables sold through portfolio sales.

Exposure to Credit Losses

Management evaluates the collectibility of leases acquired or originated
based on the level of recourse provided, if any, delinquency statistics,
historical loss experience, current economic conditions and other relevant
factors. For leases and loans that are securitized using the criteria for sales
of lease financing receivables under generally accepted accounting principles,
we provided an allowance for credit losses for loans and leases that were
considered impaired during the period from the funding of the loans and leases
through the date such loans and leases were sold through our securitization
program. When the securitization took place, we reduced the allowance for credit
losses for any provision previously recorded for such leases. Any losses
expected to be incurred on loans and leases sold were taken into consideration
in determining the fair value of any Trust Certificates retained and recourse
obligations accrued, if any. For loans and leases that we retain on our balance
sheet, we provide an allowance for credit losses for retained loans and leases
which we consider impaired based on management's assessment of the risks
inherent in the lease receivables. Management monitors the allowance on an
ongoing basis based on our current assessment of the risks and losses identified
in the portfolio.

Our allowance for credit losses on lease receivables and our valuation of
the Trust Certificates retained in our securitization transactions are based on
management's current assessment of the risks inherent in our lease receivables
from national and regional economic conditions, industry conditions,
concentrations, financial conditions of the

6
8

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

obligors, historical experience of certain origination channels and other
factors. These estimates are reviewed periodically and as additional provisions
or write-downs become necessary, they are reported as a reduction of earnings in
the period in which they become known.

Comprehensive Income

In January 1998, we adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards of reporting and
display of comprehensive income and its components of net income and "other
comprehensive income" in a full set of general-purpose financial statements.
"Other Comprehensive Income" refers to revenues, expenses, gains and losses that
are not included in net income but rather are recorded directly in stockholders'
equity. The only component of comprehensive income other than net income was
foreign currency translation adjustments that commenced with the acquisition of
our first foreign subsidiary in July 1998.

FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ ----------

Net income (loss) ............................................. $ (7,714) $ 252 $ (7,568) $ 283
Other comprehensive loss:
Foreign currency translation adjustment, net of tax....... (954) (174) (1,182) (384)
------------ ------------ ------------ ---------

Comprehensive income (loss) ................................... $ (8,668) $ 78 $ (8,750) $ (101)
============ ============ ============ =========

Foreign Currency Translation

The financial statements of our foreign subsidiaries were prepared in their
local currency and translated into U.S. dollars based on the current exchange
rate at the end of the period for the balance sheet and a weighted-average
exchange rate for the period for the statement of operations. Balance sheet
translation adjustments, net of related deferred taxes, are reflected as other
comprehensive loss in the stockholders' equity section of our consolidated
balance sheet and, accordingly, have no impact on net income or loss.

Recent Accounting Pronouncement

In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In particular, SFAS No. 133 requires a
company to record every derivative instrument on the company's balance sheet as
either an asset or liability measured at fair value. In addition, SFAS No. 133
requires that changes in the fair value of a derivative be recognized currently
in earnings unless specific hedge accounting criteria are satisfied. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. In June 2000, the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133." SFAS No. 138

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9

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

addresses a limited number of issues causing implementation difficulties for
numerous entities that apply to SFAS No. 133 and amends the accounting and
reporting standards of SFAS No. 133 for certain derivative instruments and
certain hedging activities. Management has not quantified the effect that SFAS
No. 133 and SFAS No. 138 will have on our financial statements, however, the
Statement could increase volatility in earnings and other comprehensive income.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" which amended the effective date of SFAS No. 133. Both SFAS
No. 133 and SFAS No. 138 are effective for fiscal years beginning after June 15,
2000. We will adopt SFAS No. 133 and SFAS No. 138 as of January 1, 2001 and are
currently evaluating the impact of such adoption on our consolidated financial
statements.

3. EARNINGS PER SHARE

The reconciliation of the numerators and denominators used in the
computation of basic and diluted earnings per share is as follows (dollars in
thousands, except per share amounts):

FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------

Earnings (loss) per common share, basic:
Net income (loss) ............................ $ (7,714) $ 252 $ (7,568) $ 283
Preferred stock dividends .................... -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) available to common
stockholders .............................. $ (7,714) $ 252 $ (7,568) $ 283
============ ============ ============ ============
Weighted average shares outstanding .......... 19,048,640 14,704,204 19,042,166 14,466,602
============ ============ ============ ============
Earnings (loss) per common share, basic ...... $ (0.40) $ 0.02 $ (0.40) $ 0.02
============ ============ ============ ============
Earnings (loss) per common share, diluted:
Net income (loss) ............................ $ (7,714) $ 252 $ (7,568) $ 283
============ ============ ============ ============
Weighted average shares outstanding .......... 19,048,640 14,704,204 19,042,166 14,466,602
Dilutive securities:
Options ................................... -- 872,658 -- 514,871
Redeemable preferred stock ................ -- 55,125 -- 55,125
------------ ------------ ------------ ------------
Weighted average shares outstanding, diluted . 19,048,640 15,631,987 19,042,166 15,036,598
============ ============ ============ ============
Earnings (loss) per common share, diluted .... $ (0.40) $ 0.02 $ (0.40) $ 0.02
============ ============ ============ ============

In periods with a net loss rather than income available to common
stockholders, potentially dilutive securities are antidilutive and, therefore,
should not be considered. Accordingly, there is no difference between basic and
diluted loss per share for the second quarter of 2000 and the six months ended
June 30, 2000.

The second quarter of 1999 earnings per share calculation excludes options
to purchase approximately 59,000 shares of common stock at exercise prices
ranging from $23.9375 to $24.00 per share that were outstanding during the
second quarter of 1999 because the inclusion of such options would have been
antidilutive. In addition to the 59,000 options excluded in the second quarter
of 1999, the computation of diluted earnings per share for the six months ended
June 30, 1999 also excludes options to purchase approximately 944,203 shares of
common stock at exercise prices ranging from $11.25 per share to $18.375 per
share that were outstanding during the first quarter of 1999, because such
options were antidilutive.

8
10

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

4. ALLOWANCE FOR CREDIT LOSSES

In assessing our exposure to credit losses, management generally segregates
the leases acquired under our Private Label program from those acquired or
originated under our Retail and Wholesale programs due to the differing levels
of credit protection available to us under the various lease funding programs.
The following table sets forth the allowance for credit losses for our Private
Label program and our Retail and Wholesale programs for the six months ended
June 30, 2000 and 1999:

PRIVATE RETAIL/
LABEL WHOLESALE TOTAL (2)
-------- --------- ---------

Balance at December 31, 1999................................................. $ 385 $ 9,736 $ 10,121
Provision for credit losses .............................................. 227 10,228 10,455
Charge-offs, net of recoveries, on leases acquired or originated:
United States .......................................................... 17 (6,757) (6,740)
United Kingdom ......................................................... -- (655) (655)
Reduction of allowance for leases sold (1) ............................... -- (934) (934)
Allowance related to leases acquired through business combinations ....... -- 255 255
Charge-offs, net of recoveries, on leases acquired through business
combinations ........................................................... -- (432) (432)
-------- --------- ----------
Balance at June 30, 2000 .................................................... $ 629 $ 11,441 $ 12,070
======== ========= ==========

Balance at December 31, 1998 ................................................ $ 83 $ 4,680 $ 4,763

Provision for credit losses .............................................. 144 4,000 4,144
Charge-offs, net of recoveries, on leases acquired or originated:
United States .......................................................... (33) (912) (945)
Reduction of allowance for leases sold (1) ............................... -- (431) (431)
Allowance related to leases acquired through business combinations ....... -- 354 354
Charge-offs, net of recoveries, on leases acquired through business
combinations ........................................................... -- (574) (574)
-------- --------- ----------
Balance at June 30, 1999 .................................................... $ 194 $ 7,117 $ 7,311
======== ========= ==========

- ----------

(1) In connection with the sales of leases, we reduce the allowance for credit
losses for any provision previously recorded for such leases, since once
the leases are sold we retain no risk of loss related to the leases sold.

(2) During the six months ended June 30, 1999 and 2000, leases originated
through our Captive Finance program were approximately $106 million and $25
million, respectively, all of which were either acquired with substantial
cash holdback from the vendor or financed with third parties at the time of
originations without recourse to us. Therefore, no allowance for credit
losses was provided for leases originated under the Captive Finance
program.

9
11

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

The following table sets forth certain information regarding our allowance
for credit losses for leases originated under our Private Label program and our
Retail and Wholesale programs:

AS OF JUNE 30, 2000
-----------------------------------------------------------------------------
PRIVATE
LABEL (1) RETAIL/WHOLESALE (4) TOTAL
-------------- ----------------------------------------- -------------
LEASES ORIGINATED LEASES ORIGINATED
WITH RECOURSE OR WITHOUT RECOURSE
CASH HOLDBACK OR CASH HOLDBACK
RESERVES RESERVES
------------------ -----------------

Lease financing receivables, net .................. $ 252,505 $ 71,029 $ 592,983 $ 916,517(2)(3)
Allowance for credit losses ....................... 629 178 11,263 12,070
Allowance as a percentage of lease financing
receivables, net ............................. 0.25% 0.25% 1.90% 1.32%

Credit protection available for leases outstanding:

Ratio of recourse to Private Label Source
or to Retail vendors to lease financing
receivables outstanding ................... 11.84% 33.11%
Ratio of cash holdback reserves outstanding to
total leases outstanding .................. 2.90% 3.08%

AS OF DECEMBER 31, 1999
-----------------------------------------------------------------------
PRIVATE
LABEL (1) RETAIL/WHOLESALE (4) TOTAL
------------ ----------------------------------------- ----------
LEASES ORIGINATED LEASES ORIGINATED
WITH RECOURSE OR WITHOUT RECOURSE
CASH HOLDBACK OR CASH HOLDBACK
RESERVES RESERVES
----------------- -----------------

Lease financing receivables, net .................. $ 326,330 $ 35,429 $ 493,584 $ 855,343(2)(3)
Allowance for credit losses ....................... 385 89 9,647 10,121
Allowance as a percentage of lease financing
receivables, net ............................. 0.12% 0.25% 1.95% 1.18%

Credit protection available for leases outstanding:

Ratio of recourse to Private Label Source
or to Retail vendors to lease financing
receivables outstanding ................... 11.40% 43.23%
Ratio of cash holdback reserves outstanding to
total leases outstanding .................. 3.31% 1.23%

- ----------
(1) Under the Private Label program, we seek to minimize our losses through a
security interest in the equipment and leases funded through the program,
recourse to the Private Label Source which is generally collateralized by
holdback reserves withheld from the Private Label Source upon purchase of
the lease, or a combination of the above. The recourse provisions generally
require the Private Label Source to repurchase a receivable when it becomes
90 days past due. The recourse commitment generally ranges from 10% to 20%
of the aggregate purchase price of all leases acquired from the Private
Label Source. Holdback reserves withheld from the purchase price generally
range from 1% to 10% of the aggregate purchase price of the leases acquired
from the Private Label Source. In determining whether a lease acquired
pursuant to the Private Label program which is considered impaired will
result in a loss to us, management takes into consideration the ability of
the Private Label Source to

10
12

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

honor its recourse commitments and the holdback reserves withheld from the
Private Label Source upon purchase of the lease, as well as the credit
quality of the underlying lessee and the related equipment value.

(2) Does not reflect the reduction of allowance for credit losses provided for
the underlying lease financing receivables.

(3) Excludes lease financing receivables outstanding under the Captive Finance
program. As of June 30, 2000 and December 31, 1999, lease financing
receivables outstanding under the Captive Finance program were $19,659,000
and $26,726,000, respectively. Leases originated through our Captive
Finance program were either acquired with substantial cash holdback from
the vendor or financed with third parties at the time of origination
without recourse to us. Therefore, no allowance for credit losses was
provided for leases originated under the Captive Finance program.

(4) Management analyzes the collectibility of leases acquired or originated
pursuant to our Retail and Wholesale programs based on its underwriting
criteria, delinquency statistics, historical loss experience, current
economic conditions and other relevant factors, including availability of
recourse and cash holdback reserves.

The following table sets forth our charge-off experience with respect to
leases in our portfolio:

FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
UNITED STATES UNITED KINGDOM UNITED STATES UNITED KINGDOM
------------- -------------- ------------- --------------

Average balance of leases outstanding
during the period ....................... $ 856,685 $ 35,822 $ 489,287 $ 27,788
=========== ============= ============ ==============
Net losses (recoveries) experienced on
leases acquired:
Private Label program ................... $ (17) $ -- $ 33 $ --
Retail and Wholesale programs ........... 6,757 655 912 --
----------- ------------- ------------ --------------

Total .............................. $ 6,740 $ 655 $ 945 $ --
=========== ============= ============ ==============
Net Loss Ratio as a percentage of average
balance of leases outstanding ........... 0.79% 1.83% 0.19% --%
=========== ============= ============ ==============

Prior to July 1, 1998, we structured our securitization transactions to
meet the criteria for sale of lease financing receivables under generally
accepted accounting principles. During that period, the majority of the leases
were sold in the same quarter in which the leases were originated. As a result,
the average balance of leases retained on our balance sheet and the related
charge-offs were very low. Effective July 1, 1998, we altered the structure of
our securitization transactions so as to retain leases on our balance sheet.

11
13

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

5. DELINQUENCY STATISTICS

The following table sets forth certain information with respect to leases
which were held by us in our portfolio or serviced by us pursuant to our
securitization program. Delinquency statistics are calculated based on
application of amounts received in accordance with payment hierarchies
established within our accounting system. Based on the payment hierarchies, a
lease could be considered current even though a portion of a scheduled payment
was unpaid, due to prior application of amounts to fees.

AS OF JUNE 30, 2000 AS OF DECEMBER 31, 1999
-------------------------------------------- ----------------------------------------------
PRIVATE RETAIL/ CAPTIVE PRIVATE RETAIL/ CAPTIVE
LABEL WHOLESALE FINANCE(1) TOTAL (2) LABEL WHOLESALE FINANCE(1) TOTAL
--------- ---------- ---------- --------- --------- --------- ---------- -----------

Gross leases
outstanding ......... $ 894,420 $ 837,130 $ 21,164 $1,752,714 $794,503 $747,191 $ 28,864 $1,570,558
31-60 days past due....... 0.72% 1.60% 0.22% 1.14% 1.03% 1.75% 0.60% 1.36%
61-90 days past due....... 0.41% 0.72% 0.25% 0.55% 0.42% 0.89% 0.99% 0.66%
Over 90 days past due .... 0.29% 1.33% 0.42% 0.79% 0.41% 1.50% 0.47% 0.93%
--------- --------- -------- ---------- -------- -------- -------- ----------
Total past due ...... 1.42% 3.65% 0.89% 2.48% 1.86% 4.14% 2.06% 2.95%
========= ========= ======== ========== ======== ======== ======== ==========

- ----------
(1) Leases originated through our Captive Finance program were either acquired
with substantial cash holdback from the vendor (included in holdback
reserves payable on the condensed consolidated balance sheet) or financed
with third parties at the time of origination without recourse to us.

(2) As the portfolio of leases owned and serviced by us matures, we expect
delinquency rates to approach levels of delinquencies of our earlier
securitization pools which are currently in the range of 4% to 6%.

6. LEASE FINANCING RECEIVABLES

Lease financing receivables consisted of the following as of June 30, 2000
and December 31, 1999:

JUNE 30, DECEMBER 31,
2000 1999
----------- -------------

Minimum lease payments ...................................................... $ 1,119,848 $ 1,072,183
Estimated unguaranteed residual value ....................................... 22,811 17,788
Initial direct costs ........................................................ 20,195 16,677
Unearned income ............................................................. (226,678) (224,579)
Allowance for credit losses ................................................. (12,070) (10,121)
----------- ------------
Lease financing receivables, net .................................... $ 924,106 $ 871,948
=========== ============

12
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

7. DEBT

Total debt consisted of the following as of June 30, 2000 and December 31,
1999:

JUNE 30, DECEMBER 31,
2000 1999
----------- ------------

Nonrecourse Debt:
Securitized Warehouse Facilities ............................................ $ 260,560 $ 343,458
Public Securitized Transactions:
Series 1998-1 securitization ............................................ 57,275 71,110
Series 1999-1 securitization ............................................ 144,080 176,429
Series 1999-2 securitization ............................................ 137,874 159,257
Series 2000-2 securitization ............................................ 198,262 --
----------- -----------
Total Public Securitized Transactions ............................ 537,491 406,796
----------- -----------
Other Nonrecourse Debt ...................................................... 12,599 15,841
----------- -----------
Total Nonrecourse Debt ........................................... 810,650 766,095
Other Debt (acquired through business combinations) ........................... 24,972 27,425
Subordinated Notes Payable .................................................... 1,000 1,000
----------- -----------
Total Debt ....................................................... $ 836,622 $ 794,520
=========== ===========

We classify our indebtedness as either nonrecourse debt or debt based on
the structure of the debt instrument that defines our obligations. Nonrecourse
debt includes amounts outstanding related to leases included in securitized
warehouse facilities, public securitized transactions, or individual or groups
of leases funded under nonrecourse funding arrangements with specific financing
sources. Amounts outstanding in these instances are classified as nonrecourse
debt because we have no obligation to ensure that investors or funding sources
receive the full amount of principal and interest which may be due to them under
their funding arrangement. In these instances, the investors or financing
sources may only look to specific leases and the associated cashflows for the
ultimate repayment of amounts due to them. In the event the cashflow associated
with specific leases funded under these circumstances are insufficient to fully
repay amounts due, the investor or financing source withstands the full risk of
loss. Other debt and subordinated notes payable includes amounts due to
financing sources for which we are responsible for full repayment of principal
and interest.

From time to time, depending on market conditions, we securitize the leases
and loans in our portfolio that meet pre-established eligibility criteria by
packaging them into a pool and selling beneficial interests in the leases and
loans through public offerings and private placement transactions.

We depend on securitizations for refinancing of amounts outstanding under
our securitized warehouse facilities which we utilize to acquire and originate
additional leases and loans. Several factors affect our ability to complete
securitizations, including general conditions in the securities markets,
conditions in the asset-backed securities markets, the credit quality of our
portfolio, compliance of our leases with the eligibility requirements
established in connection with the securitizations, our ability to obtain
third-party credit enhancement, our ability to adequately service our portfolio,
and the absence of any material downgrading or withdrawal of ratings given to
securities previously issued in our securitizations. Any substantial reduction
in the availability of the securitization market for our leases and loans or any
adverse change in the terms of our securitizations could have a material adverse
effect on our business, financial condition and results of operation.

13
15

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

We fund a large percentage of the loans and equipment leases we acquire
through our securitized warehouse facilities. The securitized warehouse
facilities are available to fund loans and leases which satisfy eligibility
criteria for inclusion in our public securitizations. We repay borrowings under
our securitized warehouse facilities with the proceeds we receive from our
public securitization transactions. Any adverse impact on our ability to
complete public securitization transactions could have a material adverse effect
on our ability to obtain or maintain securitized warehouse facilities or the
amount available under such facilities. Any failure to renew our existing
securitized warehouse facilities or obtain additional facilities or other
financings with pricing, advance rates and other terms consistent with our
existing facilities could have a material adverse effect on our business,
financial condition and results of operations.

Pursuant to an agreement with the financial guaranty provider for two of
our permanently securitized facilities and for one of our securitized warehouse
facilities, we are required to comply with certain financial performance
provisions. Noncompliance with these provisions by us allows the financial
guarantor of the securitized facilities, at its option, in the case of the
permanently securitized facilities, to replace us as a servicer of the
underlying contracts and, in the case of the securitized warehouse facility, at
the financial guarantor's option, to replace us as a servicer of the underlying
assets and terminates our ability to fund additional contracts in this facility.

As of June 30, 2000, we were not in compliance with one of these provisions
related to a required maximum permitted level of net loss in any single quarter.
We requested that the financial guarantor waive this requirement in these
facilities for this period. The financial guarantor has provided us a waiver
related to this requirement for each of the permanent securitized facilities and
for the securitized warehouse facility for the quarter ended June 30, 2000. This
waiver is conditioned upon our execution of an amended agreement whereby an
additional provision is added which is related to maintaining a minimum level of
interest coverage. We have agreed to this amendment. If our operating results
are not satisfactory to meet these covenants in the future, we may need to
obtain additional waivers to maintain compliance.

8. BRANCH RESTRUCTURING CHARGE AND BANK APPLICATION EXPENSES

In the second quarter of 2000, we recorded a branch restructuring charge of
$6.0 million and bank application expenses of $0.9 million (totaling $4.3
million after-tax or $0.23 per fully diluted share).

The branch restructuring charge pertained to:

(i) our closure of ten offices in the United States resulting in
a work force reduction of approximately 111 employees. The
branch restructuring charge included expenses related
primarily to severance and other employee costs, lease
termination costs and the writedown of certain fixed assets
being sold to their estimated net selling price.

(ii) the temporary suspension of the funding activity in two
United Kingdom offices that resulted in a work force
reduction of approximately 17 employees. The funding
activity was temporarily suspended in the United Kingdom
offices that retain originated leases on our balance sheet.
This suspension of funding activity will continue until such
time as we can find an effective method to finance these
originations.

14
16

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

The branch restructuring charge is summarized as follows:

United States:
Office closure expenses .................................... $ 1,034
Severance and other employee costs ......................... 1,863
Writedown of fixed assets .................................. 1,782
United Kingdom:
Office closure expenses .................................... 467
Severance and other employee costs ......................... 631
Writedown of fixed assets .................................. 236
---------

Total .............................................................. $ 6,013
=========

The $0.9 million of expenses incurred related to our application to become
a bank holding company were expensed during the second quarter of 2000 when we
withdrew our approved application due to our decision not to implement our
banking strategy thereby not becoming a bank holding company. We decided not to
implement the banking strategy at this time as we are in the process of
potentially splitting our technology and finance operations. In April 2000, we
announced that we had retained Donaldson, Lufkin & Jenrette to advise on the
potential division of our technology and finance operations.

Due to the closure of offices in the United States and the United Kingdom,
we assessed whether goodwill was impaired as of June 30, 2000 as required by
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." Based on our evaluation of net
undiscounted projected cash flows through the remaining amortization period we
determined that no impairment existed as of such date.

We will continue to re-evaluate goodwill and other intangibles whenever
significant events or changes occur that might impair recovery of recorded
amounts. During the second quarter of 2000 we temporarily suspended the funding
activity in the two United Kingdom offices that retain originated leases on our
balance sheet. This suspension will continue until we can find an effective
method to finance these originations. If an acceptable method of financing
cannot be found, we will either permanently close these offices or service the
current outstanding lease portfolio of $34.4 million. Either decision would
result in goodwill impairment of up to $9.4 million.

As we previously announced, we are exploring the potential division of our
technology and finance operations. Certain transactions, if completed, involve
scenarios which may lead to a significant writedown of goodwill. No assurances
can be given, however, that any transaction will ultimately be concluded.

9. ACQUISITION

During the first quarter of 2000, we purchased an additional $12.3 million
of lease receivables related to Capital Alliance Financial Services, which
specializes in the leasing of specialty vehicles such as hearses, limousines and
shuttle buses.

15
17

SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

10. SEGMENT INFORMATION

We acquire and originate loans and leases primarily through our Private
Label, Retail/Wholesale, and Captive Finance programs. The following tables
present certain financial information by operating segment.

FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------

Revenues:
Private Label .............................. $ 5,768 $ 5,657 $ 16,232 $ 9,472
Retail/Wholesale ........................... 21,782 16,148 43,206 31,035
Captive Finance ............................ 370 1,919 1,133 2,585
----------- ----------- ----------- -----------

Total .................................. $ 27,920 $ 23,724 $ 60,571 $ 43,092
=========== =========== =========== ===========
Income (loss) before provision (benefit) for income taxes:
Private Label .............................. $ 1,964 $ 2,069 $ 6,984 $ 3,333
Retail/Wholesale ........................... (7,477)(a) 3,011 (6,532)(a) 6,048
Captive Finance ............................ (357) 634 (841) 501
Corporate .................................. (6,038)(b) (5,049) (11,193)(b) (8,929)
----------- ----------- ----------- -----------

Total .................................. $ (11,908) $ 665 $ (11,582) $ 953
=========== =========== =========== ===========

AS OF
---------------------------
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------

Total assets:
Private Label ................................................................. $ 269,130 $ 356,368
Retail/Wholesale .............................................................. 717,698 566,798
Captive Finance ............................................................... 19,853 26,944
Corporate ..................................................................... 38,121 64,242
----------- -----------
Total ....................................................................... $ 1,044,802 $ 1,014,352
=========== ===========

- ----------

(a) A branch restructuring charge of $6.0 million was recorded during the
second quarter of 2000. See Note 8.

(b) Bank application expenses of $0.9 million were recorded during the second
quarter of 2000. See Note 8.

16
18

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

RESULTS OF OPERATIONS

QUARTERS ENDED JUNE 30, 1999 AND 2000

Revenues increased $4.2 million, or 18%, from $23.7 million for the second
quarter of 1999 to $27.9 million for the second quarter of 2000, due to
significant growth of balance sheet assets which generated higher interest
income.

Gains from direct sales of lease financing receivables decreased $2.5
million, or 73%, from $3.5 million for the second quarter of 1999 to $1.0
million for the second quarter of 2000. The decrease is related to a decrease in
the volume of leases sold to third parties due to unfavorable market conditions
during the second quarter of 2000.

Interest income increased $6.7 million, or 40%, from $17.2 million for the
second quarter of 1999 to $23.9 million for the second quarter of 2000. The
increase was related to a 45% increase in our average balance of interest
bearing assets outstanding during the second quarter of 2000 as a result of an
increase in the lease receivables retained on our balance sheet after
securitization.

Servicing income increased $0.1 million, or 7%, from $2.0 million for the
second quarter of 1999 to $2.1 million for the second quarter of 2000. Servicing
income consists of late charge income collected on leases owned and serviced by
us and servicing income earned on leases sold under our securitization programs.
This increase was due to an increase in late charges collected, which resulted
from an increase in the average balance of leases owned and serviced.

Salaries and benefits decreased $0.7 million, or 12%, from $5.8 million for
the second quarter of 1999 to $5.1 million for the second quarter of 2000. The
decrease in salaries and benefits is directly related to the work force
reduction due to our restructuring. This decrease was offset partly by an
increase in the number of employees in our technology group.

Interest expense increased $5.5 million, or 61%, from $8.9 million in
the second quarter of 1999 to $14.4 million for the second quarter of 2000. The
increase is related to a 38% increase in the average outstanding borrowings as a
result of an increase in the lease receivables retained on our balance sheet
after securitization and an increase in interest rates. Interest rates for our
securitized debt increased from average of 6.22% in the second quarter of 1999
to an average of 7.20% for the second quarter of 2000.

Provision for credit losses increased $3.4 million, or 169%, from $2.1
million for the second quarter of 1999 to $5.5 million for the second quarter of
2000. The portion of the lease receivable balance representing the Retail and
Wholesale programs increased from 56% at June 30,1999 to 71% at June 30, 2000.
Due to the differing levels of credit protection under the various lease funding
programs, we record a higher provision for credit losses for the Retail and
Wholesale lease receivables than for the other programs. This increase in the
Retail and Wholesale lease receivable balance caused the provision for credit
loss to increase for the second quarter of 2000 compared to the second quarter
of 1999. The increase was also due to the increase in total lease receivables
retained on our balance sheet during the second quarter of 2000 compared to the
second quarter of 1999, which resulted from our decision to retain leases on our
balance sheet effective July 1, 1998.

Depreciation and amortization increased $0.3 million, or 26%, from $1.3
million for the second quarter of 1999 to $1.6 million for the second quarter of
2000. Such increase was primarily attributable to a 30% increase in fixed assets
from June 1999 to June 2000 as a result of the overall expansion of our business
and our acquisitions of leasing companies during 1999. Additionally, we
experienced an 8% increase in goodwill and other intangible assets from June
1999 to June 2000 resulting from acquisitions made during 1999.

17
19

Other general and administrative expenses increased $1.3 million, or 27%,
from $5.0 million for the second quarter of 1999 to $6.3 million for the second
quarter of 2000. Such increase was attributable to the general expansion of our
business that included an increase in advertising expenses, office rental
expenses, credit report fees and filing and title fees.

Bank application expenses of $0.9 million incurred related to our
application to become a bank holding company were expensed during the second
quarter of 2000 upon our withdrawal of our approved application due to our
decision not to implement our banking strategy thereby not becoming a bank
holding company.

A branch restructuring charge of $6.0 million ($3.8 million after-tax or
$0.20 per fully diluted share) was recorded in the second quarter of 2000. This
charge pertains to our closure of ten offices in the United States resulting in
a work force reduction of approximately 111 employees and our temporary
suspension of the funding activity in two United Kingdom offices resulting in a
workforce reduction of approximately 17 employees. The restructuring charge
consisted of the following: (i) office closure expenses for United States
locations of $1.0 million and for United Kingdom locations of $0.5 million, (ii)
severance and other employee expenses for United States employees of $1.9
million and for United Kingdom employees of $0.6 million, and (iii) the
writedown of certain fixed assets being sold to their estimated net selling
price of $1.8 million in the United States and $0.2 million in the United
Kingdom.

SIX MONTHS ENDED JUNE 30, 1999 AND 2000

Revenues increased $17.5 million, or 41%, from $43.1 million for the first
six months of 1999 to $60.6 million for the first six months of 2000, due to
significant growth of balance sheet assets which generated higher interest
income. In connection with our objective to reduce the amount of lower yielding
assets on our balance sheet, during the first six months of 2000 we recognized
$1.7 million of gain on sale upon completion of selling certain lower yielding
Private Label leases utilizing an off balance sheet structure.

Gains from direct sales of lease financing receivables decreased $3.4
million, or 51%, from $6.7 million for the first six months of 1999 to $3.3
million for the first six months of 2000. The decrease is related to a decrease
in the volume of leases sold to third parties due to unfavorable market
conditions during 2000.

Interest income increased $19.0 million, or 63%, from $30.3 million for the
first six months of 1999 to $49.3 million for the first six months of 2000. The
increase was related to a 72% increase in our average balance of interest
bearing assets outstanding during the first six months of 2000 as a result of an
increase in the lease receivables retained on our balance sheet after
securitization.

Servicing income increased $0.3 million, or 9%, from $3.6 million for the
first six months of 1999 to $3.9 million for the first six months of 2000.
Servicing income consists of late charge income collected on leases owned and
serviced by us and servicing income earned on leases sold under our
securitization programs. This increase was due to an increase in late charges
collected, which resulted from an increase in the average balance of leases
owned and serviced.

Salaries and benefits increased $0.6 million, or 6%, from $10.9 million for
the first six months of 1999 to $11.5 million for the first six months of 2000.
The increase in salaries and benefits is directly related to an increase in the
number of employees in our technology group.

Interest expense increased $13.1 million, or 86%, from $15.3 million in the
first six months of 1999 to $28.4 million for the first six months of 2000. The
increase is related to a 66% increase in the average outstanding borrowings as a
result of an increase in the lease receivables retained on our balance sheet
after securitization and an increase in interest rates. Interest rates for our
securitized debt increased from an average of 6.26% for the first six months of
1999 to an average of 7.00% for the first six months of 2000.

Provision for credit losses increased $6.4 million, or 152%, from $4.1
million for the first six months of 1999 to $10.5 million for the first six
months of 2000. The portion of the lease receivables balance representing the
Retail and Wholesale programs increased from 56% at June 30,1999 to 71% at June
30, 2000. Due to the differing levels

18
20

of credit protection under the various lease funding programs, we record a
higher provision for credit losses for the Retail and Wholesale lease
receivables than for the other programs. This increase in the Retail and
Wholesale lease receivables balance caused the provision for credit loss to
increase for the first six months of 2000 compared to the first six months of
1999. The increase was also due to an increase in total lease receivables
retained on our balance sheet during the first six months of 2000 compared to
the first six months of 1999.

Depreciation and amortization increased $0.6 million, or 25%, from $2.6
million for the first six months of 1999 to $3.2 million for the first six
months of 2000. Such increase was primarily attributable to a 30% increase in
fixed assets from June 1999 to June 2000 as a result of the overall expansion of
our business and our acquisitions of leasing companies during 1999.
Additionally, we experienced an 8% increase in goodwill and other intangible
assets from June 1999 to June 2000 resulting from acquisitions made during 1999.

Other general and administrative expenses increased $2.4 million, or 26%,
from $9.3 million for the first six months of 1999 to $11.7 million for the
first six months of 2000. Such increase was attributable to the general
expansion of our business that included an increase in advertising expenses,
office rental expenses, credit report fees and filing and title fees.

Bank application expenses of $0.9 million incurred related to our
application to become a bank holding company were expensed during the first six
months of 2000 upon our withdrawal of our approved application due to our
decision not to implement our banking strategy thereby not becoming a bank
holding company.

A branch restructuring charge of $6.0 million ($3.8 million after-tax or
$0.20 per fully diluted share) was recorded in the first six months of 2000.
This charge pertains to our closure of ten offices in the United States
resulting in a work force reduction of approximately 111 employees and our
temporary suspension of the funding activity in two United Kingdom offices
resulting in a workforce reduction of approximately 17 employees. The
restructuring charge consisted of the following: (i) office closure expenses for
United States locations of $1.0 million and for United Kingdom locations of $0.5
million, (ii) severance and other employee expenses for United States employees
of $1.9 million and for United Kingdom employees of $0.6 million, and (iii) the
writedown of certain fixed assets being sold to their estimated net selling
price of $1.8 million in the United States and $0.2 million in the United
Kingdom.

LIQUIDITY AND CAPITAL RESOURCES

Our small business financing business is capital intensive and requires
access to substantial short-term and long-term credit to fund the acquisition
and origination of loans and equipment leases. Since inception, we have funded
our operations primarily through borrowings under our securitized warehouse
facilities, sale of our common stock and by including certain of our leases in
public and private securitization transactions. We expect to continue to require
access to large amounts of capital to maintain and expand our volume of loans
and equipment leases and, depending upon market conditions, to complete
acquisitions of additional equipment and loan finance businesses.

We use capital to acquire and originate loans and leases, pay interest
expenses, repay obligations in connection with borrowings under our securitized
warehouse facilities, and pay operating and administrative expenses, income
taxes and capital additions.

We use our securitized warehouse facilities to fund the acquisition and
origination of loans and leases that satisfy the eligibility requirements
established under each securitized warehouse facility. These securitized
warehouse facilities provide us with advance rates that generally do not require
us to utilize our capital during the period that loans and lease receivables are
financed under such facilities. The liquidity provided under certain of our
securitized warehouse facilities is generally interim in nature and we seek to
refinance or resell the loan and lease receivables that were funded under these
interim facilities through our public securitization program within three to
twelve months.

In April 1999, we filed a shelf registration statement with the Securities
and Exchange Commission to register up to an additional $300 million of our debt
and/or equity securities. In June 1999, we utilized the shelf registration to
make an underwritten public equity offering of 4,000,000 shares of our common
stock, from which we received cash

19
21

proceeds of approximately $68.4 million, net of expenses. In July 1999, the
underwriters of our offering exercised their over-allotment option and purchased
an additional 600,000 shares of our common stock, from which we received cash
proceeds of approximately $10.4 million, net of expenses. We used the net
proceeds from the offering for general corporate purposes, including the funding
of net asset originations and other working capital needs.

We believe that our existing cash and investment balances, cash flow from
our operations, net proceeds from future securitization transactions, amounts
available under our securitized warehouse facilities and proceeds from our
securities offerings will be sufficient to fund our operations for the
foreseeable future.

SECURITIZED WAREHOUSE FACILITIES

As of June 30, 2000, our six securitized warehouse facilities had an
aggregate funding capacity of $1.0 billion. In July 2000, one of our warehouse
facilities expired, reducing our aggregate funding capacity by $250.0 million
to $752.4 million. In addition, during the second quarter we obtained approval
to increase the capacity of one of our securitized warehouse facilities by
$100.0 million from $200.0 million to $300.0 million. We are in the process of
completing this amended facility. If completed, the aggregate funding capacity
would be $852.4 million. As of July 31, 2000, $302.9 million was available for
use under the existing facilities.

Through June 30, 1998, our securitized warehouse facilities were structured
such that transfers to those facilities were considered sales under generally
accepted accounting principles. Effective July 1, 1998, concurrent with our
strategic decision to retain our lease receivables on our balance sheet as
long-term investments, we modified the structure of our securitized warehouse
facilities such that advances under the facilities would be considered debt
under generally accepted accounting principles. In the fourth quarter of 1999,
we began to de-emphasize the origination channels that generate lower return on
equity and to reduce the amount of lower yielding assets on our balance sheet,
the objective of which is to utilize our capital more effectively. During 2000
we will continue this strategy to selectively reduce the amount of lower
yielding assets on our balance sheet. We will continue to evaluate different
structuring alternatives including the possibility of reinstituting gain on
sale accounting in order to provide the best execution and operating results.

PUBLIC SECURITIZATION TRANSACTIONS

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To date, the proceeds that we have received in our public securitization
transactions have generally been sufficient to repay amounts we have borrowed
under our securitized warehouse facilities, as well as related issuance
expenses. We generally structure our securitization transactions to qualify as
financings for income tax purposes. Therefore, no income tax is payable in the
current period on the gain recognized. We anticipate that our future financings
of loans and equipment leases will be principally through securitization
transactions and, to a lesser extent, through portfolio sales and sales to
third-party financing sources.

We have now completed eight permanent public securitization transactions
involving the issuance of $1.5 billion of senior and subordinated securities. We
completed the Series 1996-1 and 1996-2 transactions in 1996, the Series 1997-1
transaction in September 1997, the Series 1998-1 transaction in December 1998,
the Series 1999-1 transaction in April 1999, the Series 1999-2 transaction in
September 1999, the Series 2000-1 transaction in April 2000, and the Series
2000-2 transaction in June 2000.

In connection with the Series 1996-1 and 1996-2 transactions, Class A
certificates, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services
and AAA by Duff & Phelps Credit Rating Co., were sold in the public market. The
Class B-1 and Class B-2 Certificates were rated BBB and BB, respectively, by
Duff & Phelps Credit Rating Co., and were sold on a non-recourse basis in the
private market.

In connection with the Series 1997-1 transaction, four tranches of Class A
Notes, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services, Inc.
and AAA by Duff & Phelps Credit Rating Co., were sold in the public market. The
Class B-1 and Class B-2 Notes were rated BBB and AA, respectively, by Duff &
Phelps Credit Rating Co., and were sold on a non-recourse basis in the private
market. The Class B-2 Note was enhanced through a letter of credit with Dresdner
Bank AG, which resulted in the higher ratings. We retained a Class B-3 Note,
which was rated B by Duff & Phelps Credit Rating Co., for future sale in the
private market.

In connection with the Series 1998-1 transaction, four tranches of Class A
Notes, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services, Inc.,
AAA by Duff & Phelps Credit Rating Co. and AAA by Fitch, Inc. were sold in the
public market. The Class B-1 and Class B-2 Notes were rated BBB and BB by Duff &
Phelps Credit Rating Co. and Fitch, Inc., and were sold and financed on a
non-recourse basis in the private market. A Class B-3 Note was rated B by Duff &
Phelps Credit Rating Co., and Fitch, Inc. which we retained for future sale in
the private market.

In connection with the Series 1999-1 transaction, four tranches of Class A
Notes, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services, Inc.,
AAA by Duff & Phelps Credit Rating Co. and AAA by Fitch, Inc. were sold in the
public market. The Class B-1 and Class B-2 Notes were rated BBB and BB by Duff &
Phelps Credit Rating Co. and Fitch, Inc., and were sold and financed on a
non-recourse basis in the private market. A Class B-3 Note was rated B by Duff &
Phelps Credit Rating Co. and Fitch, Inc., which we retained for future sale in
the private market.

In connection with the Series 1999-2 transaction, four tranches of Class A
Notes, rated AAA by Standard and Poor's, Aaa by Moody's Investor Services, Inc.,
AAA by Duff & Phelps Credit Rating Co. and AAA by Fitch, Inc. were sold in the
public market. Class B Notes rated A by Standard and Poor's, A by Duff & Phelps
Credit Rating Co., A by Fitch, Inc. and A2 by Moody's Investor Services, Inc.
were also sold in the public market. The Class C Note, rated BBB by Duff &
Phelps Credit Rating Co. and Fitch, Inc. and the Class D Note, rated BB by Duff
& Phelps Credit Rating Co. and Fitch, Inc., were sold and financed on a
non-recourse basis in the private market. A Class E Note was rated B by both
Duff & Phelps Credit Rating Co. and Fitch, Inc. and was retained by us for
future sale in the private market.

In connection with the Series 2000-1 transaction, two tranches of Class A
Notes, rated Aaa by Moody's Investor Services, Inc. and AAA by Duff & Phelps
Credit Rating Co. were sold in the public market. A Class B Note rated AA- by
Duff & Phelps Credit Rating Co. and Aa3 by Moody's Investor Services, Inc. was
also sold in the public market.

In connection with the Series 2000-2 transaction there were four tranches
of Class A Notes sold in the public market. The Class A-1 Notes were rated A-1+
by Standard and Poor's and rated F1+/AAA by Fitch, Inc. and the Class

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A-2, Class A-3 and Class A-4 Notes were rated AAA by both Standard and Poor's
and Fitch, Inc. The Class B Notes were rated A by both Standard and Poor's and
by Fitch, Inc. and were also sold in the public market. We retained the Class C
Notes rated BBB by Fitch, Inc., the Class D Notes rated BB by Fitch, Inc., and
the Class E Notes rated B by Fitch, Inc. for future sale in the private market.

We were able to realize approximately 94% of the present value of the
remaining scheduled payments of the equipment leases included in our Series
1996-1, 1996-2 and 2000-2 securitizations, approximately 96% of the present
value of the remaining scheduled payments of the equipment leases included in
our Series 1997-1 securitization, approximately 95% of the present value of the
remaining scheduled payments of the equipment leases included in our Series
1998-1, 1999-1 and 1999-2 securitizations, and 100% of the present value of the
remaining scheduled payments of the equipment leases included in our Series
2000-1 securitization.

SUBORDINATED NOTES

In connection with the acquisition of Heritage Credit Services, Inc. in May
1997, we issued a $1.0 million subordinated note payable to the former owner.
Such note bears interest at 9% per annum, payable quarterly, with the
outstanding principal amount due in May 2002.

UNITED KINGDOM OPERATIONS

During the second quarter of 2000 we temporarily suspended the funding
activity in the two United Kingdom offices that retain originated leases on our
balance sheet. This suspension will continue until we can find an effective
method to finance these originations. If an acceptable method of financing
cannot be found we will either permanently close these offices or service the
current outstanding lease portfolio of $34.4 million. Either decision would
result in goodwill impairment of up to $9.4 million.

INTEREST RATE MANAGEMENT ACTIVITIES

The implicit yield to us on all of our leases is on a fixed interest rate
basis due to the leases having scheduled payments that are fixed at the time the
leases are originated. When we acquire or originate leases, we base our pricing
on the "spread" we expect to achieve between the implicit yield to us on each
lease and the effective interest cost we will pay when we sell or refinance such
lease through a public securitization transaction. Increases in interest rates
between the time the leases are acquired or originated by us and the time they
are sold or refinanced through a public securitization transaction could narrow
or eliminate the spread, or result in a negative spread.

We mitigate the volatility of interest rate movement between the time we
acquire or originate a lease and the time such lease is sold or refinanced
through a public securitization transaction by hedging movements in interest
rates using interest rate swap derivatives which match the underlying cash flow
associated with the leases originated. Under these swap agreements, we receive
interest on the notional amount at either the 30-day LIBOR or the 30-day AA
Corporate Commercial Paper Index, as applicable, and we pay a fixed rate which
is equal to a spread over the yield to maturity of U.S. Treasury securities
similar to the maturities of the specific leases being held for securitization.
Such hedging arrangements are generally implemented when our portfolio of
unhedged leases reaches $10.0 million.

At certain times, changes in the interest rate market present favorable
conditions to hedge against future rate movement. We may, from time to time,
enter into hedges against interest rate movement in anticipation of future
origination volume in order to take advantage of unique market conditions, but
this activity is generally limited to levels where we are confident of
origination in the near term.

YEAR 2000

The "Year 2000 problem" exists because many computer programs, embedded
systems and components were designed to refer to a year by the last two digits
of the year, such as "99" for "1999." As a result, some of these systems may not
properly recognize that the year that follows "1999" is "2000" and not "1900."
If those problems are not corrected, the systems could fail or produce erroneous
results. Our computer systems experienced no significant Year

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2000 problems and no business interruptions were experienced related to the Year
2000 problem. If any of our significant customers or other counter-parties do
not successfully and timely achieve Year 2000 compliance it could have a
material effect on our business, results of operations or financial condition.

FORWARD-LOOKING INFORMATION

We refer you to "Item 1. Business - Safe Harbor Statement Under the Private
Securities Litigation Reform Act of 1995" in our Annual Report on Form 10-K for
the year ended December 31, 1999.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The nature of our business exposes us to market risk arising from changes
in interest rates, credit spreads and exchange rates. We have instituted risk
management policies to monitor and limit these exposures as follows:

INTEREST RATE RISK

To manage our interest rate risk, we have implemented policies that are
designed to minimize changes in our cost of funds associated with changes in
benchmark interest rates after loans and lease receivables have been funded. The
measurement of market risk associated with financial instruments is meaningful
when all related and offsetting transactions are aggregated, and the resulting
net positions are identified.

Our implicit yield on all of our loans and leases is based on a fixed
interest rate. We generally obtain initial funding for loans and lease
acquisitions and originations through borrowings under our securitized warehouse
facilities and, from time to time, depending on market conditions, we include
the loans and lease receivables in a securitization transaction or portfolio
sale. Because the securitized warehouse facilities bear interest at floating
rates, whereas the permanent securitizations or portfolio sales bear interest at
a spread over the benchmark Treasury rate which is fixed at the time the
transaction is completed, we are exposed to the risk of an increase in the cost
of funds from adverse interest rate movements during the period from the date of
borrowing through the date that the underlying loans and leases are included in
a securitization transaction or otherwise sold. We seek to minimize our exposure
by entering into amortizing interest rate swap transactions under which the
notional amount of the contract changes monthly to match the anticipated
amortization of the underlying leases. As of June 30, 2000, we were engaged in
various interest rate swap transactions. The total notional amount involved in
these transactions closely matched our outstanding balance of lease receivables
that were not permanently securitized.

The following earnings sensitivity analysis assumes an immediate closing of
a permanent securitization transaction on lease receivables outstanding as of
June 30, 2000 and an increase of 50 basis points in the benchmark Treasury. As
indicated in the analysis, an immediate change in the interest rate would have a
minimal impact on our earnings because the increase in our cost of funds from an
increase in the benchmark Treasury would be substantially offset by a reduction
in our cost of funds from the amortization of swap settlement proceeds received
when our swap positions are unwound.

12-month pre-tax earnings change from increase in benchmark Treasury
by 50 basis points: (Dollars in thousands)

Decrease in pre-tax earnings from increase in interest expense .. $ 1,253
Increase in pre-tax earnings from decrease in interest expense
due to the amortization of swap proceeds .................... 1,010
--------------
Net decrease in pre-tax earnings ................................ $ 243
==============

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CREDIT SPREAD RISK

We are also exposed to the risk of an increase in credit spreads between
the time we borrow money under our securitized warehouse facilities and the time
we securitize or otherwise sell the leases. We can partially offset this type of
increase in our cost of funds by engaging in interest rate swap transactions and
benefiting from an increase in interest rate swap spreads. However, it is not
possible for us to completely offset our credit spread risk through hedging
transactions. Based on our lease receivables outstanding as of June 30, 2000, an
increase of 50 basis points in the credit spread would result in a $1.3 million
decrease in our pre-tax earnings in the next 12 months, provided that there is
no corresponding increase in the swap spread which would partially offset the
decrease in pre-tax earnings.

FOREIGN EXCHANGE RISK

We entered the small ticket leasing market in the United Kingdom in the
third quarter of 1998 through our acquisition of Suffolk Street Group. As of
June 30, 2000, our pound sterling denominated lease receivables totaled
approximately $34.4 million. As of the same date, our pound sterling denominated
borrowings had an aggregate outstanding balance of approximately $19.2 million.
We are exposed to changes in exchange rates when translating these pound
sterling denominated revenues and expenses to United States dollars. Based on
lease receivables and borrowings outstanding as of June 30, 2000, a 5% decrease
in the relative value of the British pound compared to the United States dollar
would result in a $52,000 decrease in our pretax earnings in the next 12 months.

While the earnings sensitivity analyses presented above represent our best
estimate of the impact on our earnings and balance sheet of various market rate
movements, the actual behavior will likely differ from what we project. From
time to time, we recalibrate our assumptions and adjust our modeling techniques
as needed to improve the accuracy of the risk measurement results. You should
also be aware that actual movements of market interest rates can include changes
in the shape of the yield curve and changes in the basis relationship between
various market rates, among other changes, which are not captured in the
sensitivity analyses presented here.

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PART II - OTHER INFORMATION

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

(a) On May 9, 2000, we held our Annual Meeting of Stockholders. At the
meeting the only matter voted upon was the election of directors.

(b) The persons specified in (c) below were elected to serve as Class III
directors of the Company, each for a term of three years or until a successor is
elected and qualified. Continuing as directors after the meeting were Richard J.
Campo, Robert Ted Enloe, III, Brian E. McManus, Norman J. Metcalfe and David C.
Shindeldecker.

(c) Set forth below is a tabulation of the votes with respect to the
election of the specified persons as Class III directors:

VOTES VOTES
FOR AGAINST
---------- -------

Thomas J. Depping ........................................................... 15,150,984 248,485
David L. Solomon ............................................................ 15,151,126 248,343

ITEM 5. OTHER INFORMATION

In April 2000, we announced that we have retained Donaldson, Lufkin &
Jenrette to explore the potential division of our technology and finance
operations, in order to unlock the value of our technology business. Certain
transactions, if completed, involve scenarios that may lead to a significant
writedown of goodwill. No assurances can be given, however, that any transaction
will ultimately be concluded.

Our Internet infrastructure platform has historically been employed in the
origination of financial assets for our finance operations. Recently, utilizing
our application service provider (ASP) model, we have begun to provide our
platform exclusively as a customized, outsourced solution to facilitate B2B
transactions. We offer automated financing solutions for business loans,
equipment leases and our newest product, trade credit receivables. Our platform
provides real-time application processing, credit decisioning, scoring and
documentation that integrates with our advanced, automated funding, servicing
and collection technologies. By providing this efficient, automated, outsourced
solution to customers, we address a critical component in the development of
true online B2B marketplaces.

In July 2000, we announced that we have withdrawn our approved application
to become a bank holding company. In April 2000, the Board of Governors of the
Federal Reserve Board approved our application to become a bank holding company.
We decided not to implement the banking strategy at this time as we are in the
process of potentially splitting our technology and finance operations.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

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

27 (*) - Financial Data Schedule

- ----------

(*) Filed herewith

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(b) REPORTS ON FORM 8-K - there were no reports on Form 8-K filed during the
quarter ended June 30, 2000.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

SIERRACITIES.COM INC.
(REGISTRANT)

August 10, 2000 /s/ SANDY B. HO
- --------------------------- ------------------------------
Date Executive Vice President
and Chief Financial Officer
(principal financial officer)

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EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------- -----------

27 Financial Data Schedule