1
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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 SEPTEMBER 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
November 1, 2000 was 19,048,640.

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2
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

ASSETS

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

Lease financing receivables, net .................................. $ 938,360 $ 871,948
Cash and cash equivalents ......................................... 56,028 57,083
Other receivables ................................................. 7,434 7,613
Investment in trust certificates .................................. 12,458 9,808
Marketable securities ............................................. 2,092 3,460
Goodwill and other intangible assets, net ......................... 41,644 43,500
Property and equipment, net ....................................... 9,784 11,723
Other assets ...................................................... 11,339 8,627
Current tax receivables ........................................... 146 590
Deferred income tax asset ......................................... 3,735 -
------------- -----------
Total assets ................................................. $ 1,083,020 $ 1,014,352
============= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Debt:
Nonrecourse debt ............................................... $ 857,245 $ 766,095
Other debt ..................................................... 20,735 27,425
Subordinated notes payable ..................................... 1,000 1,000
Other liabilities:
Accounts payable and accrued liabilities ....................... 13,484 23,620
Holdback reserves payable ...................................... 28,774 27,883
Accrued branch restructuring costs ............................. 2,614 -
Deferred income taxes .......................................... - 375
------------- -----------
Total liabilities ............................................ 923,852 846,398
------------- -----------

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 ................................... 159,021 158,654
Retained earnings ............................................ 1,682 9,147
Accumulated other comprehensive loss ......................... (1,725) (107)
------------- -----------
Total stockholders' equity ................................... 159,168 167,884
------------- -----------
Total liabilities and stockholders' equity ................... $ 1,083,020 $ 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 SEPTEMBER 30,
--------------------------
2000 1999
----------- -----------

Gain on sale of lease financing receivables through securitization
transactions ........................................................... $ 1,543 $ -
Gains from direct sales of lease financing receivables ................... 1,975 3,863
Interest income .......................................................... 26,604 20,148
Servicing income ......................................................... 2,214 1,795
Other income ............................................................. 1,185 1,433
----------- -----------
Total revenues ........................................................ 33,521 27,239
----------- -----------

Salaries and benefits .................................................... 5,093 6,467
Interest expense ......................................................... 16,144 9,954
Provision for credit losses on lease financing receivables ............... 4,948 2,967
Depreciation and amortization ............................................ 1,541 1,429
Other general and administrative ......................................... 5,372 4,926
----------- -----------
Total expenses ........................................................ 33,098 25,743
----------- -----------

Income before provision for income taxes ................................. 423 1,496
Provision for income taxes ............................................... 319 785
----------- -----------
Net income ............................................................... $ 104 $ 711
=========== ===========
Earnings per common share, basic ......................................... $ 0.01 $ 0.04
=========== ===========
Earnings per common share, diluted ....................................... $ 0.01 $ 0.04
=========== ===========

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

4
SIERRACITIES.COM INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
2000 1999
----------- -----------

Gain on sale of lease financing receivables through securitization
transactions ........................................................... $ 3,270 $ -
Gains from direct sales of lease financing receivables .................... 5,276 10,538
Interest income ........................................................... 75,896 50,467
Servicing income .......................................................... 6,138 5,398
Other income .............................................................. 3,512 3,929
----------- -----------
Total revenues ......................................................... 94,092 70,332
----------- -----------

Salaries and benefits ..................................................... 16,626 17,344
Interest expense .......................................................... 44,523 25,219
Provision for credit losses on lease financing receivables ................ 15,403 7,112
Depreciation and amortization ............................................. 4,730 3,988
Other general and administrative .......................................... 17,092 14,220
Bank application expenses ................................................. 864 -
Branch restructuring charge ............................................... 6,013 -
----------- -----------
Total expenses ......................................................... 105,251 67,883
----------- -----------

Income (loss) before provision (benefit) for income taxes ................. (11,159) 2,449
Provision (benefit) for income taxes ...................................... (3,695) 1,455
----------- -----------
Net income (loss) ......................................................... $ (7,464) $ 994
=========== ===========
Earnings (loss) per common share, basic ................................... $ (0.39) $ 0.06
=========== ===========
Earnings (loss) per common share, diluted ................................. $ (0.39) $ 0.06
=========== ===========

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

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

FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
2000 1999
---------- ----------

Cash Flows from Operations:
Net income (loss) ............................................................. $ (7,464) $ 994
Reconciliation of net income (loss) to cash provided by operations:
Depreciation and amortization ............................................. 4,730 3,988
Provision for credit losses on lease financing receivables ................ 15,403 7,112
Gain on sale of lease financing receivables ............................... (8,546) (10,538)
Funding of lease financing receivables, held for sale ..................... (150,062) (241,311)
Principal payments received on lease financing receivables, held for sale . 8,904 3,959
Proceeds from sales of lease financing receivables, net of trust
certificates and marketable securities retained, if any ................. 174,376 235,592
Deferred income taxes (credit) ............................................ (3,695) (497)
Branch restructuring charge ............................................... 6,013 -
Bank application expenses ................................................. 864 -
Accumulated translation adjustments ....................................... (1,618) 41
Changes in assets and liabilities, net of effects from acquisitions:
Decrease in other receivables ....................................... 169 3,701
Decrease (increase) in other assets ................................. (3,130) 328
Increase (decrease) in accounts payable and accrued liabilities ..... (11,043) 6,731
Increase in holdback reserves payable ............................... 891 8,932
Decrease in accrued branch restructuring costs ...................... (783) -
Increase in income taxes ............................................ 282 2,385
---------- ----------
Net Cash Provided by Operations ................................ 25,291 21,417
---------- ----------
Cash Flows from Investing Activities:
Funding of lease financing receivables, held for investment ............... (505,751) (543,391)
Principal payments received on lease financing receivables, held
for investment .......................................................... 202,540 98,002
Expenditures for property and equipment ................................... (3,513) (2,355)
Expenditures for acquisitions, including acquisition costs,
less cash acquired ...................................................... (12,361) (12,412)
---------- ----------
Net Cash Used in Investing Activities .......................... (319,085) (460,156)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from securitized warehouse facilities, net of repayments ......... 292,599 380,050
Proceeds from issuance of common stock, net and exercise of stock options . 140 78,810
---------- ----------

Net Cash Provided by Financing Activities ...................... 292,739 458,860
---------- ----------

Net Increase (Decrease) in Cash and Cash Equivalents ............................. (1,055) 20,121
Cash and Cash Equivalents at January 1, .......................................... 57,083 7,928
---------- ----------
Cash and Cash Equivalents at September 30, ....................................... $ 56,028 $ 28,049
========== ==========

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

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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 nine 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. In order to maximize operating
results, we continue to evaluate different alternatives relating to the
financing and sale of our lease financing receivables. During the third quarter
of 2000, we changed the structure of a previously completed securitized
transaction such that certain lease financing receivables were recorded as a
sale under generally accepted accounting principles which generated a gain on
sale through securitization. In the future, we will continue to evaluate
different structuring alternatives and may change the structure of other
previously securitized transactions so as to generate additional gain on sale
though securitization.

We acquire and originate leases primarily through our Private Label and
Retail 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 program 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.

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

Subsequent Event

On November 6, 2000, we entered into a definitive agreement and plan
of merger with VerticalNet Inc. See Note 11.

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 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 direct 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
September 30, 2000, we believe that we do not have any material recourse
obligations related to receivables sold through direct 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

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

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 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------ ------------- -----------

Net income (loss) ................................. $ 104 $ 711 $ (7,464) $ 994
Other comprehensive income (loss):
Foreign currency translation adjustment,
net of tax ................................. (436) 425 (1,618) 41
------------- ------------ ------------- -----------
Comprehensive income (loss) ....................... $ (332) $ 1,136 $ (9,082) $ 1,035
============= ============ ============= ===========

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.

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

Recent Accounting Pronouncements

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
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 is continuing to evaluate the effect
that SFAS No. 133, as amended by SFAS No. 138, will have on our consolidated
financial statements. The specific impact of the adoption cannot be estimated
at this time because it is subject to unknown variables at the date of adoption
such as actual derivatives and hedging activities and market values of the
derivatives. However, we have determined that the adoption of SFAS 133 will
likely increase the volatility in 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. SFAS No. 133, as amended by SFAS
No. 138, is effective for fiscal years beginning after June 15, 2000. We will
adopt SFAS No. 133, as amended by SFAS No. 138, as of January 1, 2001.

In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities - a
replacement of FASB Statement No. 125." This statement requires new disclosures
and amendments of the collateral provisions of Statement 125. We will adopt
these changes as of December 31, 2000. Other provisions of SFAS No. 140 will
apply prospectively to transfers of financial assets and extinguishments of
liabilities occurring after March 31, 2001. We will adopt these provisions of
SFAS No. 140 prospectively after March 31, 2001.

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

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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ ------------------------------
2000 (1) 1999 (3) 2000 (2) 1999 (4)
------------ ---------------- --------------- ------------

Earnings (loss) per common share, basic:
Net income (loss) ............................ $ 104 $ 711 $ (7,464) $ 994
Preferred stock dividends .................... - - - -
------------ ---------------- --------------- ------------
Net income (loss) available to common
stockholders .............................. $ 104 $ 711 $ (7,464) $ 994
============ ================ =============== ============
Weighted average shares outstanding .......... 19,048,640 18,871,511 19,044,340 15,951,040
============ ================ =============== ============
Earnings (loss) per common share, basic ...... $ 0.01 $ 0.04 $ (0.39) $ 0.06
============ ================ =============== ============
Earnings (loss) per common share, diluted:
Net income (loss) ............................ $ 104 $ 711 $ (7,464) $ 994
============ ================ =============== ============
Weighted average shares outstanding .......... 19,048,640 18,871,511 19,044,340 15,951,040
Dilutive securities:
Options ................................... - 575,661 - 535,135
Redeemable preferred stock ................ - 55,125 - 55,125
------------ ---------------- --------------- ------------
Weighted average shares outstanding, diluted . 19,048,640 19,502,297 19,044,340 16,541,300
============ ================ =============== ============
Earnings (loss) per common share, diluted .... $ 0.01 $ 0.04 $ (0.39) $ 0.06
============ ================ =============== ============

- --------------------
(1) For the three months ended September 30, 2000, the computation of diluted
earnings per share excludes purchase options for approximately 2,471,000
shares of common stock that have exercise prices (ranging from $5.938 to
$24.00 per share) greater than the $2.95 per share average market price
for the period and would thus be anti-dilutive if exercised.

(2) 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 nine months ended
September 30, 2000.

(3) For the three months ended September 30, 1999, the computation of diluted
earnings per share excludes purchase options for approximately 332,000
shares of common stock that have exercise prices (ranging from $18.375 to
$24.00 per share) greater than the $14.75 per share average market price
for the period and would thus be anti-dilutive if exercised.

(4) In addition to the 332,000 shares of common stock subject to purchase
options excluded in the third quarter of 1999, the computation of diluted
earnings per share for the nine months ended September 30, 1999 also
excludes options to purchase approximately 680,000 shares of common stock
at an exercise price of $11.25 per share that were outstanding during the
first three months of 1999 because such options were anti-dilutive.

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11
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 nine months ended September 30, 2000 and 1999:

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

Balance at December 31, 1999................................................. $ 385 $ 9,736 $ 10,121

Provision for credit losses .............................................. 300 15,103 15,403
Charge-offs, net of recoveries, on leases acquired or originated:
United States .......................................................... 24 (10,906) (10,882)
United Kingdom ......................................................... - (952) (952)
Reduction of allowance for leases sold (1) ............................... - (1,635) (1,635)
Allowance related to leases acquired through business combinations ....... - 255 255
Charge-offs, net of recoveries, on leases acquired through business
combinations ........................................................... - (518) (518)
-------- --------- ----------
Balance at September 30, 2000 ............................................... $ 709 $ 11,083 $ 11,792
======== ========= ==========

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

Provision for credit losses .............................................. 230 6,882 7,112
Charge-offs, net of recoveries, on leases acquired or originated:
United States .......................................................... (27) (2,413) (2,440)
Reduction of allowance for leases sold (1) ............................... - (702) (702)
Allowance related to leases acquired through business combinations ....... - 354 354
Charge-offs, net of recoveries, on leases acquired through business
combinations ........................................................... - (595) (595)
-------- --------- ----------
Balance at September 30, 1999 ............................................... $ 286 $ 8,206 $ 8,492
======== ========= ==========

- --------------------
(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 nine months ended September 30, 1999 and 2000, leases
originated through our Captive Finance program were approximately $139
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.

10
12
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 SEPTEMBER 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 .................. $ 281,965 $ 80,018 $ 571,336 $ 933,319(2)(3)
Allowance for credit losses ....................... 709 200 10,883 11,792
Allowance as a percentage of lease financing
receivables, net ............................. 0.25% 0.25% 1.90% 1.26%

Credit protection available for leases outstanding:

Ratio of recourse to Private Label Source
or to Retail vendors to lease financing
receivables outstanding ................... 12.07% 37.24%
Ratio of cash holdback reserves outstanding to
total leases outstanding .................. 2.91% 2.87%

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

11
13
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 September 30, 2000 and December 31, 1999, lease financing
receivables outstanding under the Captive Finance program were $16,833,000
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 NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
2000 1999
----------------------------- -----------------------------
UNITED STATES UNITED KINGDOM UNITED STATES UNITED KINGDOM
------------- -------------- ------------- --------------

Average balance of leases outstanding
during the period ....................... $ 874,053 $ 34,555 $ 558,272 $ 29,744
=========== ============= ============ ==============
Net losses (recoveries) experienced on leases
acquired:
Private Label program ................... $ (24) $ - $ 27 $ -
Retail and Wholesale programs ........... 10,906 952 2,413 -
----------- ------------- ------------ --------------
Total .............................. $ 10,882 $ 952 $ 2,440 $ -
=========== ============= ============ ==============
Net Loss Ratio as a percentage of average
balance of leases outstanding ........... 1.25% 2.76% 0.44% -%
=========== ============= ============ ==============

Due to the differing levels of credit protection under the various lease
funding programs, we experience higher losses for the Retail and Wholesale
lease receivables than for the other programs. The increase in net losses in
2000 was due to an increase in the average lease receivables balance for the
Retail and Wholesale programs and an increase in the portion of lease financing
receivables in the Retail lease funding programs. The average lease receivables
balance for the Retail and Wholesale programs was $321,476,000 for the first
nine months of 1999 and $619,523,000 for the first nine months of 2000. The
portion of the average lease receivables balance representing the Retail and
Wholesale programs increased from 57% for the first nine months of 1999 to 67%
for the first nine months of 2000. The increase in net losses in 2000 was also
due to the increase in the average seasoning of our lease receivables.

12
14
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 SEPTEMBER 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 . $892,152 $ 807,675 $ 18,269 $1,718,096 $794,503 $ 747,191 $ 28,864 $1,570,558
31-60 days past due....... 0.71% 1.64% 1.32% 1.15% 1.03% 1.75% 0.60% 1.36%
61-90 days past due....... 0.35% 0.74% 0.76% 0.54% 0.42% 0.89% 0.99% 0.66%
Over 90 days past due .... 0.45% 1.36% 0.37% 0.88% 0.41% 1.50% 0.47% 0.93%
-------- --------- --------- -------- -------- -------- -------- --------
Total past due ...... 1.51% 3.74% 2.45% 2.57% 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 September 30,
2000 and December 31, 1999:

SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------

Minimum lease payments ................................... $ 1,136,785 $ 1,072,183
Estimated unguaranteed residual value .................... 20,115 17,788
Initial direct costs ..................................... 18,890 16,677
Unearned income .......................................... (225,638) (224,579)
Allowance for credit losses .............................. (11,792) (10,121)
------------- ------------
Lease financing receivables, net ................. $ 938,360 $ 871,948
============= ============

13
15
SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

7. DEBT

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

SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -----------

Nonrecourse Debt:
Securitized Warehouse Facilities ......................... $ 363,204 $ 343,458
Public Securitized Transactions:
Series 1998-1 securitization ......................... 50,760 71,110
Series 1999-1 securitization ......................... 115,665 176,429
Series 1999-2 securitization ......................... 128,712 159,257
Series 2000-2 securitization ......................... 187,050 -
----------- -----------
Total Public Securitized Transactions ......... 482,187 406,796
----------- -----------

Other Nonrecourse Debt ................................... 11,854 15,841
----------- -----------
Total Nonrecourse Debt ........................ 857,245 766,095
Other Debt (acquired through business combinations) ........ 20,735 27,425
Subordinated Notes Payable ................................. 1,000 1,000
----------- -----------
Total Debt .................................... $ 878,980 $ 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.

14
16
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 September 30, 2000, we were in compliance with these
provisions.

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.

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 since in April 2000, we announced
that we had retained Donaldson, Lufkin & Jenrette to advise on 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.

16
18

10. SEGMENT INFORMATION

We acquire and originate loans and leases primarily through our Private
Label and Retail/Wholesale programs. We discontinued our Captive Finance
program during the third quarter of 2000. The following tables present certain
financial information by operating segment.

FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------

Revenues:
Private Label .............................. $ 7,239 $ 7,052 $ 23,471 $ 16,524
Retail/Wholesale ........................... 26,083 18,706 69,289 49,742
Captive Finance ............................ 199 1,481 1,332 4,066
----------- ----------- ----------- -----------
Total .................................. $ 33,521 $ 27,239 $ 94,092 $ 70,332
=========== =========== =========== ===========

Income (loss) before provision (benefit) for
income taxes:
Private Label .............................. $ 2,372 $ 2,895 $ 9,356 $ 6,228
Retail/Wholesale ........................... 3,789 2,884 (2,743)(a) 8,932
Captive Finance ............................ (16) 272 (857) 773
Corporate .................................. (5,722) (4,555) (16,915)(b) (13,484)
----------- ----------- ----------- -----------
Total .................................. $ 423 $ 1,496 $ (11,159) $ 2,449
=========== =========== =========== ===========

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

Total assets:
Private Label ......................................... $ 298,778 $ 356,368
Retail/Wholesale ...................................... 700,360 566,798
Captive Finance ....................................... 16,939 26,944
Corporate ............................................. 66,943 64,242
------------- -----------
Total ............................................... $ 1,083,020 $ 1,014,352
============= ===========

- --------------------
(a) A branch restructuring charge of $6.0 million was recorded during the first
nine months of 2000. See Note 8.

(b) Bank application expenses of $0.9 million were recorded during the first
nine months of 2000. See Note 8.

17
19
SIERRACITIES.COM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

11. SUBSEQUENT EVENT

On November 6, 2000, we entered into a definitive agreement and plan of
merger (the "Merger Agreement") between SierraCities.com and VerticalNet, Inc.
("VerticalNet"). The Merger Agreement provides that SierraCities.com will
become a wholly owned subsidiary of VerticalNet, Inc. and will operate as
VerticalNet Credit.
The Merger Agreement provides that this transaction will take the form of
an exchange offer in which VerticalNet will offer to exchange VerticalNet
common stock, par value $.01 per share, with a value of $7.00 for each share of
SierraCities.com common stock, par value $.01 per share, subject to a collar.
The number of shares of VerticalNet common stock to be delivered will be based
on the average closing price of VerticalNet's common stock over the ten trading
days ending two days before the closing of the offer. The collar functions as
follows: if the average price is (1) less than $21, the SierraCities.com
shareholders shall receive 0.3333 shares for each SierraCities.com share, (2)
between $21 and $35, SierraCities.com shareholders shall receive a number of
VerticalNet shares equal to $7.00 divided by the average price, (3) between $35
and $51, the SierraCities.com shareholders shall receive 0.2 VerticalNet shares
for each SierraCities.com share, and (4) greater than $51, the exchange ratio
shall be $10.20 divided by the average price. SierraCities.com will have the
right to terminate the Merger Agreement if the average price is less than $15.
The exchange offer will be followed by a merger in which VerticalNet common
stock will be issued at the same exchange ratio paid in the exchange offer.

The exchange offer for all of the outstanding shares of SierraCities.com
common stock aggregates approximately $133 million, which is approximately $26
million below SierraCities.com's cost basis in its net assets (total
stockholders' equity) of $159 million as of September 30, 2000. The proposed
acquisition will be accounted for by VerticalNet using the purchase method of
accounting, which requires an allocation of the purchase price to the assets
acquired and liabilities assumed based on fair value as determined by
VerticalNet. SierraCities.com's consolidated financial statements have been
prepared on the historical cost basis of accounting in accordance with general
accepted accounting principles which may be greater or less than the fair value
of the assets and liabilities as determined by VerticalNet.

As a condition to closing, we will be required to move substantially all
of our loan and lease portfolios off balance sheet and to use commercially
reasonable efforts to dispose of certain other assets. In addition, the closing
of the merger is subject to certain other conditions, including, among other
things, the tender of at least two-thirds of the outstanding shares of
SierraCities.com's common stock, the registration with the Securities and
Exchange Commission of the shares of VerticalNet common stock to be issued in
connection with the merger and the expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended. The merger is expected to close before yearend. No assurances can
be given, however, that this transaction will ultimately be concluded.

18
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

SUBSEQUENT EVENT

The Merger Agreement provides that this transaction will take the form of
an exchange offer in which VerticalNet will offer to exchange VerticalNet
common stock, par value $.01 per share, with a value of $7.00 for each share of
SierraCities.com common stock, par value $.01 per share, subject to a collar.
The number of shares of VerticalNet common stock to be delivered will be based
on the average closing price of VerticalNet's common stock over the ten trading
days ending two days before the closing of the offer. The collar functions as
follows: if the average price is (1) less than $21, the SierraCities.com
shareholders shall receive 0.3333 shares for each SierraCities.com share, (2)
between $21 and $35, SierraCities.com shareholders shall receive a number of
VerticalNet shares equal to $7.00 divided by the average price, (3) between $35
and $51, the SierraCities.com shareholders shall receive 0.2 VerticalNet shares
for each SierraCities.com share, and (4) greater than $51, the exchange ratio
shall be $10.20 divided by the average price. SierraCities.com will have the
right to terminate the Merger Agreement if the average price is less than $15.
The exchange offer will be followed by a merger in which VerticalNet common
stock will be issued at the same exchange ratio paid in the exchange offer.

RESULTS OF OPERATIONS

QUARTERS ENDED SEPTEMBER 30, 1999 AND 2000

Revenues increased $6.3 million, or 23%, from $27.2 million for the third
quarter of 1999 to $33.5 million for the third quarter of 2000, due to
significant growth of balance sheet assets which generated higher interest
income.

During the third quarter of 2000, we changed the structure of a previously
completed securitized transaction such that certain lease financing receivables
were recorded as a sale under generally accepted accounting principles which
generated approximately $1.5 million of gain.

Gains from direct sales of lease financing receivables decreased $1.9
million, or 49%, from $3.9 million for the third quarter of 1999 to $2.0
million for the third quarter of 2000. The decrease is related to a decrease in
the volume of leases sold to third parties.

19
21
Interest income increased $6.5 million, or 32%, from $20.1 million for the
third quarter of 1999 to $26.6 million for the third quarter of 2000. The
increase was related to a 28% increase in our average balance of interest
bearing assets outstanding during the third quarter of 2000 as a result of an
increase in the lease receivables retained on our balance sheet after
securitization.

Servicing income increased $0.4 million, or 23%, from $1.8 million for the
third quarter of 1999 to $2.2 million for the third 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 $1.4 million, or 21%, from $6.5 million
for the third quarter of 1999 to $5.1 million for the third quarter of 2000.
The decrease in salaries and benefits is directly related to the work force
reduction due to our branch restructuring.

Interest expense increased $6.1 million, or 62%, from $10.0 million in the
third quarter of 1999 to $16.1 million for the third quarter of 2000. The
increase is related to a 37% 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 6.07% in the third quarter of
1999 to an average of 7.24% for the third quarter of 2000.

Provision for credit losses increased $1.9 million, or 67%, from $3.0
million for the third quarter of 1999 to $4.9 million for the third quarter of
2000. The portion of the average lease receivables balance representing the
Retail and Wholesale programs increased from 56% for the third quarter of 1999
to 70% for the third quarter of 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
receivables balance caused the provision for credit loss to increase for the
third quarter of 2000 compared to the third quarter of 1999. The increase was
also due to the increase in total lease receivables retained on our balance
sheet during the third quarter of 2000 compared to the third quarter of 1999,
due to the growth of our portfolio of lease receivables.

Depreciation and amortization increased $0.1 million, or 8%, from $1.4
million for the third quarter of 1999 to $1.5 million for the third quarter of
2000. Such increase was primarily attributable to a 15% increase in fixed
assets from September 1999 to September 2000. Additionally, we experienced a 6%
increase in goodwill and other intangible assets from September 1999 to
September 2000 resulting from acquisitions made during 1999.

Other general and administrative expenses increased $0.5 million, or 9%,
from $4.9 million for the third quarter of 1999 to $5.4 million for the third
quarter of 2000. Such increase was attributable to an increase in advertising
and legal expenses.

NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000

Revenues increased $23.8 million, or 34%, from $70.3 million for the first
nine months of 1999 to $94.1 million for the first nine 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 nine 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. In addition,
during the first nine months of 2000 we changed the structure of a previously
completed securitized transaction such that certain lease financing receivables
were recorded as a sale under generally accepted accounting principles which
generated approximately $1.5 million of gain.

20
22
Gains from direct sales of lease financing receivables decreased $5.2
million, or 50%, from $10.5 million for the first nine months of 1999 to $5.3
million for the first nine 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 $25.4 million, or 50%, from $50.5 million for
the first nine months of 1999 to $75.9 million for the first nine months of
2000. The increase was related to a 54% increase in our average balance of
interest bearing assets outstanding during the first nine months of 2000 as a
result of an increase in the lease receivables retained on our balance sheet
after securitization.

Servicing income increased $0.7 million, or 14%, from $5.4 million for the
first nine months of 1999 to $6.1 million for the first nine 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 decreased $0.7 million, or 4%, from $17.3 million
for the first nine months of 1999 to $16.6 million for the first nine months of
2000. The decrease in salaries and benefits is directly related to the work
force reduction due to our branch restructuring which occurred during the
second quarter of 2000.

Interest expense increased $19.3 million, or 77%, from $25.2 million in
the first nine months of 1999 to $44.5 million for the first nine months of
2000. The increase is related to a 55% 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 6.18% for the first
nine months of 1999 to an average of 7.08% for the first nine months of 2000.

Provision for credit losses increased $8.3 million, or 117%, from $7.1
million for the first nine months of 1999 to $15.4 million for the first nine
months of 2000. The portion of the average lease receivables balance
representing the Retail and Wholesale programs increased from 57% for the first
nine months of 1999 to 67% for the first nine months of 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 receivables balance caused the provision for credit loss to
increase for the first nine months of 2000 compared to the first nine months of
1999. The increase was also due to an increase in total lease receivables
retained on our balance sheet during the first nine months of 2000 compared to
the first nine months of 1999.

Depreciation and amortization increased $0.7 million, or 19%, from $4.0
million for the first nine months of 1999 to $4.7 million for the first nine
months of 2000. Such increase was primarily attributable to a 15% increase in
fixed assets from September 1999 to September 2000. Additionally, we
experienced a 6% increase in goodwill and other intangible assets from
September 1999 to September 2000 resulting from acquisitions made during 1999.

Other general and administrative expenses increased $2.9 million, or 20%,
from $14.2 million for the first nine months of 1999 to $17.1 million for the
first nine months of 2000. Such increase was attributable to 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
nine 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 nine 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

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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 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 September 30, 2000, our five securitized warehouse facilities had an
aggregate funding capacity of $744.1 million. As of October 31, 2000, $232.0
million was available for use under the existing facilities.

PUBLIC SECURITIZATION TRANSACTIONS

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any adverse change in the terms of our securitizations could have a material
adverse effect on our business, financial condition and results of operation.

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.

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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 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.

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

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corrected, the systems could fail or produce erroneous results. Our computer
systems experienced no significant Year 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 September 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 September 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 .. $ 1,696
Increase in pre-tax earnings from decrease in interest expense
due to the amortization of swap proceeds .................... 1,395
--------------
Net decrease in pre-tax earnings ................................ $ 301
==============

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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
September 30, 2000, an increase of 50 basis points in the credit spread would
result in a $1.7 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
September 30, 2000, our pound sterling denominated lease receivables totaled
approximately $30.1 million. As of the same date, our pound sterling
denominated borrowings had an aggregate outstanding balance of approximately
$15.7 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 September
30, 2000, a 5% decrease in the relative value of the British pound compared to
the United States dollar would result in a $27,000 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 could 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 1. LEGAL PROCEEDINGS

On August 7, 2000, Mark McQuitty filed a lawsuit in the Superior Court of
Orange County, California against SierraCities.com, Inc. and First Sierra
Financial, Inc. (collectively "SierraCities") alleging breach of contract,
fraud and other related claims. McQuitty's complaint arises out of the June 24,
1998, Merger Agreement between SierraCities and McQuitty's company, The
Republic Group, Inc., which resulted in Republic becoming a fully-owned
subsidiary of SierraCities. Additional claims arise out of McQuitty's
subsequent employment with SierraCities.

On September 6, 2000, we removed McQuitty's complaint to the United States
District Court for the Central District of California. Shortly thereafter, we
filed a motion requesting that the District Court enforce McQuitty's earlier
agreements to arbitrate his claims related to the Merger Agreement in Houston,
Texas and to litigate his remaining claims related to his employment with
SierraCities in Delaware. On October 26, 2000, the District Court stayed the
employment contract claims, pending the commencement of an arbitration in
Houston, Texas. Additionally, the District Court ordered the transfer of all
disputes arising from the Merger Agreement to the District of Delaware.

It is too early to estimate any potential loss and we intend to vigorously
defend against the claims.

ITEM 5. OTHER INFORMATION

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

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

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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)

November 13, 2000 /S/ SANDY B. HO
- --------------------- --------------------------------
Date Executive Vice President
and Chief Financial Officer
(principal financial officer)

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EXHIBIT INDEX

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

27 - Financial Data Schedule