UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 2001

                                       OR

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

            For the transition period from __________ to __________.

                        Commission file number: 333-45464

                        MEDICAL CAPITAL MANAGEMENT, INC.
                 (Name of small business issuer in its charter)

            Delaware                                             88-0473359
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                              Identification No.)

               3770 Howard Hughes Parkway, Las Vegas, Nevada 89109
               (Address of principal executive offices)(Zip Code)

                    Issuer's telephone number: (800) 824-3700

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act: None

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Exchange Act during the 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 [ ]

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained,  to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X].

State issuer's revenues for its most recent fiscal year: $ 1,645,912

All of the  registrant's  common equity is held by its parent  company,  Medical
Capital  Holdings,  Inc. There is no public market for the  registrant's  common
equity.

As of March 15, 2002, there were 2,000 shares of the registrant's  sole class of
common stock issued and outstanding.

          Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

BACKGROUND

Medical Capital  Management,  Inc. (the "Company") was incorporated in the state
of Delaware on August 4, 2000.  It maintains  its  corporate  office in Anaheim,
California.  The  Company is wholly  owned by  Medical  Capital  Holdings,  Inc.
("Parent").

The  Company  was  formed to  acquire  healthcare  receivables.  An example of a
healthcare  receivable would be the accounts receivable of a doctor's office, or
amounts owed to a doctor's office by its patients and their insurance  companies
for medical  services  performed by the doctors.  The Company intends to acquire
these healthcare receivables at a discount to the face amount of the receivable,
or an  amount  that is less  than  what the  Company  believes  to be the  fully
collectable amount of the receivable.  It then attempts to collect the full face
amount of the receivable and retain any profit resulting from the difference, or
a predetermined  rate of profit. The Company also intends to expand its business
into areas related to the healthcare industry.

THE COMPANY'S AFFILIATES

While  the  Company  has a  limited  operating  history,  it does  have  several
experienced  affiliates that have completed  offerings of debt securities backed
by healthcare receivables.  Its affiliate,  Medical Capital Corporation provides
underwriting  services  to the  Company  in  connection  with  its  purchase  of
healthcare receivables,  and its affiliate, Medical Tracking Services, Inc. acts
as the servicer for these purchases.  These affiliates will receive compensation
from the Company for providing those services. From time to time throughout this
report as the  context  requires,  references  to the  Company  include  actions
performed on behalf of the Company by these affiliates.

THE MEDICAL CAPITAL HOLDINGS GROUP

In addition to the  Company,  Medical  Capital  Holdings,  Inc. has other active
operating subsidiaries engaged in healthcare related businesses. These companies
are often  referred to  collectively  as the  Medical  Capital  Holdings  group.
Medical Capital  Holdings also has another  operating  subsidiary,  The Sterling
Bridge  Group,  Inc.,  which is an  Internet  Web-Site  development  and hosting
company.  The following chart shows the organization of Medical Capital Holdings
and its active  operating  subsidiaries  that are engaged in healthcare  related
businesses, including the Company:

    Individual            Medical Capital Holdings, Inc.
    Investors           /       (parent entity)
        |              /                       |
  0.03% Equity    99.97% Equity                | 100% Equity Ownership
   Ownership       Ownership                   |
        |           /        +-----------------+----------------+
        |          /         |                 |                |
        |         /          |                 |                |
    Medical Capital   Medical Capital  Medical Tracking    National Health
      Corporation     Management, Inc.  Services, Inc.   Benefits Corporation
    (Administrator)                       (Servicer)

MEDICAL  CAPITAL  HOLDINGS,  INC.  ("MCH").  Medical  Capital  Holdings  is  the
Company's  parent  entity  and acts as a  holding  company  for its  five  major
operating  subsidiaries.  Medical  Capital  Holdings has been in business  since
1996. In addition to the active operating  subsidiaries described above, Medical
Capital Holdings owns various special purpose  corporations that were formed for
the  specific  purpose of  acquiring  various  groups or pools of assets.  These
special purpose corporations do not have active business operations,  other than
holding those assets.

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<PAGE>
MEDICAL CAPITAL  CORPORATION  ("MCC").  Medical Capital  Corporation acts as the
administrator  for all of the Company's  receivable  purchases and other lending
transactions.  Medical Capital Corporation  essentially runs the business of the
Company by administering its day to day operations, underwriting and originating
its purchases of healthcare  receivables,  and performing  marketing,  sales and
client  support  functions.   Medical  Capital  Corporation  primarily  provides
services to companies  within the Medical Capital  Holdings  group.  The Company
compensates  Medical Capital  Corporation for underwriting and administering the
healthcare receivables that it purchases.

Medical Capital Corporation has provided services as an administrator since 1994
and is experienced in purchasing and monitoring healthcare receivables generated
by all types of healthcare  providers.  To date, Medical Capital Holdings,  Inc.
and   subsidiaries   have  purchased  over   $748,000,000   in  face  amount  of
receivables..  Medical Capital  Corporation's  business is operated as a closely
held company.  Medical Capital  Corporation  generally  charges companies in the
Medical  Capital  Holdings  group fees that  represent the  approximate  cost to
Medical  Capital  Corporation  of providing  services to the group.  The Company
believes  that the fees MCC  charges to  companies  within the  Medical  Capital
Holdings  group are similar to those that  non-affiliated  third  parties  would
charge for providing the same services.

Medical    Capital    Corporation    maintains    an    Internet    website   at
http://www.medicalcapital.com.  Medical Capital Corporation uses this website as
a marketing  tool and  solicits  the  purchase of  healthcare  receivables  from
potential  providers  through the website.  Because Medical Capital  Corporation
underwrites the healthcare  receivables that the Company purchases,  some of its
purchases  of  receivables  may be made  from  providers  that  Medical  Capital
Corporation  solicits  through its website.  Medical  Capital  Corporation  also
underwrites  purchases  of  healthcare  receivables  for other  companies in the
Medical Capital Holdings group, and to a limited extent,  for companies  outside
the Medical Capital Holdings group. Medical Capital Corporation's website is not
part of this report.

MEDICAL TRACKING SERVICES,  INC. ("MTS").  MediTrak acts as the servicer for all
of the Company's accounts receivable transaction data. MediTrak monitors, tracks
and posts all asset purchases and collections.  The Company compensates MediTrak
for  performing  these  services for the Company.  MediTrak  primarily  provides
services to companies within the Medical Capital Holdings group.

MediTrak has been facilitating the manual and electronic  tracking of healthcare
receivables  since 1997.  MediTrak's  business  is  operated  as a closely  held
company.  MediTrak  generally  charges companies in the Medical Capital Holdings
group fees for its services that represent the approximate  cost to MediTrak for
providing  those  services.  The Company  believes the fees MediTrak  charges to
companies  within the Medical  Capital  Holdings group are similar to those that
non-affiliated third parties would charge for providing the same services.

NATIONAL HEALTH BENEFITS CORPORATION ("NHBC").  NHBC provides medical healthcare
claims  processing,  Preferred  Provider  Organization  ("PPO")  re-pricing  and
negotiated  claims  settlement  services  to  insurance  companies,  third-party
medical claims  administrators  and to companies that self-insure  their medical
claims.  NHBC has been in business since 1987.  NHBC does not actively  purchase
healthcare  receivables  and the Company does not  anticipate  that any services
will be provided to it by NHBC.

BUSINESS OVERVIEW

The Company's primary business plan is to purchase  healthcare provider accounts
receivables at a discount to the face amount of the receivable. The Company then
attempts to collect 100% of the account balance.  The receivables  generally are
purchased from healthcare providers and other similar businesses, referred to as
its sellers or providers. The Company relies on its affiliates to provide it the
services  required  for  the  purchase,  monitoring  and  administration  of the
receivables, such as servicing, underwriting, and acquisition services.

                                       3
<PAGE>
The Company's  receivable purchases are generally limited to those having payors
such as:

     *    Medicare;
     *    Medicaid;
     *    other  governmental  agencies like Civilian Health and Medical Program
          of the Uniform Services (CHAMPUS);
     *    commercial  insurance  companies  with an  established  credit quality
          rating  of A or  better  from  A.M.  Best or an  equivalent  rating by
          another recognized rating agency, like Standard & Poor's;
     *    casualty insurers;
     *    other solvent payors, like managed care providers,  preferred provider
          organizations and self-insured companies; and
     *    other  businesses  that it  determines on a case by case basis through
          the underwriting process to be of low risk.

An "A" credit  rating for an  insurance  carrier  means that the  carrier has an
excellent  to  superior  ability to meet its  obligations  when due.  A.M.  Best
publishes  both a  financial  strength  rating and a credit  rating on more than
6,000 health,  property and casualty insurance  companies.  Receivable purchases
from insurance carriers are limited to those with an "A" or better credit rating
because the Company  believes  insurance  carriers  with an "A" or better credit
rating are more likely to pay a healthcare receivable on time.

The Company  will only  purchase  the insured  portion of an account  receivable
generated from patient services  rendered by healthcare  providers that meet the
financial requirements and underwriting standards established by Medical Capital
Corporation. Medical Capital Corporation has been using and continually refining
these  underwriting  standards  for over  seven  years.  This  process  has been
successful  in  purchasing  receivables  that are  profitable  since none of the
companies in the Medical  Capital  Holdings group has  experienced a net loss on
the purchase of receivables from any one provider.

The underwriting  department of Medical Capital Corporation uses credit criteria
which  is  similar  to that  used by other  similar  lending  institutions.  The
relevant operating,  historical and financial data of prospective  providers are
reviewed to assess the financial  risk involved in purchasing  that  prospective
provider's healthcare receivables.  The insured portion represents an obligation
of  third-party  insurance  companies,  large  corporations,  state  or  federal
government  agencies,  preferred  provider  organizations or health  maintenance
organizations. The Company will not purchase any portion of receivables that are
self-pay.  Self-pay  relates to the portion of the  receivable  to be paid by an
individual patient or other individual financially responsible for the patient.

The Company may also provide  loans  secured by equipment  and real  property to
healthcare businesses that it believes to be financially viable and of low risk.
From time to time, the Company may also purchase or invest in healthcare related
businesses,  like HMOs,  preferred provider  organizations,  medical bill review
companies and third-party administrators.

MEDICAL INDUSTRY BACKGROUND

According to news articles  published daily and trade  publications,  the United
States healthcare  industry is undergoing rapid change.  Due to the aging of the
population,  there is an  increasing  need for medical  institutions.  In recent
years,  according to reports  issued by the U.S.  Department of Health and Human
Services,  healthcare  expenditures have increased at a rate approximately twice
that  of  inflation.  Due to  the  pressure  from  health  insurance  companies,
corporations  and  government  agencies to control these rising  costs,  a trend
toward managed care has emerged. The Company believes the shift to managed care,
coupled with the increasingly  complicated  reimbursement procedures implemented
by payors of healthcare  receivables,  has made billing and  collection  efforts
more difficult.

                                       4
<PAGE>
As discussed in recent articles in Healthcare Financial  Management  Association
magazine, the ever increasing complex reimbursement procedures require employees
with sophisticated knowledge of the billing and payment procedures of the United
States government and each of the hundreds of different insurance carriers.  For
example,  the average 300 bed hospital in the United States  attempts to process
approximately 4,000 claims, payments and eligibility inquiries on any given day.
Many of these cases will be processed on paper, over the phone or not at all. As
a result, the average  collection time for most healthcare  receivables is 60 to
90  days,  which  presents   financial  problems  for  many  of  the  hospitals.
Consequently, healthcare providers experience a substantially increased need for
immediate  cash flow to support  not only daily  operational  expenses,  but the
additional  expense  required  for  billing  and  collection  services.  Billing
statistics  are published by Healthcare  Financial  Management  Association on a
monthly basis.

In order to  improve  collection  efficiency,  hospitals  and  other  healthcare
providers  are forced to either  out-source  billing  and  collection  or hire a
number of highly  skilled  employees  solely  for this  purpose.  Despite  these
efforts, many providers often incur a significant loss due to their inability to
effectively  process large amounts of claim information in a timely manner. With
payor reimbursement arrangements requiring increasingly more complex and lengthy
procedures,  the providers' revenue collection departments have become less able
to timely  process  the  claims due to their  limited  capacity.  Improperly  or
incompletely submitted information will result in payment delays.  Consequently,
the Company believes a serious  administrative  and cash flow management problem
exists  for many  healthcare  providers,  which are faced  with  numerous  other
expenses  ranging from  equipment  and facility  costs to payroll and  liability
insurance fees. In the new managed care  environment,  healthcare  providers are
forced  to  become  more  efficient   business  operators  in  order  to  remain
profitable. The consequences of a provider's inability or unwillingness to adapt
to these changes by using more sophisticated revenue collection systems causes a
shift in financial risk for providing healthcare from the payor to the provider.
The Company believes these providers have an increased need for predictable cash
flow.

Businesses generally utilize working capital or accounts receivable financing to
bridge the shortfall  between the turnover of current assets and the maturity of
current  liabilities.  A business will often  experience  this shortfall  during
periods of revenue  growth  because cash flow from new revenues lags behind cash
outlays required to produce new revenues. For example, a growing labor intensive
business  will  often  need to fund  payroll  obligations  before  payments  are
received on new services  provided or products  produced.  The Company  believes
that many healthcare providers have rapidly expanding businesses,  and therefore
require accounts receivable financing to fund their growth.

As a result of these  developments,  the Company  believes  financing or sale of
healthcare  receivables  has become a more  efficient  solution to meet the cash
flow needs of today's healthcare providers.  The Company believes that there are
several distinct trends that will continue to fuel the demand for and the dollar
value of  healthcare  services  in the  United  States  and the  demand  for its
services, including:

     *    dramatic  change driven by  governmental  and market forces which have
          put pressure on  healthcare  providers to reduce  healthcare  delivery
          costs and increase  efficiency,  often resulting in short-term working
          capital needs by these providers as their businesses grow;

     *    favorable  demographic trends,  including both the general increase in
          the U.S. population and the aging of the U.S. population, which should
          increase the size of its principal target markets;

     *    growth,  consolidation and restructuring of fragmented  sub-markets of
          the healthcare industry, including long-term care, home healthcare and
          physician services; and

     *    advances  in  medical  technology  which  have  increased  demand  for
          healthcare  services by  expanding  the types of diseases  that can be
          effectively treated and by extending the population's life expectancy.

                                       5
<PAGE>
BUSINESS STRATEGY

Financial  groups and various  smaller  financing  companies  provide  financing
through the purchase of receivables.  However, most of these institutions have a
minimum lending  threshold of $5,000,000 in receivables when offering  financing
to provider  groups.  As a general  matter,  the Company  believes these lenders
typically have been less willing to provide financing to healthcare providers of
the types it intends to serve  because  these  lenders  have not  developed  the
healthcare  industry  expertise  needed to underwrite  receivables  generated by
smaller  healthcare  providers.  These  lenders  also lack  specialized  systems
necessary for tracking and monitoring healthcare receivables transactions, which
are different from traditional accounts receivable finance transactions.

TARGET  PROVIDERS.  The Company intends to offer financing to medium and smaller
hospitals, other healthcare providers and durable medical equipment distributors
that  generally  do not produce  receivables  at a high enough  level to attract
large financial institutions,  by purchasing their receivables.  Initially,  its
primary marketing strategy will focus on the purchase of receivables from:

     *    hospitals;
     *    skilled nursing and assisted care facilities;
     *    physician groups consisting of two to six doctors;
     *    home healthcare facilities;
     *    durable medical equipment distributors;
     *    medical staffing companies;
     *    radiology and diagnostic medical facilities;
     *    medical testing facilities; and
     *    other healthcare businesses and related businesses which it determines
          through the underwriting process to have low risk.

The  Company  intends to target  those  providers  with  billings  of $20,000 to
$200,000 per month. It believes fee-for-service practitioners are a good type of
client due to the  relatively  small nature of their  business and the manner in
which they are paid.  Fee-for-service  practitioners are practitioners that bill
for healthcare  services using a retail billing rate for the services  provided.
They are then paid by the  insurance  companies  based on medical fee  schedules
established by the insurance industry.  These healthcare  practitioners  usually
have two to six  practitioners in one office.  The Company believes the billings
from such practitioners is relatively easy to monitor and purchase, and believes
their payment pattern will be best suited for its business. The other healthcare
businesses with which the Company intends to deal are primarily small hospitals,
skilled nursing facilities, home health agencies and medical clinics.

TARGET  GEOGRAPHICAL  AREAS. The Company intends to target both metropolitan and
rural markets for the purchase of healthcare receivables. Generally, it will not
expend  substantial  marketing efforts on the large  metropolitan areas like New
York, Chicago, Los Angeles, San Francisco,  etc. The Company believes the middle
tier of metropolitan  statistical areas contain the size and type of prospective
clients that will best suit its lending  criteria.  This segment of the national
market  consists  of a  majority  of  fee-for-service  practitioners  and  other
healthcare businesses. These metropolitan areas would consist of cities like San
Diego, California, Des Moines, Iowa and Little Rock, Arkansas.

PRODUCTS OFFERED. In addition to accounts receivable financing,  small to middle
market healthcare  providers often require  additional  financing  products like
loans  secured  by  equipment  or  real  estate  to  facilitate  the  growth  or
restructuring  of their  businesses.  Facility-based  healthcare  providers grow
through the  acquisition  of additional  facilities.  Facility-based  healthcare
providers generally are hospitals, skilled nursing facilities and clinics. These
providers can often acquire additional facilities at attractive valuations. This
happens when some facilities  need to be sold for a variety of reasons.  Some of
these reasons can include:

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<PAGE>
     *    the death of an owner of the facility;
     *    a healthcare  chain may decide to withdraw from a geographical  market
          and sell its facilities;
     *    some healthcare  chains may decide to sell a facility to use the funds
          to  purchase  different  or other types of  facilities  or to purchase
          facilities in other geographical markets; or
     *    when  smaller   healthcare  chains  declare  bankruptcy  due  to  poor
          management,   their  facilities  can  be  bought  through   bankruptcy
          proceedings.

In order to purchase facilities at an attractive price, quick financing is often
necessary so that the provider  can  complete  the intended  acquisition  before
other providers  outbid them. The Company  believes that when facilities  become
available for purchase,  the successful  bidder is often the first buyer to make
an offer and has the necessary  funds to complete the purchase in a short period
of time.

Many  of the  current  healthcare  providers  of the  Company's  affiliates  and
prospective  providers  have a need for loans as their  businesses  grow.  Loans
secured by the assets  owned by the  providers  are used in order to support the
providers'  expanding  infrastructure  requirements  like  information  systems,
enhanced  professional  management and marketing and business development costs.
The Company also plans to provide,  in the future,  various financing options to
providers,  like  loans  secured by  equipment  and real  estate.  It intends to
provide customized financing solutions  specifically  tailored to meet the needs
of each individual provider.

GROWTH.  The Company expects the trends  described above under Medical  Industry
Background   to  continue,   providing   the  Company  with   long-term   growth
opportunities.  It plans to increase  the number of financial  products  that it
will offer to the providers and other sellers from which the Company  intends to
purchase  healthcare  receivables.  These financial products may include leasing
medical and diagnostic  equipment,  real estate first and junior lien mortgages,
revolving credit lines and acquisitions of companies in the healthcare industry.
Its strategy for growth generally is based on the following key elements:

     *    Target sub-markets within the healthcare  industry that have favorable
          characteristics   for  working  capital  financing,   like  fragmented
          sub-markets experiencing growth,  consolidation or restructuring.  The
          Company's  focus will be on the purchase of healthcare  receivables in
          these sub-markets.

     *    Focus on healthcare providers with financing needs of between $100,000
          and $1,000,000;  which is a market niche that the Company believes has
          been under-served by commercial banks,  diversified finance companies,
          traditional secured lenders, and the Company's other competitors. Most
          commercial  banks,  diversified  finance  companies,  and  traditional
          secured  lenders  have  typically  focused on  providing  financing to
          companies  with borrowing  needs in excess of $5,000,000.  The Company
          believes that its target market for  transactions  is much larger,  in
          terms of the number of available financing opportunities,  and is less
          competitive than the market servicing larger borrowing needs,  thereby
          producing growth opportunities at attractive rates.

     *    Become  the  primary  source  for all  healthcare  financing  needs of
          providers  by  introducing  new  financial  products to  leverage  the
          Company and its affiliates'  existing expertise in healthcare finance,
          and providing other services  within its target  markets.  The Company
          expects to  selectively  introduce  new  products to existing  and new
          sellers,  depending upon their needs, general economic conditions, its
          resources  and other  relevant  factors.  In some  cases,  the Company
          anticipates that new products may be introduced as part of cooperative
          arrangements with other companies.

     *    Seek to make strategic  acquisitions  of and investments in businesses
          that are  engaged in the same or similar  business  as the Company and
          its  affiliates  or that  are  engaged  in lines  of  business  in the
          healthcare  industry  complementary to its business.  These businesses
          may  include  healthcare  service  businesses  that  are  involved  in
          financial services, receivables management, outsourcing, financial and
          administrative   infrastructure  services,  HMOs,  preferred  provider
          organizations  and third-party  administrators.  The Company  believes
          that businesses in these areas are synergistic  with its proposed core

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<PAGE>
          business  of  purchasing  healthcare  receivables  and could allow the
          Company to leverage its and its affiliates' expertise in healthcare to
          meet the needs of its target customer base. The Company will also seek
          to take advantage of appropriate opportunities to invest in or acquire
          companies  in the same or similar  lines of  business  as the  Company
          operates or will operates.

OBTAINING NEW PROVIDERS.  The Company  generally has four potential  sources for
developing  and locating  the  healthcare  provider  base from which the Company
acquires receivables: (1) referrals from banks and other financial institutions,
(2) referrals from independent  financing brokers and insurance agents,  (3) its
affiliates'  network of companies that are in healthcare service businesses with
which its  affiliates  have informal cross  referral  arrangements,  and (4) its
affiliates' sales and marketing  personnel.  Medical Capital  Corporation uses a
network of sales  representatives  who call on new and existing sellers in their
territory  on  a  regular  basis.  The  primary   responsibility  of  the  sales
representatives  is to develop and maintain  relationships  with  sellers.  Most
sales  representatives  have a healthcare  industry background and have received
specialized training from Medical Capital Corporation.

With respect to banks and financial institutions, some of the Company's officers
and those of its affiliates have existing  relationships  with several financial
institutions throughout the country. Banks are continually approached by medical
groups for  financing.  In  addition,  trust  departments,  brokerage  firms and
investment  advisers  are  regularly  asked  by  their  provider  clients  where
financing might be obtained. These banks and institutions refer providers to the
Company and its affiliates from time to time.

The Company believes a rapidly growing  community of independent  brokers exists
that arranges financing specific to the healthcare industry. These brokers refer
providers to different  lending  institutions for a fee. These brokers assist in
locating  receivables   available  for  purchase  from  smaller  providers  that
typically cannot find traditional financing because of their small size.

The  Company's  affiliates  also have a network of  contacts  in the  healthcare
provider and healthcare insurance industries.  The healthcare insurance industry
consists of healthcare insurers that pay medical claims to healthcare providers.
It also  includes  companies  providing  services to healthcare  providers  like
medical coding reviews,  medical necessity determination reviews, billing system
efficiency reviews and other healthcare  insurance payment and billing services.
These contacts have been  developed over the past years through its  affiliates'
marketing and hiring efforts. In addition,  many of its affiliate's officers and
employees  have  previously  worked in the  healthcare  provider and  healthcare
insurance industries.  Also, through daily marketing efforts, its affiliates are
constantly  enlarging their sales and referral base of independent  brokers, the
customers of which include many practitioner and facility-based providers.

In addition to the above sources of obtaining  new  providers,  Medical  Capital
Corporation  maintains  an  Internet  website at  http://www.medicalcapital.com.
Medical Capital  Corporation  uses this website as a marketing tool and solicits
the purchase of healthcare  receivables  from  potential  providers  through the
website. The website describes the business of Medical Capital Corporation,  the
receivables  financing process and Medical Capital's program for financing.  The
website also contains a short  application  that providers can complete to apply
to have  Medical  Capital  Corporation  evaluate  the  provider's  business  and
receivables to determine  their  eligibility  to participate in the  receivables
purchase program.  While the website will not specifically refer to the Company,
.. Medical Capital  Corporation  underwrites the healthcare  receivables that the
Company  purchases,  and some of the Company's  purchases of receivables  may be
from providers Medical Capital Corporation solicits through its website. Medical
Capital  Corporation  also underwrites  purchases of healthcare  receivables for
other companies in the Medical Capital  Holdings group, and to a limited extent,
for  companies  outside the Medical  Capital  Holdings  group.  Medical  Capital
Corporation's website is not part of this report.

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RECEIVABLES ACQUISITION PROCESS

GENERAL.  The  acquisition  process  used by MCC has been in use for over  seven
years. To date,  Medical Capital  Corporation has purchased over $748,000,000 in
face  amount of  receivables  on  behalf of  companies  in the  Medical  Capital
Holdings group. The  effectiveness of this process is supported by the fact that
none of the  Medical  Capital  Holdings  subsidiaries  has  had  any net  losses
resulting from the purchase of receivables from any one provider.

When MCC  identifies  a  healthcare  provider or other  seller from which it may
purchase  receivables,  it will enter into a receivables purchase agreement with
that  provider.  This agreement will give the Company the right of first refusal
to  purchase  all  receivables  from  that  seller  either  weekly,   bi-weekly,
semi-monthly  or monthly,  generally for a period of one year.  The terms of the
agreement will vary from seller to seller. Each week Medical Capital Corporation
reviews all  receivables  purchased  in the  preceding  week and  decides  which
receivables  it will purchase on behalf of the Company  within the next seven to
10 days. MCC refers to each set of receivables so purchased as a batch.  Medical
Capital  Corporation  has the sole  discretion as to which  receivables  it will
purchase.

APPROVAL OF  PROVIDERS  AND OTHER  SELLERS.  Generally,  the  Company  purchases
healthcare and other receivables  directly from the seller, after the seller and
the receivables have been underwritten by Medical Capital  Corporation.  Medical
Capital  Corporation  has  developed a set of criteria for the  selection of the
prospective  sellers and  guidelines for the  receivables  that will qualify for
purchase.

Generally,  Medical  Capital  Corporation  focuses  on  healthcare  and  similar
businesses  that have sales of at least $10,000 per week.  Currently,  a typical
seller generates  receivables between $10,000 to $50,000 per week. A prospective
seller generally will have to generate  invoices  averaging at least $150.00 per
service   incident.   Medical   Capital   Corporation  has  found  that  smaller
receivables,  those  under  $50.00,  do  not  generate  sufficient  profit  when
purchased.

UNDERWRITING  POLICIES. The underwriting policies of Medical Capital Corporation
require a due diligence  review of the prospective  seller of  receivables,  its
principals,  its financial condition and strategic position,  including a review
of all available  financial  statements and other financial  information,  legal
documentation  and  operational  matters.   Medical  Capital  Corporation's  due
diligence review also includes a detailed  examination of the seller's  accounts
receivable,  accounts  payable,  billing and collection  policies and practices,
management  information  systems  and  real  and  personal  property  and  other
collateral.  Records and data of the provider for the prior 24-month  period are
reviewed and evaluated for consistency, reliability and adequate performance.

Medical Capital Corporation also requires that:

     *    the healthcare  provider,  each of the  individual  physicians and any
          medical  personnel  be  properly  licensed  to  practice  and  have no
          unresolved  legal or medical  issues  regarding  their  practice or an
          unusual amount of malpractice  litigation,  or litigation matters that
          were not disclosed by the healthcare provider;

     *    the healthcare  provider to have been in business in its community for
          a minimum of 18 months;

     *    the  healthcare  provider  group  demonstrate   credit-worthiness   as
          determined  by  assessments  of  credit  reports,   past   receivables
          financing history, bank references,  financial statements,  accounting
          firm comments and UCC-1 searches; and

     *    the seller agree to some or all of the following terms:

          -    to  pledge  all of  its  receivables,  existing  and  future,  as
               additional collateral;

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          -    to  execute  a  guarantee  ensuring  payment  on all  receivables
               purchased; and

          -    to establish  up to a 25% reserve  account for the portion of the
               purchase price of the receivables  that will be withheld from the
               seller.

CREDIT  RISK  MANAGEMENT.  The  possible  insolvency  or loss of  funding  of an
individual third-party payor is a significant risk to the Company's business. In
order to minimize this risk, the Company  imposes  restrictions on the amount of
receivables that can be purchased from any individual  third-party payor, within
each  provider  and within  the total loan  portfolio.  MCC  constantly  reviews
industry  rating agency  reports and industry  journals and articles in order to
gain any insight into possible financial problems of any third-party payors. MCC
also  independently  confirms  various  matters with respect to the  prospective
provider's  business and the  collectibility of its accounts  receivable and any
other collateral by conducting public record searches,  and, where  appropriate,
by contacting third-party payors about the prospective provider's receivables.

A  credit  report  is  obtained  from  an  appropriate  credit  agency  on  each
prospective  provider  and its  principals  and any medical  personnel  with any
ownership interest.  The provider must be creditworthy,  and any negative credit
comments must be explained and documented to the Company's  satisfaction  or the
satisfaction of Medical Capital  Corporation.  Special attention is given to any
past receivable  financing history. If the provider finances any equipment,  the
applicable  equipment  leasing  companies are contacted for a credit history and
reference.   Prospective  providers  are  required  to  provide  favorable  bank
references.  A UCC-1 Financing  Statement  search is performed to determine that
there are no present liens against the receivables of the prospective  provider.
If any receivable liens do exist,  the lien must be paid off before,  or as part
of, the initial purchasing or funding of any receivables.

PURCHASE  OF  RECEIVABLES.  The  Company's  purchase  agreement  with a provider
requires  that  it has the  first  right  of  refusal  on all of the  provider's
receivables on a regular-interval  basis,  generally for one year. However,  the
Company's  total  investment  in  receivables  from a seller under a receivables
purchase  agreement  generally  is made on a specified  commitment  amount.  The
Company usually refrains from making one-time purchases of receivables.  For the
first purchase from a provider,  the Company  reviews and offers to purchase all
of the receivables of that provider, depending on the above detailed analysis of
the receivables. After the first purchase, MCC analyzes all receivables from the
preceding week and decides which additional  receivables it will purchase within
the next seven to 10 days.

RECEIVABLES CHARACTERISTICS. In some cases, the Company may purchase receivables
that are more than 90 days old, depending on the analysis of the receivable. The
age for any  receivable  is the number of days elapsed since its billing date to
the payor of the receivable. The Company buys receivables with the goal that the
average age of receivables  purchased from providers in its portfolio  generally
will not  exceed  180 days.  The  Company  has the sole  discretion  as to which
receivables  it  will  purchase.  It  reserves  the  right  to  disqualify  some
categories, or some payors, of receivables for purchase at its discretion.

When acquiring  receivables,  the Company only purchases receivables that are to
be paid by:

     *    an  insurance  carrier  with at  least  an "A"  credit  rating  from a
          recognized rating agency like A.M. Best or Standard & Poors;
     *    an approved HMO;
     *    an approved government agency;
     *    an approved institutional facility;
     *    a self-insured employer; or
     *    another entity which meets the Company's financial standards.

Except for government agencies,  the Company limits the portion of its portfolio
of  receivables  that are payable by a single  payor to 15%.  The  Company  also
ensures  that at any  given  time  no more  than  50% of its  total  outstanding
investment  portfolio of  receivables,  in the aggregate,  are from Medicare and

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<PAGE>
Medicaid   payors.   Because   Medicare  and  Medicaid   claims  are   submitted
electronically, the turnaround time for payment is about 30 days. It is for this
reason  the  Company  accepts  higher  amounts  of these  receivables  than from
traditional commercial insurance carriers.

PRICING RECEIVABLES FOR PURCHASE.  Once a seller has met the criteria and agreed
to the requirements, Medical Capital Corporation begins the process of selecting
and pricing the receivables for purchase.  One of the most important  aspects of
the selection process,  and the due diligence procedure performed on prospective
providers,  involves an analysis of a provider's  receivables and collections to
evaluate the receivables  likely to be paid within a defined  collection period.
The  analysis  covers a period of not less than the prior 24 months.  Using this
data, Medical Capital  Corporation  develops ratios and other data which include
the following information:

     *    the monthly total receivable balance;
     *    the amounts billed to and collected from the various payors;
     *    the amount of claims paid;
     *    the amount of claims not paid, and why;
     *    a review of claims files and related medical and billing records;
     *    the average payment turnaround time;
     *    the average  response time of the  prospective  seller to return payor
          requests for information;
     *    the classification of claims between insured and uninsured;
     *    the amount and number of worker's  compensation  and  personal  injury
          claims;
     *    the  ratio  of  total  monthly  billed  to  total  monthly   collected
          receivables; and
     *    review of historical  collections  from the  third-party  payor of the
          receivables,  including a listing of and aging of the  receivables  by
          the payor with corresponding financial status rating of each.

From  the  above  data,  Medical  Capital  Corporation   calculates  an  average
receivable amount,  receivable turn time, and the payment trend analysis on each
major payor. It also verifies the existing  outstanding  receivables by randomly
selecting  individual  billing files and contacting  the applicable  third-party
payor to determine  whether the claim has been submitted for payment and will be
paid as anticipated. Prior to a receivable being deemed eligible for purchase by
the Company,  one of its  required  conditions  is that there be an  established
payment  history by the payor of the  receivable  reimbursing an amount at least
equal to the estimated net receivable generally within 60 to 90 days of the date
the claim is submitted.  Finally,  Medical  Capital  Corporation  interviews the
prospective  client's  administrative,   accounting  and  billing  personnel  to
document and review the integrity of internal controls and follow-up billing and
collections procedures.

The Company's  purchase price paid for healthcare and other receivables is based
on a percentage of the face value of the  receivable.  To determine the purchase
price,  the face value is reduced first by the amount of any patient  co-payment
and any  amounts  in  excess of what the  payor  has  historically  paid for the
procedure  giving rise to the receivable.  The resulting  amount is then further
reduced by  considering  other factors that influence the amount which is likely
to be  collected  under the  receivable,  including  the  historical  collection
experience  of the  provider.  The  resulting  number is the estimate of the net
collectible value of the receivable, or the estimated net receivable.

RESERVE ACCOUNT.  The Company  purchases the receivables at a price equal to the
estimated net receivable.  Only a portion of the purchase  price,  not exceeding
90% of the  estimated  net  receivable,  is paid to the  seller  immediately.  A
portion of the  purchase  price not  immediately  paid is allocated to a reserve
account for that  provider.  The Company  retains  the  remainder  of the unpaid
purchase price as its fee.

The purpose for  establishing a reserve  account is to have  protection  against
losses due to  uncollected  receivables.  Withholding  a portion of the purchase
price is easier to exercise  than  attempting to require the  replacement  of an
uncollected  receivable  or otherwise  seeking  enforcement  of the  receivables
purchase agreement.  If a purchased  receivable becomes outstanding for over 180
days, the Company may, at its option:

                                       11
<PAGE>
     *    offset the  amount  actually  paid to the  seller  for the  receivable
          against the seller's reserve account;
     *    offset  the  amounts  due to the  seller  from the  purchase  of other
          batches of receivables;
     *    require  the  seller  to  replace  the  uncollected  receivables  with
          additional receivables; or
     *    exercise its rights under a guarantee from the seller, if any.

If a receivable is collected at a later date, the reserve account is credited by
the amount of the  collection up to the amount that was previously  offset.  Any
time the amount  collected  with respect to a receivable is less than the amount
invoiced,  the  difference  is  offset  against  the  reserve  account.  If  the
receivables  purchase  agreement  is  terminated,  any  remaining  balance  in a
seller's  reserve  account is  returned  to the seller  after the payment of any
advances made by the Company, and any interest and fees due have been paid.

The amount of the reserve  account will  generally  range from 10% to 25% of the
estimated net receivable.  A seller is paid the amount  allocated to its reserve
account only when the amount  exceeds a negotiated  percentage,  usually 25%, of
all of the receivables purchased from the seller that are outstanding at any one
time.  From  time to time a  reserve  accounting  is  made to the  seller.  When
warranted by this  accounting,  any excess in the reserve account is paid to the
seller  within  15 days  of the  accounting.  Any  amount  paid  on a  batch  of
receivables  in excess of the estimated net  receivable is allocated as a credit
to the seller's reserve account.

An adjustment may be made if the seller's reserve account balance falls below 5%
of  the  outstanding  uncollected  receivables  balance  for  that  seller.  The
adjustment is typically  made to the estimated net receivable  percentage.  This
adjustment  effectively  reduces the percentage of cash  immediately paid to the
provider when future  receivables are purchased.  For example, a provider may be
initially paid 85% of the estimated net receivable immediately when a receivable
is purchased from that provider.  If that seller's reserve account balance falls
below 5% of the outstanding receivables balance and requires an adjustment,  the
provider may only be paid 80% of the  estimated  net  receivable  at the time of
purchase for future receivable  purchases.  In this example,  in addition to the
normal allocation to the reserve account,  an additional 5% of the estimated net
receivable  would be allocated to the reserve account for all future  purchases.
This  adjustment,  in effect,  increases  the amount  allocated  to the  reserve
account on each future purchase.

ADMINISTRATION AND SERVICING OF RECEIVABLES

ADMINISTRATION  OF  OPERATIONS.  The Company has entered into an  administrative
services  agreement with Medical  Capital  Corporation,  one of its  affiliates.
Under  the  terms of the  administrative  services  agreement,  Medical  Capital
Corporation has agreed to serve as the exclusive provider of management services
to  the  Company  and  as  the  administrator   for  the  receivables.   As  the
administrator, Medical Capital Corporation will be responsible for providing the
Company the general and  administrative  services to facilitate the underwriting
and  evaluation  of  receivables  and other  assets to be  purchased  or used as
collateral  for a loan. It will also provide the personnel and computer  systems
that are  necessary  to ensure the  collateral  is  safeguarded  and performs as
anticipated.  It will also ensure the adequate  processing  and reporting of the
assets in the portfolio.  Once the receivables are identified for purchase,  the
Company enters into purchase agreements to acquire the receivables.

Medical Capital  Corporation is also  responsible  for providing  management and
underwriting   services  and  making  available  to  the  Company  its  offices,
personnel,   facilities,  equipment  and  services,  as  are  determined  to  be
reasonably  necessary  for the proper and  efficient  operation of its business.
These  services  will include:  bookkeeping,  payroll and  accounting  services,
including   administration  of  all  promissory  notes  and  interest  payments;
marketing and public relations;  maintaining a network of account consultants to
develop and maintain its relationships with healthcare  providers;  and opening,
maintaining and directing bank accounts for its benefit.

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<PAGE>
Under the administrative  services  agreement,  the Company pays Medical Capital
Corporation  fees for providing the above services to the Company.  The fees for
the  various   services   they   provide  is  included  on  a  schedule  to  the
administrative services agreement. These fees which approximate actual costs are
believed to be competitive  with those fees charged by third parties for similar
services rendered to the Company's competitors.

LOCK BOX & COLLECTIONS.  As required under the receivables  purchase  agreement,
all proceeds from the collection of the purchased receivables are required to be
paid to a lock box  account.  A lock box account is a post office box,  called a
lock box, established by the bank that processes the payments. Payments are sent
directly to these lock  boxes.  Therefore,  the  third-party  payor  payments of
receivables do not go to the seller, but rather are sent to the appropriate lock
box.  When a seller enters into a receivables  purchase  agreement,  a notice of
change in  mailing  address is sent to all  payors of the  receivables  that are
being purchased.  The notice instructs the payors to deliver all payments to the
appropriate lock box account.  Each lock box is established and functions solely
to receive payments. When payments are sent to the lock box, the bank processing
the lock box  deposits  the payment  into a lock box  account at that bank.  The
amounts in the lock box  accounts  are  periodically  transferred  to an account
maintained by the trustee.

Separate lock box accounts are established for each seller.  Receivables due and
owing  from  government  programs  are  subject  to  laws  and  regulations  not
applicable to commercial payors.  Except in limited cases, Medicare and Medicaid
laws  and  regulations   provide  that  payments  for  services  rendered  under
government  programs  can  only be  made to the  healthcare  provider  that  has
rendered the services.  Therefore, each seller has a lock box for non-government
collections and a separate lock box for government  collections,  like Medicare,
Medicaid,  CHAMPUS,  etc. The lock box account for government  collections is in
the name of the seller and Medical Capital  Corporation,  and for non-government
collections  is in the name of Medical  Capital  Corporation.  The bank lock box
proceeds are  maintained in a zero balance  account which is swept daily by each
bank  maintaining a lock box account to the cash  concentration  account that is
under the control of the trustee.

TRACKING  RECEIVABLES BY BATCH.  Generally,  once a batch of receivables reaches
the age of 180 days from the  purchase  date,  the batch is  closed.  The closed
batch is reconciled and reviewed to determine if the collections are adequate to
achieve the expected performance of the purchased  receivables.  This process is
used to constantly  evaluate the estimated  net  receivable  rates used for each
seller.  If any one batch of purchased  receivables does not perform as expected
and falls  short of the  estimated  net  receivable,  the seller is  required to
supplement the shortfall by substituting  the receivable  with another  eligible
receivable,  or through recovering the shortfall from the reserve account, or by
paying the appropriate sum to Medical Capital Corporation. If the batch collects
more than the applicable  estimated net  receivable,  the excess is allocated to
the seller's reserve account.

Weekly  reports of  purchased  receivables  are  generated on a seller by seller
basis.  These reports provide currently  updated accounts  receivable agings and
other  valuable  portfolio  information,   including  claim  denial  trends  and
collections  performance.  Copies  of  these  weekly  reports  are  sent  to its
executive  offices  and the payment  and aging  update  reports are sent to each
seller.

SERVICING  OF  RECEIVABLES.  The  Company  has a  servicing  agreement  with its
affiliated   company,   Medical  Tracking  Services,   or  MediTrak,   which  is
headquartered  in Las Vegas,  Nevada.  The  servicing  agreement  provides  that
MediTrak  will service the  receivables  and provide other support in connection
with the processing,  collection and valuation of receivables. MediTrak services
all receivable  batches that the Company  purchases  from its sellers.  MediTrak
also prepares  analysis  reports of receivables that are submitted for purchase,
but ultimately disqualified and not purchased.

                                       13
<PAGE>
MediTrak process all receivables the Company  purchases and reports related data
on a batch by batch basis.  The payor's  explanations  of benefits and payments,
which shows how the payments on each receivable were calculated,  its remittance
advices and warrants from government agencies,  and all other payments, are sent
directly to the bank that is performing the lock box processing. Copies of these
documents  are  forwarded by the bank to MediTrak for posting.  MediTrak is also
provided  with a report from the lock box  processing  bank of deposits into the
lockbox accounts.

MediTrak inputs this information into its system and posts the proper credits to
each seller's  account,  on an  account-by-account  basis.  It then  transmits a
report  electronically  to the Company giving  details of all amounts  received.
MediTrak  then sends  copies of all  payment  documents  and other  accompanying
documents to the provider.

CREDIT LOSS POLICY AND EXPERIENCE

The  Company  regularly  reviews  its  outstanding   healthcare  receivables  to
determine the adequacy of its allowance for losses on receivables. To date, none
of its  affiliates  has  experienced  any net  credit  losses  on the  pools  of
receivables  they hold. The Company expects to maintain the allowance for losses
on receivables at an amount  estimated to be sufficient to absorb future losses,
net  of  recoveries,   inherent  in  the  healthcare   receivables  when  it  is
appropriate.  In evaluating the adequacy of the allowance,  it considers factors
like trends in healthcare sub-markets,  past-due accounts, historical charge-off
and recovery rates, credit risk indicators, economic conditions, on-going credit
evaluations,  overall portfolio size,  average seller balances,  reserve account
balances, real estate collateral valuations,  if any, and underwriting policies.
However,  many of these considerations  involve the significant use of estimates
and are subject to rapid  changes  which may be  unforeseen  and could result in
immediate  increased losses and material  adjustments to the allowance or actual
losses.

To the extent that the Company may deem specific  healthcare  receivables  to be
wholly or partially  un-collectable,  it will  establish a specific loss reserve
equal to that amount.  The Company has not  established  an allowance for losses
because  circumstances  at the present  time do not warrant it. If an  allowance
should be established  in the future,  there can be no assurance that it will be
adequate to cover any losses the Company may experience. Historically, companies
in the Medical  Capital  Holdings  group have used a  guideline  for credit loss
allowances of 2% of  outstanding  debt at the time of reporting.  However,  this
guideline is adjusted to reflect the performance of each individual client. As a
result,  the  credit  loss  allowances  have  often  times been less than the 2%
guideline.

Because the Company is likely to collect more than the amount  initially paid to
the seller of the  receivable,  the portion of the purchase  price that has been
withheld represents a reserve, or additional security, for the collection of the
amounts due under all of the  receivables  from that  seller.  The amount of the
holdback of a portion of the receivables' purchase price that does not represent
a yield to the Company upon  collection  of the  receivable  is allocated to the
reserve account of that seller.  In some cases,  some or all of the balance of a
reserve  account can be returned to the seller.  If a receivable  is in default,
the Company will take  measures to recover the purchase  price.  These  measures
include reducing the sellers balance in its reserve account, seeking replacement
of the receivable from the seller, or enforcing corporate or personal guarantees
given by the seller, if any.

TITLE TO RECEIVABLES

The Company believes that the receivables  purchase  transactions it enters into
are true sales and the purchased receivables are owned by the Company.  However,
the  purchase  of a  receivable  might  be  characterized  by some as a  secured
financing,  or a loan secured by the  receivables.  Therefore,  the Company also
takes  a  security  interest  in each  receivable  purchased  and  files a UCC-1
financing  statement  covering the receivables.  If it is determined that a true
sale of the  receivable  has not  occurred,  the  Company  may  still be able to
foreclose on the  receivable  or the proceeds of the  receivable as security for
the amount paid for the receivable.

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<PAGE>
Although the Company pledges receivables to the trustee, it recognizes that some
receivables may prove to be non-assignable.  For example, the assignment of some
Medicare and Medicaid  accounts  receivables  may be  prohibited by federal law.
However,  it is common in the medical receivables lending industry to take other
measures to secure the receipts from Medicare and Medicaid accounts receivables.
The Company makes every effort to ensure that the accounts receivables purchased
are assignable.  If a receivable turns out to in fact be  non-assignable,  it is
possible  that neither the trustee nor the Company will have  received  title to
the receivable,  or even a security interest in it. This problem is addressed by
taking additional  collateral as security from the provider or its owners. Other
steps may also be taken by its  underwriting  department to ensure that the loan
is fully secured.

In a few cases, assignment of a receivable or any security interest in a nursing
home has been found to require the  recording of a mortgage.  This is a practice
the Company  attempts to avoid and does not currently  intend to follow.  In the
event of a default on these  receivables  by the payor,  the Company could be at
risk  to  the  extent  of  the  purchase  price  advanced  with  respect  to the
receivables.

COMPETITION

The  Company  encounters  significant  competition  in  its  healthcare  finance
business from numerous commercial banks, diversified finance companies,  secured
lenders and specialty  healthcare  finance  companies.  In addition,  healthcare
providers often seek alternative  sources of financing from a number of sources,
including venture capital firms, small business investment companies,  suppliers
and individuals. As a result, it competes with a significant number of local and
regional  sources of financing and several large national  competitors.  Many of
these  competitors  have greater  financial and other resources than the Company
has and may have significantly  lower costs of funds.  Competition can take many
forms, including the pricing of the financing, transaction structuring, like the
use of securitization  vs. portfolio  lending,  timeliness and responsiveness in
processing a client's financing application and customer service.  Although many
of its  competitors  have focused their business on large  hospitals and clinics
and generally prefer to buy receivables in multi-million  dollar  denominations,
typically  with a  lower  profit  margin,  these  competitors  could  enter  the
Company's target markets more aggressively in the future.

REGULATION

The  Company's  healthcare  finance  business  is subject  to federal  and state
regulation and supervision. Currently, there are no regulations that require the
Company to obtain specific licenses or approvals, other than those applicable to
businesses  in general,  to be able to purchase  receivables  in any state.  The
Company continually  researches and monitors  regulations and will apply for the
appropriate  licenses  if  regulations  change  and  require  the  Company to be
licensed to perform its business in any particular state in which it operates.

Governments at both the federal and state levels have continued in their efforts
to reduce, or at least limit the growth of, spending for healthcare services. On
August 5, 1997,  President  Clinton  signed into law The Balanced  Budget Act of
1997, or the BBA. The BBA contains  numerous  Medicare and Medicaid  cost-saving
measures.  Section 4711 of the BBA, entitled  Flexibility in Payment Methods for
Hospital, Nursing Facility, ICF/MR, and Home Health Services, repealed the Boren
Amendment.  The Boren  Amendment had required that state  Medicaid  programs pay
nursing home  providers  amounts  reasonable and adequate to meet various costs.
These  costs were those that must be incurred by  efficiently  and  economically
operated  facilities  in order to provide care and services in  conformity  with
applicable state and federal laws,  regulations and quality and safety standards
and to assure access to hospital  services.  The Boren  Amendment was previously
the foundation of litigation by healthcare facilities seeking rate increases.

                                       15
<PAGE>
In place of the Boren  Amendment,  the BBA requires only that,  for services and
items  furnished  on or after  October 1, 1997,  a state  Medicaid  program must
provide for a public process for  determination of Medicaid rates of payment for
nursing  facility  services.  Under  these  proposed  rates,  the  methodologies
underlying the  establishment  of the rates and  justification  for the proposed
rates are published.  This gives  providers,  beneficiaries  and other concerned
state residents a reasonable  opportunity for review and comment on the proposed
rates, methodologies and justifications.

States are actively  seeking ways to reduce Medicaid  spending for healthcare by
methods like  capitated  payments and  substantial  reductions in  reimbursement
rates.  The BBA also  requires  that nursing  homes  transition to a prospective
payment system under the Medicare program during a three-year  transition period
commencing  with the first cost reporting  period  beginning on or after July 1,
1998. The BBA also contains  several new anti-fraud  provisions.  The Company is
unable to predict  the  long-term  impact of the BBA and  continuing  changes in
state Medicaid reimbursement methodologies on the revenues of its sellers.

The  Company's  business may be affected by its  inability  to directly  collect
receivables under government  programs and the right to offset against unrelated
receivables of payors under these programs.  Its healthcare receivables purchase
business may also be indirectly affected by healthcare  regulation to the extent
that any of its  sellers'  failures  to comply with the  applicable  regulations
affects  its  ability  to  collect  their  receivables.   The  most  significant
healthcare  regulations  that could  potentially  affect the  Company  are:  (1)
certificate of need regulation,  which many states require upon the provision of
new  health  services,  particularly  for  long-term  care and  home  healthcare
companies; (2) Medicare-Medicaid fraud and abuse statutes, which prohibit, among
other things,  the offering,  payment,  solicitation or receipt of remuneration,
directly or indirectly,  as an inducement to refer patients to facilities  owned
by physicians if the facilities receive reimbursement from Medicare or Medicaid;
and (3) other prohibitions of physician self-referral that have been promulgated
by various states.

CERTIFICATE OF NEED  REGULATION.  Various  states  regulate the provision of new
healthcare  services or acquisition of healthcare  equipment through certificate
of need or similar programs.  These states require healthcare providers to enter
into a time  consuming  certificate  of need  application  process to be granted
licenses  and permits to open or expand  healthcare  services.  Most states have
removed  certificate of need regulations from their state laws and have replaced
them with more  streamlined  licensing  processes.  The Company  believes  these
requirements will have a limited effect on its business.  However,  there can be
no assurance  that future  changes in those laws will not  adversely  affect the
Company. Repeal of existing regulations of this type could also adversely affect
it since sellers could face increased competition absent regulation. There is no
assurance that its proposed  healthcare  financing  business  within the nursing
home and home care industries  will not be adversely  affected by regulations of
this type as well.

MEDICARE-MEDICAID  FRAUD AND ABUSE STATUTES.  The U.S.  Department of Health and
Human  Services,  or HHS,  the  U.S.  Department  of  Justice  and  state  fraud
enforcement   agencies  have  increased  their  enforcement  efforts  under  the
Medicare-Medicaid  fraud and abuse  statutes.  Since the Company often relies on
prompt payment on its healthcare  receivables,  reduced or denied payments under
government programs could have an adverse effect on its business.

REGULATION OF PHYSICIAN  SELF-REFERRAL.  These  statutes  prohibit the offering,
payment, solicitation or receipt of compensation,  directly or indirectly, as an
inducement to refer  patients for services  reimbursable  in whole or in part by
the Medicare-Medicaid programs. The Health and Human Services Department ("HHS")
believes that  distributions  of profits from  corporations  or  partnerships to
physician   investors  who  refer   patients  to  the  entity  for  a  procedure
reimbursable  under  Medicare or Medicaid may be prohibited  by the statute.  In
addition,   regulatory  attention  has  been  directed  toward   physician-owned
healthcare  facilities and other  arrangements where physicians are compensated,
directly or indirectly, for referring patients to those healthcare facilities.

                                       16
<PAGE>
In 1988,  legislation  entitled the Ethics in Patient  Referrals Act (H.R. 5198)
was introduced  which would have  prohibited  Medicare  payments for all patient
services  performed by an entity which a patient's  referring  physician  had an
investment  interest.  As enacted, the law prohibited only Medicare payments for
patient services performed by a clinical laboratory. The Comprehensive Physician
Ownership and Referral Act (H.R.  345), which was enacted by Congress in 1993 as
part of the Deficit Reduction  Package,  is more  comprehensive  than H.R. 5198.
This act covers additional  medical services including medical imaging radiation
therapy, physical rehabilitation and other healthcare services.

A variety of existing and pending state laws prohibit or limit a physician  from
referring  patients to a facility in which that  physician has a proprietary  or
ownership interest. Many states also have laws similar to the Medicare fraud and
abuse  statute  which  are  designed  to  prevent  the  receipt  or  payment  of
compensation  in  connection   with  the  referral  of  a  patient.   Healthcare
receivables resulting from a referral in violation of these laws could be denied
payment which could adversely affect both the Company and its sellers.

EMPLOYEES

As of December 31, 2001, the Company employed no full-time  employees.  However,
the Company makes partial use of  approximately  70 employees of its affiliates,
for which it pays fees under the administrative services agreement.

ITEM 2. DESCRIPTION OF PROPERTY.

The principal executive offices of the Company are located at 3770 Howard Hughes
Parkway in Las Vegas, Nevada. Its office space is leased by its parent,  Medical
Capital Holdings, from a non-affiliated  landlord. The Company believes that its
existing  facilities  are  adequate  for its  current  needs  and that  suitable
additional space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS.

The Company is not aware of any pending or threatened legal proceedings that, if
adversely determined, would have a material affect on its operations.

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

None

                                       17
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

All of the  Company's  common  equity  is held by its  parent,  Medical  Capital
Holdings, Inc. There is no public market for the Company's equity securities.

The  information  required  by Item 701 of  Regulation  S-B has been  previously
reported.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Management's  discussion and analysis of the results of operations and financial
condition  of the  Company  should  be read in  conjunction  with the  Financial
Statements and related Notes thereto.

RESULTS OF  OPERATIONS  FOR THE YEAR ENDED  DECEMBER 31, 2001 AND FOR THE PERIOD
SINCE INCEPTION ON AUGUST 4, 2000 TO DECEMBER 31, 2000.

The Company was formed on August 4, 2000 and  operations  did not commence until
the first quarter of 2001,  therefore no financial  information is presented for
the period since inception on August 4, 2000 to December 31, 2000.

REVENUES.   The  Company   formally  began  operations  after  the  registration
statement,  relating  to its public  offering  of secured  notes,  was  declared
effective by the Securities and Exchange Commission,  on February 6, 2001. As of
December 31, 2001,  the Company has purchased  medical  receivables  carrying an
estimated net realizable  value ("ENR") of $20,262,332  and earned discount fees
of  $1,645,912  on these  purchases.  The majority of these  discount  fees were
earned in the third and fourth quarter of 2001.

The Company  presently  holds  $195,836 in discount  reserves  which reduced the
Company's  discount revenue.  Management  anticipates the receivables upon which
these  reserves  are based to be fully  collectible  and the  discount fee to be
earned within the provider contract period.

GROSS PROFIT.  The gross profit during the twelve months ended December 31, 2001
was  $1,206,256,  which arose from gross  discount  revenues  during the year of
$1,841,748, less discount reserves of $195,836, and administration fees incurred
of $439,656. The administration fees, related party, were 2.2% of the ENR.

OPERATING  EXPENSES.  The Company's total  operating  expenses for twelve months
ended  December  31,  2001 were  $1,133,492.  Expenses  consisted  primarily  of
$635,437 in interest  expense,  which  consists of interest  expense of $519,191
plus amortized  commissions of $189,463 and amortized  deferred offering cost of
$100,014 less interest earned of $173,231.  Interest earned included $136,791 on
the  Company's  notes  receivables  of  $4,045,000  issued  to  various  medical
providers,  and $36,440 on cash and cash equivalents.  The Company also incurred
$207,618 in advertising expense, which are expensed as incurred.

INCOME TAX  EXPENSE.  Provision  for income  taxes  amounted  to $25,468 for the
twelve months ended December 31, 2001.  For Federal and state income taxes,  the
Company is consolidated  with its Parent.  The Company is allocated its share of
the consolidated tax liability using the separate return method.

NET INCOME.  The Company had net income of $47,296 or basic and diluted net loss
per common share of $27.03 for the twelve  months ended  December 31, 2001.  The
net income of the Company  resulted  primarily  from  discount  income earned of
$1,645,912 on the purchase of medical  receivables being greater than first year
administration and operating expenses. In 2002, the Company anticipates

                                       18
<PAGE>
greater discount  revenues on purchases from new providers as well as additional
discount fees on purchases from the present healthcare providers.  Consequently,
the Company expects its revenues and profits to rise during the next fiscal year
ending December 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

During the twelve months of 2001, the Company received  $18,217,000 in cash from
the  issuance  of  notes.  As of  March  22,  2002,  the  Company  has  received
$26,456,000 from the sale of its notes.  These are funds obtained by the Company
on its $75,000,000  public  offering of secured notes. In addition,  the Company
received  $4,000,000  as paid-in  capital  from its  Parent on August 29,  2001.
During the twelve  months  ending  December  31,  2001,  the  Company  purchased
$18,451,234 in medical  receivables,  received collections on these purchases of
$3,819,167,  and made secured cash loans to medical providers of $4,045,000.  As
of December 31, 2001, the Company maintained  $2,093,897 in cash, which it seeks
to utilize in purchasing  additional medical  receivables and in the acquisition
of other possible investments.

Management  believes  current  conditions  of the stock  exchanges and financial
markets are expected to have a favorable impact on the issuance of the Company's
secured  notes due to the  favorable  and fixed  interest  rates  offered on its
notes. The Company does not believe that inflation has had a significant  impact
on its operations since its inception.

The Company's  management consists of officers and employees employed by Medical
Capital  Corporation.  Their  salaries and benefits are paid by Medical  Capital
Corporation. The Company's operating expenses will be reimbursed from cash flows
generated from its operations and net offering proceeds.

The Medical  Capital  Holdings Group has  substantial  experience and success in
identifying  and  evaluating   healthcare   providers  desiring  to  sell  their
healthcare receivables. The Company intends to use the services and expertise of
Medical  Capital  Holdings  and its  subsidiaries  to  purchase a  portfolio  of
healthcare  receivables.  It has entered into  contracts  with  Medical  Capital
Corporation and Medical Tracking Services,  affiliated companies, to provide the
appropriate  system for  purchasing  and  tracking its  healthcare  receivables.
Reimbursement  for these  services  approximates  the costs to these  affiliated
entities  which  management  believes  equals the  prevailing  market  rates for
comparable services of this nature.

Still due to numerous economic,  competitive and regulatory risks, any or all of
which may have a material  adverse impact upon the Company's  operations,  there
can be no assurance  that it will be able to  successfully  purchase  healthcare
receivables  and/or acquire a business which generates  significant  revenues or
achieves a level of profits  which will permit the  Company to pay the  interest
and principal payments on the notes when due. However, the Company believes cash
available from the net offerings proceeds will be sufficient to fund all general
and administrative expenses of the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
141 "Business Combinations." SFAS No. 141 supersedes Accounting Principles Board
("APB") No. 16 and requires that any business combinations  initiated after June
30,  2001  be  accounted  for  as  a  purchase;   therefore,   eliminating   the
pooling-of-interest method defined in APB 16. The statement is effective for any
business  combination  initiated  after  June 30,  2001 and  shall  apply to all
business combinations accounted for by the purchase method for which the date of
acquisition  is July 1,  2001 or later.  The  adoption  did not have a  material
impact to the Company's  financial  position or results of operations  since the
Company has not participated in any activities covered under this pronouncement.

In July 2001,  the FASB issued SFAS No. 142,  "Goodwill and Other  Intangibles."
SFAS No. 142 addresses the initial recognition,  measurement and amortization of
intangible assets acquired individually or with a group of other assets (but not
those  acquired  in a  business  combination)  and  addresses  the  amortization

                                       19
<PAGE>
provisions for excess cost over fair value of net assets acquired or intangibles
acquired in a business combination.  The statement is effective for fiscal years
beginning  after  December  15,  2001,  and is  effective  July 1,  2001 for any
intangibles  acquired in a business  combination  initiated after June 30, 2001.
The Company  does not expect the  adoption  to have any impact to the  Company's
financial position or results of operations.

In October 2001, the FASB issued SFAS No. 143,  "Accounting for Asset Retirement
Obligations,"  which requires  companies to record the fair value of a liability
for asset retirement  obligations in the period in which they are incurred.  The
statement  applies  to  a  company's  legal  obligations   associated  with  the
retirement  of a tangible  long-lived  asset that results from the  acquisition,
construction,  and  development or through the normal  operation of a long-lived
asset. When a liability is initially recorded,  the company would capitalize the
cost,  thereby  increasing  the  carrying  amount  of  the  related  asset.  The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value.  Upon  settlement of
the liability,  the obligation is settled at its recorded  amount or the company
incurs a gain or loss.  The  statement is effective  for fiscal years  beginning
after June 30, 2002. The Company does not expect the adoption to have any impact
to the Company's financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived  Assets".  Statement 144  addresses  the  accounting  and
reporting for the  impairment or disposal of  long-lived  assets.  The statement
provides a single  accounting model for long-lived assets to be disposed of. New
criteria  must be met to  classify  the  asset as an asset  held-for-sale.  This
statement  also focuses on reporting the effects of a disposal of a segment of a
business.  This statement is effective for fiscal years beginning after December
15,  2001.  The Company  does not expect the  adoption to have any impact to the
Company's financial position or results of operations.

FORWARD LOOKING STATEMENTS

This  report  contains  forward  looking  statements  within the  meaning of the
Private Securities Litigation Reform Act of 1995. Forward looking statements can
be  identified  by the  use  of  words  like  "believes,"  "could,"  "possibly,"
"anticipates,"  "estimates,"  "projects,"  "expects,"  "may," "will,"  "should,"
"intend,"  "plan,"  "consider"  or the  negative of these  expressions  or other
variations,   or  by   discussions   of   strategies   that  involve  risks  and
uncertainties. The Company based these forward looking statements on its current
expectations  and  projections  about future  events and  information  currently
available to it.  Although the Company  believes that the  assumptions for these
forward looking statements are reasonable, any of the assumptions could prove to
be inaccurate.  The Company's actual results could differ  materially from those
anticipated in the forward  looking  statements due to risks,  uncertainties  or
actual events differing from the assumptions underlying these statements.

ITEM 7. FINANCIAL STATEMENTS.

The information required by this item appears beginning on page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

None

                                       20
<PAGE>
                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS

The following is the name, age and position of the Company's  current  directors
and executive officers:

NAME                     AGE     POSITION(S)
----                     ---     -----------
Sidney M. Field           55     President, Chief Executive Officer and Director
Lawrence J. Edwards       56     Vice President, Treasurer and Director
Joseph J. Lampariello     48     Chief Operating Officer, Secretary and Director
Alan J. Meister           52     Chief Accounting Officer
Joseph J. DioGuardi       61     Director
Gary L. Nielsen           58     Director
Robert B. MacDonald       69     Director

The  following is the name,  age and  position of the  directors  and  executive
officers of the Company's parent, Medical Capital Holdings:

NAME                     AGE     POSITION(S)
----                     ---     -----------
Sidney M. Field           55     President, Chief Executive Officer and Director
Lawrence J. Edwards       56     Vice President, Treasurer and Director
Joseph J. Lampariello     48     Chief Operating Officer, Secretary and Director
Alan J. Meister           52     Chief Financial Officer
Robert B. MacDonald       69     Director

All  directors   currently   hold  office  until  the  next  annual  meeting  of
stockholders  or until their  successors  have been elected and  qualified.  All
executive officers of the Company are elected annually by its board of directors
and serve at the discretion of the board and until their  successors are elected
and qualified. There are no family relationships between any of its directors or
executive officers.

The following  describes the business  experience  during the past five years of
the Company's directors and executive officers:

     SIDNEY M. FIELD joined  Medical  Capital  Management  in 2000 as President,
Chief  Executive  Officer and Director.  Mr. Field has also served as President,
Chief Executive  Officer and Director of Medical  Capital  Holdings and other of
its subsidiaries for the past five years. Prior to joining Medical Capital,  Mr.
Field was the founder,  past  President  and Chairman of FGS, one of the largest
insurance  brokers in the United States with annual sales of over  $200,000,000.
Mr.  Field sold his  interest in that firm in 1990.  In 1971,  he founded  Field
Group  Services,  a firm  specializing  in the  placement  and services of group
medical insurance for medium size employers. Mr. Field has also been a principal
in Delcom Inc., an advertising agency specializing in radio and television.  Mr.
Field earned his Bachelor of Arts degree at California  State University at Long
Beach with a major in Mathematics.

     LAWRENCE J.  EDWARDS  joined  Medical  Capital  Management  in 2000 as Vice
President and Director.  Mr. Edwards has also served as Executive Vice President
of Medical Capital  Corporation  since January 1994. A founder,  Mr. Edwards has

                                       21
<PAGE>
founded and  operated  various  specialty  sales and  investment  organizations,
including Newport Aircraft Sales and various real estate investment and property
companies. Mr. Edwards has also been engaged in recovery and work-out of medical
groups and partnerships.  Mr. Edwards holds a technical degree from Orange Coast
College.

     JOSEPH J.  LAMPARIELLO  joined Medical Capital  Management in 2000 as Chief
Operating  Officer,  Secretary and Director.  Mr. Lampariello has been the Chief
Operating  Officer of Medical Capital Holdings and its subsidiaries for the past
four years and is responsible  for the day-to-day  operations of Medical Capital
Corporation,   the   administrator.   This   responsibility   includes  funding,
underwriting,  collections  and all  computer  information  services.  Prior  to
joining Medical Capital, Mr. Lampariello was the President of Medical Management
& Acquisitions, Inc., which specialized in recovery, dissolution and collections
of medical claims of medical groups,  physician  practices and medical companies
in  southern  California.  Mr.  Lampariello's  extensive  experience  in medical
practice management includes  development of proprietary UNIX platform databases
for medical billing and  collections.  Mr.  Lampariello has served as specialist
collector  and receiver  for LA County  Superior  Court and the U.S.  Bankruptcy
Court.  He holds a degree in Biomedical  Engineering  from New York Institute of
Technology.

     ALAN J.  MEISTER  joined  Medical  Capital  Management  in  2000  as  Chief
Accounting  Officer.  Mr. Meister is also the Chief Financial Officer of Medical
Capital  Corporation,  having joined them in September of 1997.  Before  joining
Medical  Capital,  Mr. Meister served as the Vice President and Chief  Financial
Officer of UBL Financial  Corporation and its related entities  American Express
Educational  Funding and Union Benefit Life Insurance Company from January 1994.
He served as Controller of FHP  Healthcare,  Inc. from 1990 to 1993,  and worked
for  Pacific  Mutual  Insurance  Company  from  1980  to  1990  as  a  Financial
Consultant.  Prior  to that,  Mr.  Meister  worked  ten  years  in the  mortgage
financing industry.  He holds a bachelors degree in Accounting from Northeastern
University,  an MBA from Suffolk  University,  a MA from the  University  of San
Diego, and a Fellowship from the Life Office Management Institute.

     JOSEPH J. DIOGUARDI, a Certified Public Accountant,  joined Medical Capital
Management in 2000 as a Director. After practicing for 22 years (twelve years as
a Partner) with the accounting firm of Arthur Andersen & Co., Mr. DioGuardi left
in 1984 to run for Congress. He served as a member of the United States House of
Representatives  from  1985 to 1989,  during  which  he  served  on the  Banking
Committee and the Government Operations Committee.  Since leaving Congress,  Mr.
DioGuardi has engaged in numerous human rights  activities,  and he has become a
distinguished  author and public  speaker.  Mr.  DioGuardi  has also served as a
member of the board of directors of Safety Components  International,  Inc. from
1994 to 2000,  and served as a member of the board of  directors  of  NeuroCorp,
Ltd.  from  1996 to  1998.  Mr.  DioGuardi  holds  a B.S.  degree  from  Fordham
University,  where he majored in  accounting  and from which he  graduated  with
honors in 1962.

     ROBERT  B.  MACDONALD  joined  Medical  Capital  Management  in  2001  as a
Director.  Mr. MacDonald was one of the founders of Medical Capital  Corporation
in 1993 and also served as Chairman of the Board of Medical Capital Holdings and
its  subsidiaries  from 1994 until November 1999, when he retired from the firm.
Prior to this time Mr. MacDonald was involved in the securities  business in the
Unites States and Europe,  holding positions at Lehman Brothers and as a Partner
at Loeb Rhoades & Co. He was also a member of the NYSE from 1976 until 1980. Mr.
MacDonald was responsible for financing some  international  projects and raised
over  $140,000,000  in the  early  1980's.  Mr.  MacDonald  graduated  from  the
University of San Francisco with a BS degree in business and finance.

     GARY L. NIELSEN  joined Medical  Capital  Management in 2000 as a Director.
Mr. Nielsen was a Director of Healthstar Corp. from June 1997 to April 2000. Mr.
Nielsen was the Chief Financial  Officer of Granite Golf  Corporation from March
1999 to December  1999.  Prior to that he was the Vice  President of Finance and
Chief Financial Officer of Best Western  International,  Inc. and served in that
position  from May 1996.  From  October 1986 to May 1996,  Mr.  Nielsen was Vice
President and Treasurer of Giant Industries,  Inc. Mr. Nielsen holds a degree in
Accounting from Arizona State University and is a certified public accountant.

                                       22
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT  COMMITTEE.  The  current  members  of the  Audit  Committee  are  Messrs.
DioGuardi and Nielsen. The Audit Committee makes recommendations  concerning the
engagement  of  independent  public  accountants,  reviews with the  independent
public  accountants  the plans and  results  of the audit  engagement,  approves
professional  services provided by the independent public  accountants,  reviews
the independence of the independent public  accountants,  considers the range of
audit and  non-audit  fees,  reviews its  corporate  compliance  procedures  and
reviews the adequacy of its internal accounting controls.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

The Company does not have any securities  registered  under the Exchange Act and
is not subject to Section 16(a).

ITEM 10. EXECUTIVE COMPENSATION.

     EXECUTIVE  COMPENSATION.  The  following  table  sets  forth the  aggregate
compensation awarded to, earned by, or paid to (1) the Company's Chief Executive
Officer, and (2) the Company's other most highly compensated  executive officers
during  2001 whose  total  annual  compensation  exceeded  $100,000 in 2001 (the
"Named  Executive  Officers"),  all during  2001,  the  Company's  first year of
operations.  The  compensation  included in the table is the total  compensation
paid  to  these  individuals  by  the  Company's   affiliate,   Medical  Capital
Corporation,  in their  capacity  as officers  of Medical  Capital  Corporation.
Medical Capital Management does not pay any compensation to these individuals or
directly  reimburse  Medical  Capital  Corporation  for  any  portion  of  their
salaries.  Medical Capital  Management pays fees to Medical Capital  Corporation
for acting as the administrator, which fees have no relationship to the salaries
paid by Medical Capital  Corporation.  As of December 31, 2001,  Medical Capital
Management had no stock option plans in effect.

                           SUMMARY COMPENSATION TABLE

                                                        BONUS/       ALL OTHER
 NAME AND PRINCIPAL POSITION        YEAR    SALARY    COMMISSIONS   COMPENSATION
 ---------------------------        ----   --------   -----------   ------------
Sidney M. Field                     2001   $144,000     $200,000      $23,826(1)
  President, Chief Executive
    Officer and Director

Joseph J. Lampariello               2001   $275,000     $301,081      $ 7,176(2)
  Chief Operating Officer,
    Secretary and Director

Lawrence J. Edwards                 2001   $180,000     $190,661      $31,644(3)
  Executive Vice President,
    Treasurer and Director

Alan Meister                        2001   $169,067     $ 42,123      $21,280(4)
  Chief Accounting Officer

----------
(1)  Includes  $16,626 in life insurance  premiums and a $7,200 401(k)  matching
     contribution paid by Medical Capital Corporation..
(2)  Includes  $7,176  in  life  insurance  premiums  paid  by  Medical  Capital
     Corporation..
(3)  Includes  $15,644 in life  insurance  premiums,  a $4,000  401(k)  matching
     contribution   and  a  $12,000  auto  allowance  paid  by  Medical  Capital
     Corporation..
(4)  Includes  $2,680  in life  insurance  premiums,  a $6,600  401(k)  matching
     contribution   and  a  $12,000  auto  allowance  paid  by  Medical  Capital
     Corporation.

                                       23
<PAGE>
     The  above  compensation  table  does  not  include  fringe  benefits  made
available on a nondiscriminatory  basis to all of Medical Capital  Corporation's
employees like group health insurance,  dental insurance,  long-term  disability
insurance,  vacation and sick-leave.  In addition,  Medical Capital  Corporation
makes available  non-monetary  benefits to some of its executive officers,  with
the  aggregate  value of these  benefits in the case of each  executive  officer
listed in the above  table  being less than the lesser of (1) ten percent of the
cash compensation paid to each such executive  officer,  or (2) $50,000,  and is
not included in the above table.

     COMPENSATION  OF  DIRECTORS.  Each  non-employee  director  serving  on the
Company's board of directors receives an annual fee of $12,000,  paid quarterly.
In addition,  each non-employee director receives a fee of $2,000 for each board
meeting attended and $500 for each committee meeting attended by that director.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table contains information concerning the persons,  including
any "group", who the Company knows to be the beneficial owner of more than 5% of
any class of voting securities of its parent,  Medical Capital Holdings. It also
shows the voting  securities  of the  Company's  parent  owned by the  Company's
directors  and  executive  officers  individually,  and by all of the  Company's
directors and executive officers as a group.  Unless otherwise  indicated in the
footnotes,  each person named below has sole voting power and  investment  power
over the shares  indicated.  All  information  is as of February 15, 2002. As of
that date,  13,782,222  shares of common stock of Medical Capital  Holdings were
issued and outstanding.

                                                     NUMBER           PERCENT
           NAME OF BENEFICIAL OWNER                 OF SHARES        OF CLASS(1)
           ------------------------                -----------       -----------
Sidney M. Field                                     3,294,333(2)        23.9%
  2100 South State College Blvd.
  Anaheim, California 92806
Lawrence J. Edwards                                 3,313,334(3)        24.0%
  2100 South State College Blvd.
  Anaheim, California 92806
Joseph L. Lampariello                               2,500,000           18.1%
  2100 South State College Blvd.
  Anaheim, California 92806
Alan J. Meister                                       100,000(4)          *
  2100 South State College Blvd.
  Anaheim, California 92806
Joseph J. DioGuardi                                         0             *
  2100 South State College Blvd.
  Anaheim, California 92806
Gary L. Nielsen                                             0             *
  2100 South State College Blvd.
  Anaheim, California 92806
Robert B. MacDonald                                 3,333,333(5)        24.2%
  2100 South State College Blvd.
  Anaheim, California 92806
LAM Irrevocable Trust                               3,333,333(5)        24.2%
  Private Trust Corporation Ltd., Charlotte
  House, PO Box N65, Nassau, Bahamas
Medical Receivables Management Group, LLC           1,170,222            8.5%
  251 Jeanell Drive, No. 3, Carson City, Nevada
  89703
JEBAJ Management Corp.                              3,093,333(6)        22.4%
  251 Jeanell Drive, No. 3, Carson City, Nevada
  89703
Directors and Executive Officers as a Group        12,541,000           91.0%
  (7 persons)

                                       24
<PAGE>
----------
*    Less than 1%.
(1)  Share  amounts  are  rounded to the nearest  whole  number.  All shares not
     outstanding  but which may be acquired by a  stockholder  within 60 days by
     the exercise of any stock option or any other right, are deemed outstanding
     for the purpose of  calculating  beneficial  ownership  and  computing  the
     percentage of the class beneficially owned by that shareholder,  but not by
     any other shareholder.
(2)  Includes  201,000 shares owned  directly by Mr. Field and 3,093,333  shares
     which Mr. Field holds the power to vote through an agreement with the owner
     of those shares, JEBAJ Management Corp.
(3)  Owned by the  Lawrence  J.  Edwards  Revocable  Living  Trust for which Mr.
     Edwards is the trustee.
(4)  Includes  20,000  shares Mr.  Meister  can  acquire  upon the  exercise  of
     outstanding stock options.
(5)  Mr. MacDonald holds the power to vote these shares through a proxy from the
     Trustee of Lam Irrevocable Trust.
(6)  Mr. Field has the power to vote these shares.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company is a wholly owned subsidiary of Medical Capital Holdings.  It relies
on some of the other wholly owned subsidiaries of Medical Capital Holdings, like
Medical Capital Corporation and MediTrak, to provide services to it. The Company
pays fees to these  affiliates  for  providing  services  to it,  regardless  of
whether  or  not  the  business  is  profitable   (see  Note  8,  Related  Party
Transactions  in the "Notes to  Financial  Statements.").  Since the  Company is
under common control with these  affiliates,  the  agreements  and  arrangements
under  which  they  provide  services  to the  Company  were  not  made  through
independent arm's length negotiations. However, the Company believes the fees it
pays for these  services  are similar to those that an  independent  third-party
would charge for providing the same services.

Some members of the Company's  management team also work for and are compensated
by its affiliates,  and are in some cases  shareholders of its common  corporate
parent,   Medical  Capital  Holdings.   Accordingly,   their  interests  in  the
administrator  and the servicer,  or other of its affiliates,  may conflict with
their  responsibilities  to the Company.  The Company has an agreement among its
parent and its other  affiliates where it will be charged a fee for the overhead
attributable to its operations.

The Company believes that its affiliates have sufficient experience in regard to
the kinds and nature of the  services  they will be  providing to the Company so
that its  needs for these  services  will be  competently  and  adequately  met.
Further,  the Company believes that the compensation the affiliates will receive
for rendering the services to it, whether from  affiliates or third parties,  is
reasonable and no more than the usual and customary amounts paid for those types
of services by  independent  third parties.  However,  there can be no assurance
that there are not now, or may in the future, be unrelated businesses that might
be  able  to  provide  similar  services  to the  Company  in a more  efficient,
competent  and less costly  manner.  Also,  there can be no  assurance  that the
Company's  affiliates will be able to continue to provide services to it. In the
event that one of its affiliates is not able to perform  services,  there can be
no  assurance  that a  suitable  replacement  can be located  without  incurring
substantial expense and risk of deterioration in servicing the receivables.

Medical Capital  Corporation will be the administrator for the receivables.  The
amount that the face value of a receivable is discounted  when the receivable is
purchased  will be determined  by the  administrator  based on the  underwriting
criteria it has  established.  The Company  could be  adversely  affected if the
administrator  requires the  provider's  receivables  to be discounted at higher
rates than those the provider is accustomed  to receiving.  This could result in
providers  being  unwilling to sell,  or  discouraged  from  selling all,  their
receivables to the Company. The administrator also underwrites  receivables that
may be purchased by its affiliates.  The administrator  will attempt to allocate
new providers fairly among its various affiliates, but there can be no assurance
that the allocation may not ultimately be unfair to the Company.

MediTrak will be the servicer of the  receivables.  MediTrak will be compensated
for its  services  by  receiving  a fee for each  claim  posted on its  tracking
system. For some clients with a minimal number of monthly claims being posted, a
minimum monthly servicing fee will be charged.  For a more detailed  description
of the functions of the administrator and the servicer, see the section entitled
BUSINESS above.

                                       25
<PAGE>
                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

     (a) The following is a complete list of exhibits filed as part of this Form
10-KSB.  Exhibit numbers  correspond to the numbers in the Exhibit Table of Item
601 of Regulation S-B.

EXHIBIT                             DESCRIPTION
-------                             -----------

3.01        Articles of Incorporation of Medical Capital Management, Inc.(1)

3.02        Bylaws of Medical Capital Management, Inc.(1)

4.01        Second  Amended and Restated Note  Issuance and Security  Agreement,
            dated April 10, 2002, between Medical Capital  Management,  Inc. and
            Zions First National Bank, as trustee.(2)

10.01       Master Servicing Agreement between Medical Capital Management,  Inc.
            and Medical Tracking Services, Inc.(1)

10.02       Administrative  Services  Agreement,  dated August 4, 2000,  between
            Medical Capital Management, Inc. and Medical Capital Corporation.(1)

11.01       Statement regarding computation of per share earnings.

----------
(1)  Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form SB-2, Registration No. 333-45464.
(2)  Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form SB-2, Registration No. 333-81166, filed April 12, 2002.

     (b) The  Registrant  did not file any reports on Form 8-K during the fourth
quarter of fiscal year 2001.

                                       26
<PAGE>
                                   SIGNATURES

     In accordance  with the  requirements  of the Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       MEDICAL CAPITAL MANAGEMENT, INC.


Date: April 12, 2002                   By /s/ Sidney M. Field
                                          --------------------------------------
                                          Sidney M. Field, President and
                                          Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the  following  persons on behalf of  registrant
and on the dates indicated.

Date: April 12, 2002                    By /s/ Sidney M. Field
                                          --------------------------------------
                                          Sidney M. Field, President, Chief
                                          Executive Officer and Director


Date: April 12, 2002                   By /s/ Lawrence J. Edwards
                                          --------------------------------------
                                          Lawrence J. Edwards, Vice President,
                                          Treasurer and Director


Date: April 12, 2002                   By /s/ Alan Meister
                                          --------------------------------------
                                          Alan Meister, Chief Accounting Officer
                                          (Chief Financial Officer)


Date: April 12, 2002                   By /s/ Joseph J. Lampariello
                                          --------------------------------------
                                          Joseph J. Lampariello, Chief Operating
                                          Officer, Secretary and Director


Date: April 12, 2002                   By /s/ Joseph J. DioGuardi
                                          --------------------------------------
                                          Joseph J. DioGuardi, Director


Date: April 12, 2002                   By /s/ Robert B. MacDonald
                                          --------------------------------------
                                          Robert B. MacDonald, Director


Date: April 12, 2002                   By /s/ Gary L. Nielsen
                                          --------------------------------------
                                          Gary L. Nielsen, Director
<PAGE>
                          INDEX TO FINANCIAL STATEMENTS

FINANCIAL  STATEMENTS  FOR THE  PERIOD  SINCE  INCEPTION  ON  AUGUST  4, 2000 TO
DECEMBER 31, 2001:

                                                                            Page
                                                                            ----
Independent Auditors' Report.................................................F-2
Balance Sheet................................................................F-3
Statements of Income ........................................................F-4
Statement of Stockholder's Equity............................................F-5
Statement of Cash Flows......................................................F-6
Notes to Financial Statements................................................F-7

                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


Board of Directors
Medical Capital Management, Inc.
Anaheim, California

We have audited the  accompanying  balance sheet of Medical Capital  Management,
Inc.,  as  of  December  31,  2001,  and  the  related   statements  of  income,
stockholder's  equity  and cash flows for the year then ended and for the period
from  inception of  operations  on August 4, 2000 to December  31,  2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain  reasonable  assurance  about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Medical Capital  Management,
Inc. as of December 31,  2001,  and the results of its  operations  and its cash
flows for the year then ended and for the period from inception of operations on
August 4, 2000 to December 31, 2000, in conformity  with  accounting  principles
generally accepted in the United States of America.


/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS


Santa Monica, California
March 28, 2002

                                       F-2
<PAGE>
                        MEDICAL CAPITAL MANAGEMENT, INC.
                                  BALANCE SHEET

                                                                    December 31,
                                                                       2001
                                                                    -----------
ASSETS:
Current assets:
  Cash and cash equivalents .....................................   $ 2,093,897
  Medical receivables, net of discount reserves of $195,836 .....    15,443,166
  Interest receivable on notes ..................................        35,858
  Notes receivable ..............................................     4,045,000
                                                                    -----------
        Total current assets ....................................    21,617,921
                                                                    -----------
        Total assets ............................................   $21,617,921
                                                                    ===========

LIABILITIES AND  STOCKHOLDER'S EQUITY

Current liabilities:
  Accrued expenses - due to Parent and affiliates ...............   $    49,007
  Accrued expenses - trade ......................................        58,129
  Interest payable ..............................................       139,069
  Income taxes payable ..........................................        25,468
  Notes payable - current .......................................     6,775,000
                                                                    -----------
        Total current liabilities ...............................     7,046,673

Notes payable - long term, net of deferred offering
  costs of $172,124 and commissions of $995,944 .................    10,273,932
                                                                    -----------
      Total liabilities .........................................    17,320,605
                                                                    -----------

STOCKHOLDER'S EQUITY:
  Preferred stock - par value $0.01 (10,000 shares
    authorized, no shares issued and outstanding) ...............            --
  Common stock - par value $0.01 (10,000 shares
    authorized, 2,000 shares issued and outstanding) ............            20
  Additional paid-in capital ....................................     4,250,000
  Retained earnings .............................................        47,296
                                                                    -----------
        Total stockholder's equity ..............................     4,297,316
                                                                    -----------
        Total liabilities and stockholder's equity ..............   $21,617,921
                                                                    ===========

See accompanying notes.

                                       F-3
<PAGE>
                        MEDICAL CAPITAL MANAGEMENT, INC.
                              STATEMENTS OF INCOME

                                                                For the period
                                                Year ended    since inception to
                                                December 31,     December 31,
                                                   2001              2000
                                                 ----------       ----------
DISCOUNT REVENUES:
  Discount fees, including related party
    fees of $950,661 .........................   $1,645,912       $       --
                                                 ----------       ----------

COST OF REVENUES:
   Administration fees, related party ........      439,656               --
                                                 ----------       ----------
GROSS PROFIT .................................    1,206,256               --
                                                 ----------       ----------

OPERATING EXPENSES:
  Interest expense, net ......................      635,437               --
  Advertising ................................      207,618               --
  Professional services ......................       58,998               --
  Trustee fees ...............................       56,750               --
  Legal expenses .............................       53,064               --
  Directors' fees ............................       44,000               --
  Travel and entertainment ...................       35,745               --
  Service fees, related party ................       33,824               --
  Other ......................................        8,056               --
                                                 ----------       ----------
      Total operating expenses ...............    1,133,492               --
                                                 ----------       ----------

INCOME BEFORE TAXES ..........................       72,764               --
                                                 ----------       ----------
Provision for income tax .....................       25,468               --
                                                 ----------       ----------
NET INCOME ...................................   $   47,296       $       --
                                                 ==========       ==========

Weighted average number of common
shares outstanding - basic and diluted .......        1,750            1,000
                                                 ==========       ==========

Net income per common share -
  basic and diluted ..........................   $    27.03       $     0.00
                                                 ==========       ==========

See accompanying notes.

                                       F-4
<PAGE>
                        MEDICAL CAPITAL MANAGEMENT, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         For the period
                                                       Year ended      since inception to
                                                    December 31, 2001   December 31, 2000
                                                    -----------------   -----------------
<S>                                                   <C>                 <C>
Cash flows used for operating activities:
  Net income ......................................   $     47,296        $         --
  Adjustments to reconcile net income to net cash
    provided by (used for) operating activities:
    Amortization of deferred offering costs and
      commissions..................................        289,477                  --
  Changes in assets and liabilities:
    Increase in medical receivables ...............    (15,443,166)                 --
    Increase in interest receivable ...............        (35,858)                 --
    Decrease in accrued expenses - due to Parent ..        (37,801)                 --
    Increase in accrued expenses - trade ..........         58,129                  --
    Increase in interest payable ..................        139,069                  --
    Increase in income taxes payable ..............         25,468                  --
                                                      ------------        ------------
Net cash used for operations ......................    (14,957,386)                 --
                                                      ------------        ------------

Cash flows used for investing activities:
  Increase in notes receivables ...................     (4,045,000)                 --
                                                      ------------        ------------
Net cash used for investing activities ............     (4,045,000)                 --
                                                      ------------        ------------

Cash flows from financing activities:
  Proceeds from issuance of debt, net .............     18,217,000                  --
  Payments on offering costs and commissions ......     (1,370,737)                 --
  Proceeds from sale of common stock ..............        249,920                 100
  Proceeds from paid-in capital ...................      4,000,000                  --
                                                      ------------        ------------
Net cash provided by financing activities .........     21,096,183                 100
                                                      ------------        ------------
Net increase in cash and cash equivalents .........      2,093,797                 100
Cash at beginning of year/period ..................            100                  --
                                                      ------------        ------------
Cash and cash equivalents at end of year/period ...   $  2,093,897        $        100
                                                      ============        ============

Supplemental disclosure of cash flow items:
  Income taxes paid ...............................   $         --        $         --
  Interest paid ...................................   $    380,122        $         --
</TABLE>

See accompanying notes.

                                       F-5
<PAGE>
                        MEDICAL CAPITAL MANAGEMENT, INC.
                        STATEMENT OF STOCKHOLDER'S EQUITY
      FOR THE PERIOD SINCE INCEPTION ON AUGUST 4, 2000 TO DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                          Common stock             Additional                      Total
                                     -------------------------      paid-in        Retained     stockholder's
                                       Shares         Amount        capital        earnings        equity
                                     ----------     ----------     ----------     ----------     ----------
<S>                                  <C>            <C>            <C>            <C>            <C>
Issuance of common stock at
  inception on August 4, 2000             1,000     $       10     $       90     $       --     $      100

Net income for the period from
  inception on August 4, 2000
  to December 31, 2000                       --             --             --             --             --
                                     ----------     ----------     ----------     ----------     ----------
Balance - December 31, 2000               1,000             10             90             --            100

Sale of common stock to Parent
  on March 31, 2001                       1,000             10        249,910             --        249,920

Paid in capital from Parent on
  August 29, 2001                                                   4,000,000                     4,000,000

Net income for the twelve months
  ended December 31, 2001                    --             --             --         47,296         47,296
                                     ----------     ----------     ----------     ----------     ----------
Balance - December 31, 2001               2,000     $       20     $4,250,000     $   47,296     $4,297,316
                                     ==========     ==========     ==========     ==========     ==========
</TABLE>

See accompanying notes.

                                       F-6
<PAGE>
                        MEDICAL CAPITAL MANAGEMENT, INC.

                          NOTES TO FINANCIAL STATEMENTS
       FOR THE PERIOD SINCE INCEPTION AUGUST 4, 2000 TO DECEMBER 31, 2001

1. OPERATIONS OF THE COMPANY

ORGANIZATION:

Medical Capital  Management,  Inc. was  incorporated in the state of Delaware on
August 4, 2000. It maintains its corporate  office in Anaheim,  California.  The
Company is wholly owned by Medical Capital Holdings, Inc. (Parent).

BUSINESS ACTIVITY:

The Company was organized to purchase the insured portion of medical receivables
from medical providers including physicians,  clinics, hospitals,  nursing homes
and other  providers of healthcare  services  throughout the United States.  The
medical receivables are purchased at a discount to the full amount of the claim.
The  Company  also seeks  other  investments  that will  enhance  its  financial
position.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES:

The preparation of financial  statements  requires  management to make estimates
and assumptions  that affect certain  reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual amounts could differ from those estimates.

CASH AND CASH EQUIVALENTS:

For the  purposes  of the  statement  of cash flows,  cash and cash  equivalents
include all highly liquid debt  instruments  with  original  maturities of three
months or less that are not securing any corporate obligations.

The Company  maintains its cash in bank deposit  accounts,  which at times,  may
exceed the federally insured limits.  The Company has not experienced any losses
in its accounts.

DISCOUNTS EARNED ON MEDICAL RECEIVABLES:

Medical  receivables  are recorded at cost when purchased by the Company.  Gross
receivables are adjusted to cost for the purchase discount and reserves based on
the  estimated  ultimate  collectible  amount due to the  Company.  Discounts on
medical  receivables  are  recognized as earned over a period ranging 1-270 days
using a method that approximates the interest method.

The Company has  established  a "discount  reserve" on a per client  basis based
upon its preliminary  underwriting  criteria,  collection  history,  and ongoing
credit and  underwriting  policies.  These  reserves are deducted  from discount
revenue.  The Company  anticipates the receivables upon which these reserves are
based to be collected  and earned  within the provider  contract  period.  As of
December 31, 2001 and 2000, this reserve was $195,836 and $0, respectively.

                                       F-7
<PAGE>
PROVIDER CONCENTRATION:

As of December 31, 2001, medical  receivables  purchased by the Company from two
providers  amounted to  approximately  to 80% of the outstanding  balance of the
total receivables due to the Company.

RESERVE FOR LOSSES:

The reserve for losses on medical receivables is increased by provisions charged
against  operations  and reduced by  receivables  charged off, as  determined by
management.  The reserve is maintained at a level considered adequate to provide
for potential losses on medical  receivables  based on management's  evaluation.
Under the terms by which the medical receivables are purchased,  the Company has
significant  collateral,  including  substitution  of receivables  exceeding the
contractual  period ranging from 1-270 days.  Accordingly,  charge-offs  are not
expected  to be  material  to the  Company's  financial  position  or results of
operations.  During the twelve months ended December 31, 2001 and for the period
since inception to December 31, 2000, no reserves for losses were needed.

COMMISSIONS:

Commissions  paid  to  outside  and  related  parties  in  connection  with  the
origination  of  medical  receivables  are  expensed  as  incurred.  Commissions
incurred on the  acquisition of investor funds (notes  payable) are  capitalized
and amortized over the period the debt is outstanding using the interest method.
For the twelve months ended December 31, 2001, the Company paid and  capitalized
$1,185,407 in commissions, of which, $189,463 was amortized during the period.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

Unless  otherwise  indicated,  the fair value of all reported assets (except for
cash and cash equivalents  which  approximate fair value) and liabilities  which
represent  financial  instruments,  none of which are held for trading purposes,
approximate carrying values of such accounts.

INCOME TAXES

The Company uses the liability method of accounting for income taxes pursuant to
SFAS No.  109,  "Accounting  for Income  Taxes."  Deferred  income tax assets or
liabilities  result from  temporary  differences  when certain income or expense
amounts  are  recognized  or  deducted  for  financial  statement  purposes in a
different  reporting period than when they are recognized or deducted for income
tax  purposes.  For  Federal  and state  income  tax  purposes,  the  Company is
consolidated  with  its  Parent.  The  Company  is  allocated  its  share of the
consolidated tax liability  approximating the separate return method,  estimated
at 35% of net income before taxes. As of December 31, 2001,  Company's provision
for income taxes was $25,468.

RECENT ACCOUNTING PRONOUNCMENTS

In July 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
141 "Business Combinations." SFAS No. 141 supersedes Accounting Principles Board
("APB") No. 16 and requires that any business combinations  initiated after June
30,  2001  be  accounted  for  as  a  purchase;   therefore,   eliminating   the
pooling-of-interest method defined in APB 16. The statement is effective for any
business  combination  initiated  after  June 30,  2001 and  shall  apply to all
business combinations accounted for by the purchase method for which the date of
acquisition  is July 1,  2001 or later.  The  adoption  did not have a  material
impact to the Company's  financial  position or results of operations  since the
Company has not participated in any activities covered under this pronouncement.

                                       F-8
<PAGE>
In July 2001,  the FASB issued SFAS No. 142,  "Goodwill and Other  Intangibles."
SFAS No. 142 addresses the initial recognition,  measurement and amortization of
intangible assets acquired individually or with a group of other assets (but not
those  acquired  in a  business  combination)  and  addresses  the  amortization
provisions for excess cost over fair value of net assets acquired or intangibles
acquired in a business combination.  The statement is effective for fiscal years
beginning  after  December  15,  2001,  and is  effective  July 1,  2001 for any
intangibles  acquired in a business  combination  initiated after June 30, 2001.
The Company  does not expect the  adoption  to have any impact to the  Company's
financial position or results of operations.

In October 2001, the FASB issued SFAS No. 143,  "Accounting for Asset Retirement
Obligations,"  which requires  companies to record the fair value of a liability
for asset retirement  obligations in the period in which they are incurred.  The
statement  applies  to  a  company's  legal  obligations   associated  with  the
retirement  of a tangible  long-lived  asset that results from the  acquisition,
construction,  and  development or through the normal  operation of a long-lived
asset. When a liability is initially recorded,  the company would capitalize the
cost,  thereby  increasing  the  carrying  amount  of  the  related  asset.  The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value.  Upon  settlement of
the liability,  the obligation is settled at its recorded  amount or the company
incurs a gain or loss.  The  statement is effective  for fiscal years  beginning
after June 30, 2002. The Company does not expect the adoption to have any impact
to the Company's financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived  Assets".  Statement 144  addresses  the  accounting  and
reporting for the  impairment or disposal of  long-lived  assets.  The statement
provides a single  accounting model for long-lived assets to be disposed of. New
criteria  must be met to  classify  the  asset as an asset  held-for-sale.  This
statement  also focuses on reporting the effects of a disposal of a segment of a
business.  This statement is effective for fiscal years beginning after December
15,  2001.  The Company  does not expect the  adoption to have any impact to the
Company's financial position or results of operations.

3. NOTES RECEIVABLE

The Company  entered into agreements  with three medical  providers  whereby the
Company  provided cash loans,  which are secured by real  property.  These notes
receivables are as follows:

                                                                         2001
                                                                      ----------
Physician-Client, 18%, interest only paid monthly,
  due July 15, 2002                                                   $  300,000
Skilled Nursing Facility, 16%, interest only paid monthly,
  due September 18, 2002                                                 745,000
Medical Group, 16%, interest only paid monthly,
  due November 12, 2002                                                3,000,000
                                                                      ----------
                                                                      $4,045,000
                                                                      ----------

4. DEFERRED OFFERING COSTS

Deferred Offering Costs consist of costs incurred for the Company's registration
of debt  securities  on Form  SB-2 as filed  with the  Securities  and  Exchange
Commission,  which was  declared  effective  February  6, 2001.  These costs are
amortized over the weighted term of the securities using the interest method. As
of December 31, 2001,  the Company had  incurred  $272,138 in deferred  offering
costs, of which,  the  unamortized  balance  amounted to $172,124.  Amortization
expense  amounted to $100,014 for the twelve months ended  December 31, 2001 and
is included in the interest expense, net.

                                       F-9
<PAGE>
5. NOTES PAYABLE

The Company  issues  notes,  secured by medical  receivables,  for cash  through
several   broker-dealers  as  filed  on  its  registration  statement  with  the
Securities and Exchange Commission. These notes consist of the following:

                 RATE                  MATURITY DATE           DECEMBER 31, 2001
                 ----                  -------------           -----------------
Class A          9.00%           1 year from issuance date        $ 5,619,000
Class A          8.00%           1 year from issuance date          1,181,000
Class B          9.75%           2 years from issuance date         3,308,000
Class B          8.75%           2 years from issuance date           751,000
Class C         10.25%           3 years from issuance date         2,650,000
Class C          9.25%           3 years from issuance date           661,000
Class D         10.75%           4 years from issuance date         3,174,000
Class D          9.75%           4 years from issuance date           873,000
                                                                  -----------
Total face value of notes payable..............................   $18,217,000
Less unamortized offering costs and commissions................    (1,168,068)
                                                                  -----------
                                                                   17,048,932
Less current maturities........................................     6,775,000
                                                                  -----------
                                                                  $10,273,932
                                                                  ===========

The maturities of notes payable as of December 31, 2001 are as follows:

                     2002                      $ 6,775,000
                     2003                        4,084,000
                     2004                        3,311,000
                     2005                        4,047,000
                                               -----------
                                               $18,217,000
                                               ===========

6. INTEREST TO SECURED NOTEHOLDERS

Interest  on all  secured  notes is paid  monthly in arrears on the tenth of the
following  month to the  noteholder  of  record  as of the last day of the month
preceding the month in which the interest payment date occurs.  Interest is paid
without any compounding.  Each class of notes has a different  maturity date and
accrues interest at different rates. On October 29, 2001, the Company's Board of
Directors  voted to lower the rates on its  secured  notes  effective  for notes
issued on or after  November  5, 2001 as follows:  Class A to 8.00%;  Class B to
8.75%;  Class C to 9.25%;  and Class D to 9.75%.  The effective  interest  rates
approximate 4% higher than the stated rates due to the  amortization of deferred
offering costs and commissions treated as interest expense.

7. STOCKHOLDER'S EQUITY

During August 2000, the Company issued 1,000 shares of its $.01 par value common
stock to its Parent in  consideration  for $100 in cash. On March 31, 2001,  the
Company  issued 1,000 shares of its $.01 par value common stock to its Parent in
consideration for $249,920.  On August 29, 2001, the Company received $4,000,000
in paid-in capital from its Parent.

                                      F-10
<PAGE>
8. RELATED PARTY TRANSACTIONS

Several  affiliates that are wholly owned by the Parent provide  services to the
Company. These related parties and services are as follows:

The Company has entered into an Administrative  Services  Agreement with Medical
Capital  Corporation  ("MCC"),  who  is  the  administrator  in  purchasing  and
monitoring the healthcare  receivables  the Company  purchases.  Medical Capital
Corporation  is  compensated  for the  underwriting  and  administration  of the
healthcare  receivables  purchased,  as well  as for  accounting  and  financial
services. For the year ended December 31, 2001, the Company incurred expenses of
$439,656 in administrative services provided by MCC.

The Company has entered into a Master Servicing  Agreement with Medical Tracking
Services,  Inc.  ("MTS").  MTS is compensated for servicing the receivables that
are purchased. Servicing fees incurred for the year ended December 31, 2001 were
$33,824.

On August 29, 2001, the Company  purchased  medical  receivables from its Parent
with a book value of  $9,386,309  in  consideration  of  $4,546,861  in cash and
$4,000,000 in paid-in  capital with the balance  included in the  calculation of
discount revenue earned and reserve (deferred).

On December 31, 2001, the Company purchased medical  receivables from its Parent
with a book value of $1,701,892 in  consideration of $1,541,189 in cash with the
balance  included  in the  calculation  of discount  revenue  earned and reserve
(deferred).

9. TRUSTEE FEES

The Company  pledges  collateral to an  independent  bank  trustee.  The pledged
collateral secures all notes,  regardless of when the collateral was acquired or
when the notes were  issued.  The fees to the  trustee  are prepaid on an annual
basis and amortized monthly.  As of December 31, 2001, the trustee fees incurred
for the year of $56,750 were completely amortized.

10. EARNINGS PER SHARE

The Company  computes net earnings per share  following SFAS No. 128,  "Earnings
Per Share." Under the  provisions of SFAS No. 128, basic net income per share is
computed by dividing  the net income  available to common  shareholders  for the
period by the weighted  average number of common shares  outstanding  during the
period.  Diluted net income per share is computed by dividing the net income for
the  period  by  the  weighted  average  number  of  common   equivalent  shares
outstanding  during the period.  As of December 31,  2001,  there were no common
stock equivalents.

11. SIGNIFICANT AGREEMENTS

The Company has entered into several broker-dealer agreements for the purpose of
offering,  selling,  and distributing  certain secured notes of the Company on a
best efforts basis. The effective term of each of the  broker-dealer  agreements
is generally for one year.

                                      F-11
<PAGE>
12. SUBSEQUENT EVENTS

SB-2 FILING:

The  Company  filed a  registration  statement  on  January  18,  2002  with the
Securities and Exchange  Commission,  registering for sale up to $100,000,000 in
principal amount of secured notes. The proceeds of the offering, if any, will be
used  primarily  to acquire  healthcare  receivables.  These  notes will only be
offered for sale by means of a final prospectus.

Subsequent to December 31, 2001,  the Company sold an  additional  $8,239,000 of
its secured notes under its previous offering.

                                      F-12