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, 2002

                                       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 Exchange Act: None

Securities registered under Section 12(g) of the Exchange 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: $ 5,397,870

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, 2003, 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  acquires  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 Stirling
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  $1.149  billion  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  sellers  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  sellers  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.  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.

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<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 seller.

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  sellers are
reviewed to assess the financial  risk involved in purchasing  that  prospective
seller'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.

When  Medical  Capital  Corporation  identifies  investment  opportunities,   it
determines  which one of the  Company's  affiliates  will fund the  purchase  of
receivables from a given seller based on various factors  including  transaction
size  relative  to  size  of the  purchasing  affiliate  and  amounts  currently
committed by each  affiliate  versus each  affiliate's  funds  available for the
purchase of receivables.  Another criteria includes maintaining  diversification
within each  affiliate's  portfolio.  From time to time,  in order to attempt to
maintain  diversification of each affiliate's  portfolio,  these constraints may
cause Medical  Capital  Corporation to direct the sale of  receivables  from one
affiliate to another.  Sales of receivables  among affiliates are generally sold
at 85-90% of fair market value.  Fair market value is determined as equal to the
sum of the  total  amount  advanced  to the  seller of the  receivable  plus the
discount fee, less any collections already received on the receivable.

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.
Through  December 31, 2002, the Company had made three  short-term loans secured
by real estate totaling $5,339,127.  These loans were made to healthcare sellers
who have entered  into  receivable  purchase  agreements  with the Company.  The
Company does not have any specific plans to provide any additional loans secured
by real estate in the next 12 months, but may do so as opportunities arise.

                                       4
<PAGE>
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.  The Company has not engaged in any of
these activities through December 31, 2002. As of December 31, 2002, the Company
did not have any specific plans to engage in any of these activities in the next
12 months, but may do so as opportunities arise.

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.

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 sellers 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 sellers' 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 seller'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 seller.
The Company  believes these sellers 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

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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.

COMMERCIAL RECEIVABLES

The Company may purchase non-healthcare commercial receivables.  The Company has
not identified any specific non-healthcare related receivables for purchase. The
Company does not anticipate that non-healthcare  related commercial  receivables
will constitute more than 20.0% of its pledged collateral at any time. While the
Company's  administrator  has  developed  and  successfully  utilized  a set  of
criteria for the  selection of  prospective  healthcare  receivable  sellers and
guidelines  for the  healthcare  receivables  that  qualify  for  purchase,  the
Company's   administrator  has  not  had  significant  experience  in  assessing
prospective  non-healthcare  receivable  sellers or applying  guidelines for the
qualification of non-healthcare receivables. If the Company's administrator does
not correctly assess the  non-healthcare  receivable  sellers and non-healthcare
receivables  that the Company may purchase,  the Company's  collections on those
receivables could be less than it anticipates,  which could adversely affect its
profitability.

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 SELLERS.  The Company offers  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 focuses 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;

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<PAGE>
     *    medical testing facilities; and
     *    other healthcare businesses and related businesses which it determines
          through the underwriting process to have low risk.

The Company  targets  those  sellers  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 is best suited for its  business.  The other  healthcare
businesses with which the Company deals are primarily small  hospitals,  skilled
nursing facilities, home health agencies and medical clinics.

TARGET  GEOGRAPHICAL  AREAS.  The Company  targets 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
sellers 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:

     *    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  sellers  have a need  for  loans as their  businesses  grow.  Loans
secured  by the assets  owned by the  sellers  are used in order to support  the
sellers'  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
sellers,  like loans secured by equipment and real estate. It intends to provide
customized financing solutions  specifically  tailored to meet the needs of each
individual seller.

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 sellers 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,

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<PAGE>
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
          sellers 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
          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 SELLERS.  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 seller clients where financing
might be obtained. These banks and institutions refer sellers 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
sellers to different  lending  institutions  for a fee.  These brokers assist in

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locating receivables  available for purchase from smaller sellers 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  sellers,  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  sellers  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 sellers can complete to apply to
have Medical Capital Corporation  evaluate the seller'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
sellers  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.

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 $1.149 billion 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 seller.

     For the year ended  December 31, 2002,  the Company  purchased  receivables
with an ENR of $57,723,783,  of which $23,370,719,  or 40.5%, was purchased from
affiliates  of Company,  with the remainder  purchased  from  independent  third
parties.  As a normal course of business,  initial  purchase  relationships  may
occur between the seller and Medical Capital Holdings.  Medical Capital Holdings
has a revolving  credit line with Comerica Bank,  which allows  Medical  Capital
Holdings to purchase accounts  receivable from a seller.  Then, once the Company
has funds available,  the receivables as well as the rights,  title and interest
in the  contractual  relationship  between the seller and parent are sold to the
Company  by  Medical  Capital  Holdings.  For  these  inter-company  sales,  the
receivables  are sold to the  Company  at a price  equal to the sum of the total
amount  advanced to the seller of the receivable plus the discount fee, less any
collections  already  received on the receivable.  To the extent the Company has
sufficient funds available,  the Company will purchase receivables directly from
a seller  without first being  purchased by Medical  Capital  Holdings.  Medical
Capital  Corporation  may also  direct the sale of  receivables  from one of the
Company's  affiliates  to  the  Company,  or  from  the  Company  to  one of its
affiliates as a method of asset/liability  management and to attempt to maintain
diversification  in  the  Company's  investment  portfolio.   When  the  Company
purchases  receivables from its affiliates,  it purchases all rights,  title and
interest in the receivable that its affiliate owned,  including reserve amounts.
Therefore,  the impact on reserves is no different whether the Company purchases
receivables from its affiliates or directly from the seller.

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<PAGE>
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 seller.  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. All of the Company's underwriting  procedures are carried
out on its behalf by Medical Capital  Corporation.  Medical Capital  Corporation
employs  five  people in its  underwriting  department  with over fifty years of
combined  experience  in  underwriting  healthcare  accounts  receivables.   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
seller for the prior 24-month period are reviewed and evaluated for consistency,
reliability  and  adequate  performance.  While  past  collection  records  of a
seller's  receivables  are often are a good predictor of likely future  results,
past results may not reflect actual future  results.  Therefore,  it is possible
that the historical  performance of receivables  approved for purchase under the
Company's  administrator's  program will be different from future collections on
the receivables, which could adversely affect the Company's profitability.

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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<PAGE>
          -    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  healthcare  receivables or portions of healthcare
receivables that the Company acquires generally  represent  obligations of third
parties to pay for healthcare services to patients of healthcare providers.  The
Company's  healthcare  receivables are paid by third-party  payors,  like health
maintenance  organizations,  managed  care  concerns and other  insurers,  large
corporations that may be self-insured,  other healthcare  sellers and government
agencies. Because the Company purchases these types of receivables,  the Company
relies on prompt payments from these  third-party  payors for  collections.  The
Company does not purchase any  healthcare  receivables or portions of healthcare
receivables that are payable by individuals.

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 seller 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  seller'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 seller's receivables.

A  credit  report  is  obtained  from  an  appropriate  credit  agency  on  each
prospective  seller  and its  principals  and any  medical  personnel  with  any
ownership  interest.  The seller 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 seller finances any equipment,  the
applicable  equipment  leasing  companies are contacted for a credit history and
reference.   Prospective   sellers  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 seller. 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 seller requires
that it has the first right of refusal on all of the seller'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
seller,  the Company  reviews and offers to purchase all of the  receivables  of
that seller, 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 sellers 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;

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<PAGE>
     *    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
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
sellers,  involves an  analysis of a seller'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 expected 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  seller.  The  resulting  number is the  estimate  of the net
collectible value of the receivable, or the expected net receivable.

                                       12
<PAGE>
RESERVE ACCOUNT.  The Company  purchases the receivables at a price equal to the
ENR.  Only a portion of the  purchase  price,  typically  around 80%,  but never
exceeding 90%, of the ENR, is paid to the seller  immediately.  A portion of the
purchase price not  immediately  paid is allocated to a reserve account for that
seller and the Company  retains  the  remaining  portion of the unpaid  purchase
price as its fee. When a receivable is not fully  collected,  the balance in the
seller's  reserve account is reduced.  A reduction in a seller's reserve account
occurs with  respect to most,  if not all,  sellers.  Historically,  the reserve
account  balances  held by the Company's  affiliates  for any single seller have
never been exhausted.  Although the Company monitors receivable collections on a
daily  basis,  the  Company  may not be  able to  react  quickly  enough  to the
reduction  of a  seller's  reserve  account  balance to cover  resulting  losses
through collections on newer receivables acquired from the seller.

     To further  explain the reserve  account,  each receivable can be separated
into several segments  including:  the face amount,  the expected net receivable
amount, the initial purchase amount, the discount and the seller reserve.


     *    Face  Amount:  this  is the  full  amount  owed to the  seller  by the
          receivable payor, like an insurance company or Medicare for example.
     *    Expected Net Receivable  ("ENR"):  this is the amount that the Company
          actually  expects the third party payor to pay on the receivable.  The
          ENR  is  determined  by  Medical  Capital  Corporation's  underwriting
          department through its underwriting  process. The ENR is almost always
          less than the face amount of the  receivable  and never more.  For the
          receivables the Company purchases, the ENR ranges anywhere from 40% to
          90% of the face amount of the receivable.  All of our  calculations of
          purchase price, reserve and amount advanced to the seller are based on
          the ENR.  The Company  does not use the face amount of the  receivable
          for any calculations  because it does not expect to be able to collect
          anything more than the ENR.
     *    Initial Purchase Amount or Advance: this is the amount advanced to the
          seller at the time of initial  purchase of a batch of receivables.  On
          the initial  purchase from a seller,  this is typically  around 80% of
          the ENR. On future purchases, the Company may advance less than 80% of
          the ENR in order to build up a seller's reserve account  balance.  The
          amount to  advance to a seller is  determined  through  the  Company's
          underwriting  process.  For the year  ended  December  31,  2002,  the
          initial  purchase  amount  as a  percentage  of ENR was  80.0%  on all
          receivable purchases from unaffiliated third parties.
     *    The Discount:  this is the Company's fee which it negotiates  with the
          seller when it enters into the  receivables  purchase  agreement.  The
          discount will vary based on the amount of time the Company expects the
          seller's receivables to remain outstanding before being collected.  On
          average, the discount is approximately 8.0% of the ENR.
     *    The Seller  Reserve:  the amount of each  receivable  allocated to the
          seller  reserve  is  equal to the ENR,  minus  the sum of the  initial
          purchase  amount  and the  discount.  This  is the  batch's  bad  debt
          reserve. This bad debt reserve is rolled up into the overall aggregate
          seller  reserve on the entire  pool of  receivables  purchased  from a
          seller.  The Company  typically  tries to maintain an overall bad debt
          reserve  of 10-25% of the ENR for the  seller's  pool of  receivables.
          Because less than 25% of the ENR is allocated to the seller's bad debt
          reserve at the time of initial purchase from a new seller,  the amount
          advanced to the seller on future purchases may be less than 80% of the
          ENR,  with the  difference  being  allocated  to the seller's bad debt
          reserve.  In  addition,  under  the  terms of the  Company's  purchase
          agreement with the seller,  any amounts collected in excess of the ENR
          are allocated to the bad debt reserve of the seller.

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:

     *    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;

                                       13
<PAGE>
     *    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. A reserve  accounting is made to the seller on a monthly basis,  using the
last day of each month as a determination/reconciliation date. When warranted by
this  accounting,  any excess in the reserve account is paid to the seller on or
around  the 15th day of the  month  following  the  determination/reconciliation
date.  In  addition  to the  uncollected  ENR,  any  amount  paid on a batch  of
receivables  in  excess  of the ENR 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 initial advance amount paid to the seller on
future  purchases  of  receivables.  This  adjustment  effectively  reduces  the
percentage of cash  immediately  paid to the seller when future  receivables are
purchased.  For  example,  a  seller  may be  initially  paid  80%  of  the  ENR
immediately  when a receivable is purchased  from that seller.  If that seller's
reserve account balance falls below 5% of the  outstanding  receivables  balance
and  requires an  adjustment,  the seller may only be paid 75% of the ENR 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 ENR
would be allocated  to the reserve  account for all future  purchases  until the
reserve account balance reaches a  pre-determined  level.  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.

Under the administrative  services  agreement,  the Company pays Medical Capital
Corporation  fees for  providing  the  above  services  to it.  The fees for the
various  services  provided are equal to the lesser of (1) 2% of the ENR balance

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<PAGE>
of the  receivables  owned by the  Company,  or (2)  0.25% of the  discount  fee
charged on the purchase of the receivables. The administrative fee is calculated
monthly.  For the year ended December 31, 2002, the Company incurred  $1,087,960
in administrative  service fees to Medical Capital  Corporation.  In addition to
this fee,  the Company  will also  reimburse  Medical  Capital  Corporation  for
compensation paid to its investor relations  department for services rendered to
the  Company by that  department.  For the year ended  December  31,  2002,  the
Company  paid  Medical  Capital  Corporation  as  reimbursement  of its investor
relations  department  for services  rendered to the Company by that  department
$253,468,  of which $215,152 was for  compensation,  $35,742 travel,  and $2,574
various  other  expenditures.   The  Company  also  reimburses  Medical  Capital
Corporation for out-of-pocket expenses paid on the Company's behalf. The Company
believes the above fees are competitive  with fees charged by independent  third
parties for providing similar services.

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 are not directed to the seller, but rather are directed to go 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 ENR rates used for each seller. If any one batch
of  purchased  receivables  does not perform as expected  and falls short of the
ENR, 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  ENR, 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

                                       15
<PAGE>
also prepares  analysis  reports of receivables that are submitted for purchase,
but ultimately disqualified and not purchased.

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 seller.

Under the  servicing  agreement,  MediTrak is  compensated  for its  services by
receiving a fee for each claim posted on its tracking  system.  The fee is equal
to $2 per claim item in addition to a monthly minimum fee of $200 per seller,  a
one-time  setup fee of $1,500 and one-time  data  interface fee of up to $1,500.
For the year ended December 31, 2002, the Company incurred $276,846 in servicing
fees to MediTrak.  The Company  believes the fees MediTrak  charges to companies
within  the  Medical  Capital  Holdings  group are equal to or lower  than those
non-affiliated third parties would charge for providing similar services.

CREDIT LOSS POLICY AND EXPERIENCE

The  Company  regularly  reviews  its  outstanding   healthcare  receivables  to
determine  the  adequacy of its bad debt reserve 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 bad debt reserve
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 bad debt loss reserve
equal to that amount.  The Company has not  established a bad debt 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.  Under  the terms of the  Company's  purchase
agreement with the seller, if the seller is in compliance with the agreement and
all of its batches of receivables are collected on time, the Company will return
to the seller all collected amounts allocated to the seller reserve account that
exceed 25% of the outstanding balance of the seller's receivables, calculated on

                                       16
<PAGE>
a monthly basis. In addition, if the Company ceases to purchase receivables from
a seller, once that seller's outstanding  receivables are collected in full, the
Company will return any collected  amounts  allocated to the reserve  account to
the seller.  If a receivable  is in default,  the Company will take  measures to
recover the purchase price. These measures include reducing the seller's 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.

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 seller 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.  Many of these competitors
have  greater  financial  and  other  resources  than the  Company  and may have
significantly  lower cost of funds  because they have greater  access to insured
deposits  or the  capital  markets.  Moreover,  some of these  competitors  have
significant  cash reserves and can better fund  shortfalls in  collections  that
might have a more pronounced  impact on businesses  like the Company.  They also
have  greater  market  share.  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.

     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. Some of the Company's competitors may offer better pricing for
receivables,  be more timely and responsive in processing  receivable  purchases
and have better customer  service than the Company does. Some of these companies
may also have greater experience and more efficient  collection methods than the
Company might develop. Some of the Company's competitors target the same type of
healthcare  sellers as the  Company  does and  generally  have  operated  in the
markets the Company  services for a longer period of time.  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,

                                       17
<PAGE>
typically  with a  lower  profit  margin,  these  competitors  could  enter  the
Company's  target  markets more  aggressively  in the future.  If the Company is
unable to  successfully  compete with these  companies,  its  business  could be
adversely affected.

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.

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 sellers, 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

                                       18
<PAGE>
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.

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.

CHANGES IN HMO AND INSURANCE COMPANY PAYMENT AND REIMBURSEMENT PRACTICES

In  addition to  governmental  initiatives,  private  reform  efforts  have been
instituted throughout the healthcare industry,  including the capitation of some
healthcare expenditures. Capitation is the prepayment of a predetermined monthly
fee to healthcare providers for some costs by third-party payors, typically HMOs
and  other  managed  healthcare  concerns.  The  capitation  fee is based on the
aggregate  number of patients under a healthcare  providers' care. This fee does
not  vary,  regardless  of how much time the  patient  requires,  the  number of
visits,  or the nature of the illness.  The  healthcare  provider  then provides
healthcare to these patients when and as needed, and assumes the risk of whether
the  capitation  fee will  cover its costs and  provide a profit  for all of the
healthcare  services it renders.  Because  some  capitation  eliminates  patient
billing,  it can  reduce  the  provider's  healthcare  receivables  and  risk of
collection  of fees that are the primary  source of the  Company's  business and
cash flow. There is a risk that this practice will grow as HMOs expand.

                                       19
<PAGE>
Other possible changes in private healthcare  delivery and payment systems could
adversely affect the Company's business. These include employer initiatives like
creating  purchasing  cooperatives and seller initiatives to integrate hospitals
and physicians into comprehensive delivery systems. Also, management and billing
services may be consolidated by integrated  healthcare  delivery  systems.  This
consolidation  may result in a decrease  in the  willingness  of sellers to sell
healthcare  receivables  and reduce  demand for related  billing and  collection
services.

EMPLOYEES

As of December 31, 2002, the Company employed no full-time  employees.  However,
the Company makes partial use of  approximately  76 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

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<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.

OVERVIEW

EXPECTED  NET  RECEIVABLE.   Through  the  Company's   underwriting  process  it
determines  an amount for each  receivable  that it  expects to be  collectable,
which is referred to as the  expected  net  receivable,  or ENR.  This amount is
often less than the stated face amount of the receivable and never more than the
stated  face  amount.  All  of  the  Company's  other  calculations  related  to
receivables are based on the ENR of the  receivable,  not the face amount of the
receivable.  The  following  is an  aging  table  of  the  Company's  healthcare
receivables on the ENR basis:

                                                AS OF
               AGING IN DAYS(1)          DECEMBER 31, 2002(2)
               ----------------          --------------------
               0-60                         $ 22,777,000
               61-120                         12,675,000
               121-180                        10,196,000
               181-240                         6,827,000
               241-270                         1,389,000
               271-360                         1,086,000
               Over 360                          307,000
                                            ------------
               Total ENR                    $ 55,227,000
                                            ============

----------
(1)  The aging of a receivable is the number of days that have elapsed since the
     receivable was first purchased by the Company or one of its affiliates.
(2)  The table reflects reports as of the determination  dates. These reports do
     not reflect  un-posted  cash,  interim  purchases and interim  collections,
     which amounted to $3,867,000 on December 31, 2002.

SELLER'S  RESERVE.  The amount of each  receivable  allocated  to each  seller's
reserve  account  is equal to the ENR,  minus  the sum of the  initial  purchase
amount and the discount. This is the batch seller's reserve for funds that could
be returned to the seller after claims are collected,  if contractual  terms are
met by the seller.  This seller reserve is rolled up into the overall  aggregate
seller  reserve on the entire pool of  receivables  purchased  from that seller.
Receivables are posted on a  receivable-by-receivable  basis,  and reported on a
batch basis.  The  receivables are also monitored by tracking the entire pool of
batches for a seller to determine the adequacy of the seller's  reserve account.
The Company  typically  tries to maintain an overall seller reserve of 10-25% of
the ENR for each  seller's  pool of  receivables  depending on various  criteria
determined  through the  underwriting  process and collection  experience of the
seller's  receivables.  If a seller's  reserve account is insufficient on a pool
basis,  an  adjustment is made to reduce the initial  purchase  amount on future
batches of receivables purchased from that seller, which increases the amount of
each batch allocated to the seller's  reserve  account.  In addition,  under the
terms  of the  Company's  purchase  agreement  with  each  seller,  any  amounts
collected  in excess of the ENR are  allocated  to the  reserve  account  of the
seller to increase that seller's reserve balance. If the seller is in compliance
with the terms of the purchase  agreement and all of its batches of  receivables
are collected on time, the Company will return to the seller all collections for

                                       21
<PAGE>
the  amounts  allocated  to the seller  reserve  account  that exceed 25% of the
outstanding balance of the seller's receivables,  calculated on a monthly basis.
In addition,  if the Company ceases to purchase  receivables from a seller, once
that seller's  outstanding  receivables  are collected in full, the Company will
return  any  collections,  as well as all  rights,  title  and  interest  in the
receivables allocated to the reserve account to the seller.

Usually  between  150 and 270 days from the date of purchase  (depending  on the
contractual terms in each seller's agreement), if the full ENR of the receivable
has not been fully  collected,  the batch of receivables and the individual open
receivable  are  considered  to have a value of zero and/or  replaced with a new
receivable.  At the same time the Company  assigns a receivable a value of zero,
it offsets the uncollected portion against the seller reserve for that seller or
withholds a portion of the advance on the next purchase of receivables from that
seller.  Even though the  receivable  is  assigned a value of zero,  the Company
continues to track the  receivable and attempts to collect it. If the receivable
is  subsequently  collected,  the Company  allocates  those  collections  to the
seller's  reserve  account  under the terms of its purchase  agreement  with the
seller.  As of December  31,  2002,  the amount  collected  (for all sellers) in
excess of their respective reserve accounts was $150,070.

DISCOUNT  RESERVE.  This reserve is established by deferring  discount income on
medical  receivables  purchased  from each seller and  recognizing  the discount
income  upon  collection  of the  receivables  at the  ENR  amount,  essentially
mimicking the straight-line, interest method commonly used by factors in similar
industries.  The Company anticipates the receivables on which these reserves are
based to be collected and earned within the seller contract period,  however, if
the Company does not collect the purchased receivables in the contractual period
(as established between the seller and the Company) then the seller forfeits the
deferred  purchase  price of the  short-collected  batch of  receivables  to the
Company.  Once that batch of receivables  is fully  collected to the ENR amount,
the Company recognizes the seller's forfeited deferred purchase price as part of
its discount revenue. As of December 31, 2002, this reserve was $1,243,000.

BAD DEBT  RESERVE  FOR  LOSSES.  The bad debt  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, 2002 and  December  31,  2001,  no reserves for losses were
needed.

RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002 AND DECEMBER
31, 2001.

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. For
the twelve  months  ended  December  31,  2002,  the Company  purchased  medical
receivables  carrying an estimated net  realizable  value ("ENR") of $57,723,783
and earned  discount fees on these  purchases of $5,231,838,  including  related
party  discount fees of $2,346,266  from its Parent and  affiliates.  During the
same period, the Company also earned $166,032 in administration expense.

For the twelve months ended  December 31, 2001,  the Company  purchased  medical
receivables  carrying an estimated net  realizable  value ("ENR") of $20,262,386
and earned  discount fees on these  purchases of $1,645,912,  including  related
party  discount fees of $1,009,637  from its Parent and  affiliates.  During the
same period, the Company did not earn any administration income.

As of December 31, 2002 the Company held  $1,243,000 in discount  reserves which
reduced its discount revenue. The Company anticipates the receivables upon which
these  reserves  are based to be fully  collectible  and the  discount fee to be

                                       22
<PAGE>
earned  within the  provider  contract  period.  A summary of the changes in the
discount reserve for the company from inception to December 31, 2002, on a gross
basis is as follows:

<TABLE>
<CAPTION>
                                     FOR THE YEAR ENDED    FOR THE YEAR ENDED        INCEPTION TO
                                      DECEMBER 31, 2002     DECEMBER 31, 2001     DECEMBER 31, 2002
                                      -----------------     -----------------     -----------------
<S>                                       <C>                   <C>                   <C>
Beginning Balance                         $  195,836            $        0            $        0
Deferred income on purchases               6,279,002             1,841,748             8,120,750
Less: amortized deferred income            5,231,838             1,645,912             6,877,750
                                          ----------            ----------            ----------
Ending Balance                            $1,243,000            $  195,836            $1,243,000
                                          ==========            ==========            ==========
</TABLE>

GROSS PROFIT.  The gross profit during the twelve months ended December 31, 2002
was $4,309,910,  which arose from gross discount revenues of $5,397,870 less the
change in  discount  reserves of  $1,047,164,  plus  $166,032 in  administration
income,   less  the   administration   expense   incurred  of  $1,087,960.   The
administration expense, related party, was 1.9% of the total ENR of purchases.

The  gross  profit  during  the  twelve  months  ended  December  31,  2001  was
$1,206,256,  which arose from gross discount  revenues of  $1,645,912,  less the
change in  discount  reserves  of $0, and  administration  expense  incurred  of
$439,656. The administration expense, related party, was 2.2% of the total ENR.

OPERATING EXPENSES. The Company's total operating expenses for the twelve months
ended  December 31,  2002,  were  $6,210,223.  Expenses  consisted  primarily of
$4,148,405 in interest expense, which consists of interest expense of $3,546,219
plus amortized commissions of $1,166,403 and amortized deferred offering cost of
$127,145 less interest earned of $691,392.  Interest earned included $660,362 on
the  Company's  gross notes  receivables  of  $5,339,127  from  various  medical
providers,  and $31,006 on cash and cash equivalents.  The Company also incurred
$350,457 in  advertising  expense,  which is expensed as incurred,  professional
services of $321,298,  service fees of $276,846 (related party),  and legal fees
of $227,131.

For the twelve months ended  December 31, 2001,  the Company's  total  operating
expenses 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 from various medical  providers,  and $36,410 on
cash and cash  equivalents.  The Company also incurred  $207,618 in  advertising
expense,  which is  expensed  as  incurred,  professional  services  of $58,998,
service fees of $33,824 (related party), and legal fees of $53,064.

INCOME TAX EXPENSE OR BENEFIT. For the twelve months ended December 31, 2002 and
2001,  the  provision  (benefit)  for income  taxes was  $(703,116)  and $25,468
respectively.  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 OR LOSS.  The  Company  had a net loss of  $(1,197,197)  or basic and
diluted  net loss per  common  share of  $598.60  for the  twelve  months  ended
December 31, 2002.  The net loss of the Company  resulted  primarily  from gross
profit of  $4,309,910  on the  purchase of medical  receivables  being less than
administration and operating expenses.  The Company had anticipated greater year
to date sales of its notes from its public  offering,  which the Company offered
at  attractive  interest  rates,  thereby  being able to purchase  more  medical
receivables and earn greater revenues.  The Company anticipates greater sales of
its notes in 2003 and expects revenues and profit margin to rise in 2003.

For the twelve months ended  December 31, 2001,  the Company had a net income of
$47,296 or basic and diluted net gain per common share of $27.03.

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

                                       23
<PAGE>
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 notes when due.

LIQUIDITY AND CAPITAL RESOURCES

During  the  twelve  months  ended  December  31,  2002,  the  Company  received
$35,678,000  in cash from the  issuance  of secured  notes by the Company on its
public offering, and received collections on medical receivables of $23,426,534.
During the same period,  the Company used $49,480,134 of these funds to purchase
medical receivables,  and had $1,686,000 in notes mature and not reinvest. As of
December  31,  2002,  the  Company  maintained   $1,494,002  in  cash  and  cash
equivalents,  which  it  seeks  to  utilize  in  purchasing  additional  medical
receivables and in the acquisition of other possible investments.

From the Company's inception on August 4, 2000 to December 31, 2002, the Company
has received $53,895,000 from the sale of its notes, and received $27,287,936 in
collections  on medical  receivables.  Over the same  period,  the Company  used
$67,931,370 to purchase medical  receivables,  and made cash loans of $5,339,127
to providers.  The Company has had $1,686,000 in notes that have matured and not
reinvested since inception.

The Company  believes  current  conditions of the stock  exchanges and financial
markets will have some impact on the issuance of its secured  notes,  yet due to
the  favorable  and fixed  interest  rates  offered  on the notes,  the  Company
believes this impact will not be significant.  The Company does not believe that
inflation has had a significant impact on its operations.

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 the net
offering  proceeds of the  offering of its notes to the public or from cash flow
generated from its operations. Over the next 12 months the Company believes cash
generated by its  operations  will be  sufficient  to fund all of the  Company's
general and administrative expenses.

RELATED PARTY TRANSACTIONS

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  MCC  and  MTS,
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.

For the twelve months ended December 31, 2002 and 2001, MCC was  compensated for
administration  of the  healthcare  receivables  which the Company  purchased of
$1,087,960 and $439,656,  respectively. For the twelve months ended December 31,
2002 and 2001, the Company incurred  management fees provided by MCC of $126,000
and $0,  respectively.  For the twelve months ended  December 31, 2002 and 2001,
MTS was  compensated  for servicing the  Company's  receivables  of $276,846 and
$33,824,  respectively.  For the twelve months ended December 31, 2002 and 2001,
the Company incurred sales  commissions for  telemarketing  expenses provided by
MCC of $127,930 and $0, respectively.

For the twelve months ended  December 31, 2002 and 2001,  the Company  purchased
medical  receivables of various  providers from its Parent and affiliates with a
book value of $15,212,372  and  $11,088,200,  respectively,  for which it paid a
consideration  of $12,866,106 and  $10,078,564,  respectively,  in cash with the
balance  included in the  calculation  of discount  revenue  earned and reserved
(deferred).

                                       24
<PAGE>
As a normal course of business, initial purchase relationships may occur between
the seller and Medical Capital  Holdings  ("MCH") and its affiliates.  MCH has a
revolving  credit line with a U.S. bank,  which allows MCH to purchase  accounts
receivable  from a seller.  Then,  once the  Company  has funds  available,  the
receivables  as  well as the  rights,  title  and  interest  in the  contractual
relationship  between the seller and parent are sold to the Company by MCH.  For
these  inter-company  sales,  the receivables are sold to the Company at a price
generally  equal to 85-95% of the sum of the total amount advanced to the seller
of the receivable plus the discount fee, less any collections  already  received
on the receivable.  MCH's costs,  including interest charges are included in the
purchase price. To the extent the Company has sufficient  funds  available,  the
Company will purchase  receivables  directly  from a seller  without first being
purchased by MCH. Medical Capital Corporation ("MCC") makes the determination as
to whether the Company  purchases  receivables from the Company's  affiliates or
directly from the seller.  MCC may also direct the sale of receivables  from one
of the Company's  affiliates  to the Company,  or from the Company to one of its
affiliates as a method of asset/liability  management and to attempt to maintain
diversification  in  the  Company's  investment  portfolio.   When  the  Company
purchases  receivables from its affiliates,  it purchases all rights,  title and
interest in the receivable that the affiliate owned,  including reserve amounts.
Moreover,  the Company  purchases  medical  receivables  from direct  sellers or
affiliates of the Company at fair value. Consequently,  management believes that
the  Company's  results of  operations  are not  impacted  whether  the  Company
purchases  receivables  directly  from the  seller or from one of the  Company's
affiliates.

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
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

                                       25
<PAGE>
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  adoption  of FASB 144 did not have any impact to the  Company's
financial position or results of operations.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from  Extinguishment  of Debt", and an amendment of that Statement,  FASB
Statement  No.  64,  "Extinguishments  of  Debt  Made  to  Satisfy  Sinking-Fund
Requirements"  and FASB Statement No. 44,  "Accounting for Intangible  Assets of
Motor Carriers".  This Statement  amends FASB Statement No. 13,  "Accounting for
Leases",  to eliminate an  inconsistency  between the  required  accounting  for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions. The Company does not expect the adoption of SFAS No. 145 to have a
material impact on the Company's financial position or results of operations.

In June  2002,  the  FASB  issued  Statement  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullifies  Emerging  Issues Task Force ("EITF")  Issue No. 94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."  The provisions
of this  Statement  are  effective  for  exit or  disposal  activities  that are
initiated  after  December  31, 2002,  with early  application  encouraged.  The
Company does not expect the adoption to have a material  impact to the Company's
financial position or results of operations.

In October 2002,  the FASB issued  Statement No. 147,  "Acquisitions  of Certain
Financial  Institutions-an  amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", which removes acquisitions of financial institutions from
the scope of both  Statement 72 and  Interpretation  9 and  requires  that those
transactions be accounted for in accordance  with  Statements No. 141,  Business
Combinations,  and No. 142,  Goodwill and Other Intangible  Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived  Assets,  to  include  in its scope  long-term  customer-relationship
intangible   assets  of   financial   institutions   such  as   depositor-   and
borrower-relationship intangible assets and credit cardholder intangible assets.
The requirements relating to acquisitions of financial institutions is effective
for  acquisitions  for which the date of  acquisition  is on or after October 1,
2002.  The  provisions  related to accounting  for the impairment or disposal of
certain  long-term  customer-relationship  intangible  assets are  effective  on
October 1, 2002. The adoption of this  Statement did not have a material  impact
to the Company's  financial position or results of operations as the Company has
not engaged in either of these activities.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition  and  Disclosure",  which amends FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation,  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation.  In addition,  this Statement amends the
disclosure  requirements  of Statement 123 to require  prominent  disclosures in
both annual and interim financial  statements about the method of accounting for
stock-based employee  compensation and the effect of the method used on reported
results.  The transition guidance and annual disclosure  provisions of Statement
148 are effective for fiscal years ending after December 15, 2002,  with earlier
application   permitted  in  certain   circumstances.   The  interim  disclosure
provisions are effective for financial reports containing  financial  statements
for interim  periods  beginning  after  December 15, 2002.  The adoption of this
statement did not have a material impact on the Company's  financial position or
results of operations as the Company has elected not to change to the fair value
based method of accounting for stock-based employee compensation.

                                       26
<PAGE>
In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company  includes  another  entity  in its  consolidated  financial  statements.
Previously,  the  criteria  were  based  on  control  through  voting  interest.
Interpretation  46 requires a variable  interest  entity to be consolidated by a
company if that  company  is subject to a majority  of the risk of loss from the
variable interest  entity's  activities or entitled to receive a majority of the
entity's  residual  returns  or both.  A company  that  consolidates  a variable
interest  entity  is  called  the  primary   beneficiary  of  that  entity.  The
consolidation  requirements of  Interpretation  46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older  entities in the first  fiscal year or interim  period  beginning
after  June  15,  2003.  Certain  of the  disclosure  requirements  apply in all
financial  statements  issued  after  January 31, 2003,  regardless  of when the
variable  interest  entity  was  established.  The  Company  does not expect the
adoption  to have a  material  impact to the  Company's  financial  position  or
results of operations.

CRITICAL ACCOUNTING POLICY AND ESTIMATES

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with generally accepted accounting principles in the
United States of America. The preparation of these financial statements requires
the Company to make estimates and assumptions  that affect the reported  amounts
of  assets  and  liabilities  at the date of the  financial  statements  and the
reported  amounts of revenues and expenses  during the reporting  period.  On an
on-going  basis,  the Company  evaluates its estimates and judgments,  including
those related to revenue recognition, financing operations and contingencies and
litigation.  The  Company  bases  its  estimates  and  judgments  on  historical
experience and on various other factors that are believed to be reasonable under
the  circumstances,  the  results of which  form the basis for making  judgments
about the carrying value of assets and liabilities that are not readily apparent
from other  sources.  Actual  results  may differ  from  these  estimates  under
different assumptions or conditions.  The most significant  accounting estimates
inherent  in the  preparation  of the  Company's  financial  statements  include
estimates  as  to  the  appropriate   carrying  value  of  specific  assets  and
liabilities  which  are not  readily  apparent  from  other  sources,  primarily
allowance for doubtful  medical  receivables,  accruals for other costs, and the
classification  of net  operating  loss  and tax  credit  carryforwards  between
current and long-term assets. Risks are involved in calculating the discount fee
reserve based on judgments  made by the  underwriting  team in  determining  the
average discount fee (approximately  7.5%) to be charged to the medical provider
and  information  obtained and analyzed to assess the financial risk involved in
purchasing  that medical  provider's  receivables  based on relevant  operating,
historical and financial  data.  The Company also evaluate  trends in healthcare
and other relevant  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 and real estate collateral valuations, if any. A significant variation,
particularly  longer periods from the contractual service and collection period,
would  impact the ability to  recognize  deferred  revenues and hence impact our
results of  operations.  In addition,  any changes in the  subjective  estimated
items mentioned above may impact our results of operations significantly.  These
accounting  policies are described at relevant  sections in this  discussion and
analysis and in the notes to the consolidated  financial  statements included in
this report.

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.

                                       27
<PAGE>
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

                                       28
<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:

<TABLE>
<CAPTION>
NAME                           AGE    POSITION(S)
----                           ---    -----------
<S>                            <C>    <C>
Sidney M. Field                57     President, Chief Executive Officer and Director
Joseph J. Lampariello          49     Chief Operating Officer, Secretary, and Director
Alan J. Meister                54     Chief Accounting Officer and Treasurer
Lawrence J. Edwards            57     Director
Joseph J. DioGuardi            62     Director
Gary L. Nielsen                60     Director
Robert B. MacDonald            70     Director
</TABLE>

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

<TABLE>
<CAPTION>
NAME                           AGE    POSITION(S)
----                           ---    -----------
<S>                            <C>    <C>
Sidney M. Field                57     President, Chief Executive Officer and Director
Joseph J. Lampariello          49     Chief Operating Officer, Secretary, and Director
Alan J. Meister                54     Chief Financial Officer and Treasurer
Lawrence J. Edwards            57     Director
Robert B. MacDonald            70     Director
</TABLE>

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
founded and  operated  various  specialty  sales and  investment  organizations,
including Newport Aircraft Sales and various real estate investment and property

                                       29
<PAGE>
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 on the Board of Directors of Union Benefit Life Insurance Company. Mr.
Meister was 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.

                                       30
<PAGE>
EMPLOYMENT AGREEMENTS

     Medical Capital Corporation,  the Company's  administrator,  has employment
agreements with Mr. Sidney Field,  its President,  Chief  Executive  Officer and
Director,  Mr. Joseph J. Lampariello,  its Chief Operating Officer, and Mr. Alan
Meister, its Chief Financial Officer.

     Mr. Field's  employment  agreement is for a perpetual term until terminated
by Mr.  Field or  Medical  Capital  Corporation.  Mr.  Field may  terminate  the
agreement  for any reason by giving 30 day's advance  notice to Medical  Capital
Corporation.  Medical Capital Corporation may terminate the agreement with cause
by giving five day's advance  notice to Mr. Field or without cause by giving 120
day's advance notice to Mr. Field. If Mr. Field is terminated by Medical Capital
Corporation  without cause he is entitled to receive one year's compensation and
benefits as a severance.  The  agreement  provides for an initial base salary of
$144,000,  which may be,  and has been,  increased  from time to time by Medical
Capital Corporation's board of directors.  The agreement also provides Mr. Field
with $3,000,000 of life insurance coverage, an auto allowance. If Mr. Field dies
or becomes  disabled during the term of the agreement,  his spouse or his estate
will receive his base salary for six months.  Mr. Field's  employment  agreement
also  contains  a  non-compete   provision  that  expires  one  year  after  the
termination of his employment with Medical Capital Corporation.

     Mr.  Lampariello's  employment  agreement  is for a  perpetual  term  until
terminated by Mr.  Lampariello or Medical Capital  Corporation.  Mr. Lampariello
may terminate the agreement for any reason by giving 30 day's advance  notice to
Medical  Capital  Corporation.  Medical  Capital  Corporation  may terminate the
agreement with cause by giving five day's advance  notice to Mr.  Lampariello or
without  cause by giving 120 day's  advance  notice to Mr.  Lampariello.  If Mr.
Lampariello  is terminated by Medical  Capital  Corporation  without cause he is
entitled to receive one year's  compensation  and benefits as a  severance.  The
agreement provides for an initial base salary of $250,000, which may be, and has
been,  increased  from  time to  time by  Medical  Capital  Corporation's  Chief
Executive  Officer.  The agreement also provides Mr. Lampariello with $2,000,000
of life insurance  coverage and an auto allowance.  If Mr.  Lampariello  dies or
becomes disabled during the term of the agreement, his spouse or his estate will
receive his base salary for six months. Mr.  Lampariello's  employment agreement
also  contains  a  non-compete   provision  that  expires  one  year  after  the
termination of his employment with Medical Capital Corporation.

     Mr. Meister's employment agreement is for a perpetual term until terminated
by Mr.  Meister or Medical  Capital  Corporation.  Mr. Meister may terminate the
agreement  for any reason by giving 30 day's advance  notice to Medical  Capital
Corporation.  Medical Capital Corporation may terminate the agreement with cause
by giving five day's advance notice to Mr. Meister or without cause by giving 90
day's advance  notice to Mr.  Meister.  If Mr.  Meister is terminated by Medical
Capital  Corporation  without  cause  he  is  entitled  to  receive  one  year's
compensation and benefits as a severance.  The agreement provides for an initial
base salary of $120,000, which may be, and has been, increased from time to time
by Medical  Capital  Corporation's  board of directors or  President.  Under the
terms of the  agreement,  for the first five years Mr.  Meister is  employed  by
Medical  Capital  Corporation,  he was granted  20,000 shares of common stock of
Medical Capital Holdings, Inc. on each yearly anniversary of his employment. The
agreement also provides Mr. Meister with an auto allowance.  If Mr. Meister dies
or becomes  disabled during the term of the agreement,  his spouse or his estate
will receive his base salary for six months. Mr. Meister's  employment agreement
also  contains  a  non-compete   provision  that  expires  one  year  after  the
termination of his employment with Medical Capital Corporation.

All  of  Medical  Capital  Corporation's  executive  officers  are  entitled  to
participate  in a bonus pool,  which is paid  quarterly.  The amount the pool is
funded and the  percentage of the pool each  participant  is entitled to receive
changes  annually in the discretion of Medical  Capital  Corporation's  board of
directors.

                                       31
<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 Company does not pay any  compensation to its
officers nor does it directly  reimburse  Medical  Capital  Corporation  for any
portion of their salaries.  The Company pays fees to Medical Capital Corporation
for acting as the Company's  administrator,  which fees have no  relationship to
the salaries paid by Medical  Capital  Corporation.  The Company does  reimburse
Medical  Capital  Corporation for  compensation  paid to some of its non-officer
employees for services provided to the Company by those employees. 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 2002 and 2001 whose total annual
compensation  exceeded  $100,000 in 2002 (the "Named Executive  Officers"),  all
during  2002  and  2001,  the  Company's  first  two  years 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.  These  individuals do not
receive  any other  compensation  by any of the  companies  affiliated  with the
Medical Capital  Holdings group of companies.  As of March 15, 2002, the Company
did not have any stock option plans in effect.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                     BONUS/      ALL OTHER
      NAME AND PRINCIPAL POSITION              YEAR     SALARY    COMMISSIONS   COMPENSATION
      ---------------------------              ----     ------    -----------   ------------
<S>                                            <C>     <C>         <C>            <C>
Sidney M. Field                                2002    $144,000    $       0     $ 26,145(1)
  President, Chief Executive Officer and       2001    $144,000    $ 200,000     $ 23,826(1)
  Director
Joseph J. Lampariello                          2002    $275,000    $ 385,827     $  3,600(2)
  Chief Operating Officer, Secretary, and      2001    $275,000    $ 301,081     $  7,176(2)
  Director

Alan Meister                                   2002    $181,404    $  54,131     $ 21,360(5)
  Chief Accounting Officer and Treasurer       2001    $169,067    $  42,123     $ 21,280(5)

Lawrence J. Edwards                            2002    $ 75,000    $  65,395     $ 13,900(4)
  Director                                     2001    $180,000    $ 190,661     $ 31,644(4)
</TABLE>

----------
(1)  Includes  $18,945 in life insurance  premiums and a $7,200 401(k)  matching
     contribution paid by Medical Capital Corporation for 2002. Includes $16,626
     in life insurance  premiums and a $7,200 401(k) matching  contribution paid
     by Medical Capital Corporation for 2001.
(2)  Includes  $3,600  in  life  insurance  premiums  paid  by  Medical  Capital
     Corporation for 2002.  Includes  $7,176 in life insurance  premiums paid by
     Medical Capital Corporation for 2001.

                                       32
<PAGE>
(3)  Mr.  Edwards  retired as Executive  Vice President and Treasurer of Medical
     Capital Management on May 31, 2002, and currently serves only as a director
     of Medical Capital Management.
(4)  Includes  $5,160  in life  insurance  premiums,  a $3,750  401(k)  matching
     contribution   and  a  $5,000  auto  allowance  paid  by  Medical   Capital
     Corporation for 2002. 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 for 2001.
(5)  Includes  $2,760  in life  insurance  premiums,  a $6,600  401(k)  matching
     contribution   and  a  $12,000  auto  allowance  paid  by  Medical  Capital
     Corporation for 2002. 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 for 2001.

     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.

     In addition to the above compensation,  in 2002 Messrs.  Edwards, Field and
Lampariello  also received a grant of stock in Medical Capital Holdings of 1,000
shares each valued at $3.00 per share.

     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 December 31, 2002. As of
that date,  13,553,746  shares of common stock of Medical Capital  Holdings were
issued and outstanding.

<TABLE>
<CAPTION>
     NAME OF BENEFICIAL OWNER                     NUMBER OF SHARES       PERCENT OF CLASS(1)
     ------------------------                     ----------------       -------------------
<S>                                               <C>                    <C>
Sidney M. Field                                      3,295,333(2)               23.9%
  2100 South State College Blvd.
  Anaheim, California 92806
Lawrence J. Edwards                                  3,086,858(3)               24.0%
  2100 South State College Blvd.
  Anaheim, California 92806
Joseph L. Lampariello                                2,501,000                  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
</TABLE>

                                       33
<PAGE>
<TABLE>
<S>                                               <C>                    <C>

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         12,316,524                  91.0%
  (7 persons)
</TABLE>

----------
*    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)  Includes  3,085,  858 shares  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  is  the  Company's   administrator  for  the
receivables.  For the  year  ended  December  31,  2002,  the  Company  incurred
$1,087,960 in administrative  service fees to Medical Capital  Corporation.  For

                                       34
<PAGE>
the year ended December 31, 2002, the Company incurred  $253,468 Medical Capital
Corporation as reimbursement of expenses paid to Medical Capital Corporation for
investor relations services provided on its behalf.

     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.  For the year ended December 31, 2002,
the Company incurred $126,000 in management fees to Medical Capital Corporation.
The Company  could be  adversely  affected  if the  administrator  requires  the
seller's  receivables  to be discounted at higher rates than those the seller is
accustomed to receiving.  This could result in sellers being  unwilling to sell,
or  discouraged  from  selling  all,  their  receivables  to  the  Company.  The
administrator  also  underwrites  receivables  that  may  be  purchased  by  the
Company's affiliates.  The administrator attempts to allocate new sellers fairly
among its various affiliates, but the allocation may ultimately be unfair to the
Company.

     MediTrak is the servicer of the Company's  receivables.  For the year ended
December 31, 2002, the Company incurred  $276,846 in servicing fees to MediTrak.
MediTrak  is  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  the  year  ended  December  31,  2002,  Company  purchased  healthcare
receivables  from its parent,  Medical  Capital  Holdings,  with a book value of
$15,212,372 for  $12,866,106 in cash. The purchase price for these  transactions
was determined by Medical Capital Corporation. The purchase price of receivables
sold among affiliates in the Medical Capital  Holdings group generally  averages
between 85-95% of fair market value.

     On April 23, 2002, the Company's board of directors  approved a dividend on
the Company's common stock totaling $1,250,000. The reason for this dividend was
to return funds to Medical Capital  Holdings that it had invested in the Company
in connection with its formation.  The amount paid as a dividend  represented an
over-capitalization  of the Company.  It was determined that the amount invested
by Medical  Capital  Holdings was in excess of the amount of initial capital the
Company needed to conduct our operations,  and was therefore returned to Medical
Capital Holdings in the form of a dividend on the Company's common stock, all of
which is owned by Medical Capital Holdings.

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      Amended and Restated Note Issuance and Security Agreement, dated
           February 15, 2001, between Medical Capital Management, Inc. and
           Zions First National Bank, as trustee. (2)

 10.01     Master Service Agreement between Medical Capital Management, Inc.
           and Medical Tracking Services, Inc. (3)

 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.

                                       35
<PAGE>
 99.01     Deed of Trust Note in the amount of $3,000,000. (4)

 99.02     Deed of Trust Note in the amount of $745,000. (4)

 99.03     Deed of Trust Note in the amount of $300,000. (4)

 99.04     Amended and Restated Deed of Trust Note dated November 12, 2002. (4)

----------
(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  Current Report on Form 8-K
     dated February 15, 2001.
(3)  Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form SB-2, Registration No. 333-101772.
(4)  Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form SB-2, Registration No. 333-101177.

     (b) The  Registrant  did not file any reports on Form 8-K during the fourth
quarter of fiscal year 2002.

ITEM 14. CONTROLS AND PROCEDURES.

The Company's  principal  executive officer and principal financial officer have
evaluated  the   effectiveness  of  the  Company's   "disclosure   controls  and
procedures,"  as  that  term is  defined  in Rule  15d-14(c)  of the  Securities
Exchange Act of 1934 (the "Exchange Act"),  within 90 days of the filing date of
this Annual  Report on Form 10-KSB.  Based on their  evaluation,  the  principal
executive  officer and principal  financial officer concluded that the Company's
disclosure  controls and procedures are effective to ensure that information the
Company is required  to  disclose  in the reports it files or submits  under the
Exchange Act is recorded,  processed,  summarized  and reported  within the time
periods  specified  in the SEC's  rules and  forms,  and  include  controls  and
procedures  designed to ensure that information  required to be disclosed by the
Company in those  reports  is  accumulated  and  communicated  to the  Company's
management,  including its principal  executive officer and principal  financial
officer, as appropriate to allow timely decisions regarding required disclosure.

There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation.

                                       36
<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: March 28, 2003                    By /s/ Sidney M. Field
                                           -------------------------------------
                                           Sidney M. Field, President and
                                           Chief Executive Officer

     In  accordance  with the Exchange Act, this Report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.

     SIGNATURE                         TITLE                           DATE
     ---------                         -----                           ----

/s/ Sidney M. Field          PRESIDENT, CHIEF EXECUTIVE           March 28, 2003
-------------------------    OFFICER AND DIRECTOR
Sidney M. Field

/s/ Joseph J. Lampariello    CHIEF OPERATING OFFICER,             March 28, 2003
-------------------------    TREASURER, SECRETARY AND
Joseph J. Lampariello        DIRECTOR

/s/ Alan J. Meister          CHIEF ACCOUNTING OFFICER (CHIEF      March 28, 2003
-------------------------    FINANCIAL OFFICER)
Alan J. Meister

/s/ Lawrence J. Edwards      DIRECTOR                             March 28, 2003
-------------------------
Lawrence J. Edwards

/s/ Joseph J. DioGuardi      DIRECTOR                             March 28, 2003
-------------------------
Joseph J. DioGuardi

/s/ Robert B. MacDonald      DIRECTOR                             March 28, 2003
-------------------------
Robert B. MacDonald

/s/ Gary L. Nielsen          DIRECTOR                             March 28, 2003
-------------------------
Gary L. Nielsen

                                       37
<PAGE>
                                 CERTIFICATIONS


I, Sidney M. Field, Chief Executive Officer of Medical Capital Management, Inc.,
certify that:

1. I have  reviewed  this  annual  report on Form  10-KSB/A  of Medical  Capital
Management, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)   designed such  disclosure  controls and  procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

b)   evaluated the  effectiveness  of the registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c)   presented in this annual report our conclusions  about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

a)   all  significant  deficiencies  in the  design  or  operation  of  internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

b)   any fraud,  whether or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 28, 2003

/s/ Sidney M. Field
----------------------------
Sidney M. Field
Chief Executive Officer

                                       38
<PAGE>
                                 CERTIFICATIONS

I, Alan Meister,  (Principal  Financial Officer) of Medical Capital  Management,
Inc., certify that:

1. I have  reviewed  this  annual  report on Form  10-KSB/A  of Medical  Capital
Management, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)   designed such  disclosure  controls and  procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

b)   evaluated the  effectiveness  of the registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c)   presented in this annual report our conclusions  about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

a)   all  significant  deficiencies  in the  design  or  operation  of  internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

b)   any fraud,  whether or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 28, 2003

/s/ Alan Meister
------------------------------
Alan Meister
(Principal Financial Officer)

                                       39
<PAGE>
                                 CERTIFICATIONS

I, Joseph J.  Lampariello,  Secretary and Chief  Operating  Officer,  of Medical
Capital Management, Inc., certify that:

1. I have  reviewed  this  annual  report on Form  10-KSB/A  of Medical  Capital
Management, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)   designed such  disclosure  controls and  procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

b)   evaluated the  effectiveness  of the registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c)   presented in this annual report our conclusions  about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

a)   all  significant  deficiencies  in the  design  or  operation  of  internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

b)   any fraud,  whether or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 28, 2003

/s/ Joseph J. Lampariello
-------------------------------------
Joseph J. Lampariello
Secretary and Chief Operating Officer

                                       40
<PAGE>
                          INDEX TO FINANCIAL STATEMENTS

FINANCIAL  STATEMENTS  FOR THE PERIODS ENDED  DECEMBER 31, 2002 AND DECEMBER 31,
2001:

                                                                       Page
                                                                       ----

     Independent Auditors' Report...................................... F-2
     Balance Sheet..................................................... F-3
     Statements of Income (Operations)................................. F-4
     Statements of Cash Flows.......................................... F-5
     Statement of Stockholder's Equity................................. 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, 2002 and the related statements of income (operations),
stockholder's  equity,  and cash flows for the years ended December 31, 2002 and
2001.  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,  2002,  and the results of its  operations  and its cash
flows  for the years  ended  December  31,  2002 and 2001,  in  conformity  with
accounting principles generally accepted in the United States of America.


/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS


Santa Monica, California
March 18, 2003

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

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                                2002
                                                                            ------------
<S>                                                                         <C>
ASSETS
Current assets:
   Cash and cash equivalents ............................................   $  1,494,002
   Medical receivables, net of discount reserves of $1,243,000 ..........     45,012,270
   Receivable from Parent and affiliates, net ...........................        211,127
   Account receivables ..................................................         36,755
   Prepaid trustee fee ..................................................          4,524
   Notes receivable - short term ........................................      1,045,000
                                                                            ------------
         Total current assets ...........................................     47,803,678

   Notes receivable - long term, net of deferred income on notes
     of $62,000 .........................................................      4,232,127
                                                                            ------------
         Total assets ...................................................   $ 52,035,805
                                                                            ============
LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
   Accrued expenses - trade .............................................   $    108,193
   Due to medical providers .............................................        150,070
   Interest payable, net ................................................        399,798
   Notes payable - current ..............................................     21,295,000
                                                                            ------------
         Total current liabilities ......................................     21,953,061

 Notes payable - long term, net of deferred offering costs of $94,109
    and commissions of $2,587,266 .......................................     28,232,625
                                                                            ------------
         Total liabilities ..............................................     50,185,686
                                                                            ------------

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 ...........................................      3,000,000
   Retained earnings ....................................................     (1,149,901)
                                                                            ------------
         Total stockholder's equity .....................................      1,850,119
                                                                            ------------
         Total liabilities and stockholder's equity .....................   $ 52,035,805
                                                                            ============
</TABLE>

   THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

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

<TABLE>
<CAPTION>
                                                               Year ended         Year ended
                                                           December 31, 2002   December 31, 2001
                                                           -----------------   -----------------
<S>                                                            <C>                <C>
DISCOUNT REVENUES:
   Discount fees, net of change in
   discount reserves $1,047,164, including
   related party fees of $2,346,266 ........................   $ 5,231,838        $ 1,645,912
   Administrative income ...................................       166,032                 --
                                                               -----------        -----------
Total revenues .............................................     5,397,870          1,645,912
COST OF REVENUES:
    Administration expense, related party ..................     1,087,960            439,656
                                                               -----------        -----------
GROSS PROFIT ...............................................     4,309,910          1,206,256
                                                               -----------        -----------
OPERATING EXPENSES:
   Interest expense, net ...................................     4,148,405            635,437
   Advertising .............................................       350,437            207,618
   Professional services ...................................       321,298             58,998
   Service fees, related party .............................       276,846             33,824
   Legal expenses ..........................................       227,131             53,064
   Investor relations fees, related party ..................       215,152                 --
   Travel and entertainment ................................       178,343             35,745
   Sales commissions, related party ........................       127,930                 --
   Management fees, related party ..........................       126,000                 --
   Trustee fees ............................................        49,768             56,750
   Directors' fees .........................................        44,000             44,000
   Bank charges ............................................        71,285              1,919
   Copying and printing ....................................        43,646              2,780
   Occupancy ...............................................        12,976                 --
   Other ...................................................        17,006              3,357
                                                               -----------        -----------
       Total operating expenses ............................     6,210,223          1,133,492
                                                               -----------        -----------
INCOME (LOSS) BEFORE TAXES .................................    (1,900,313)            72,764
                                                               -----------        -----------
Provision (benefit) for income tax, related party ..........      (703,116)            25,468
                                                               -----------        -----------
NET INCOME (LOSS) ..........................................   $(1,197,197)       $    47,296
                                                               ===========        ===========
Weighted average number of common
  shares outstanding - basic and diluted ...................         2,000              1,750
                                                               ===========        ===========

Net loss per common share - basic and diluted ..............   $   (598.60)       $     27.03
                                                               ===========        ===========
</TABLE>

   THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

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

<TABLE>
<CAPTION>
                                                             Year ended          Year ended
                                                          December 31, 2002   December 31, 2001
                                                          -----------------   -----------------
<S>                                                         <C>                 <C>
Cash flows used for operating activities:
   Net income (loss) ....................................   $ (1,197,197)       $     47,296
   Adjustments to reconcile net income to net cash
     provided by (used for) operating activities:
     Amortization of deferred offering costs and
       Commissions ......................................      1,293,548             289,477
     Amortization of prepaid trustee fee ................         49,768                  --
   Changes in assets and liabilities:
     Increase in medical receivables ....................    (29,569,104)        (15,443,166)
     Increase in interest receivable ....................         39,136             (35,858)
     Increase in due from (to) Parent and affiliates ....       (285,602)            (12,333)
     Increase in accounts receivable ....................        (36,755)                 --
     Increase in prepaid trustee fees ...................        (54,292)                 --
     Increase in accrued expenses - trade ...............         50,065              58,129
     Increase in due to medical providers ...............        150,070                  --
     Increase in interest payable .......................        257,450             139,069
                                                            ------------        ------------
Net cash used for operations ............................    (29,302,913)        (14,957,386)
                                                            ------------        ------------
Cash flows used for investing activities:
   Increase in notes receivables ........................     (1,232,127)         (4,045,000)
                                                            ------------        ------------
Net cash used for investing activities ..................     (1,232,127)         (4,045,000)
                                                            ------------        ------------
Cash flows from financing activities:
   Proceeds from issuance of debt, net ..................     33,992,000          18,217,000
   Payments on offering costs and commissions ...........     (2,806,855)         (1,370,737)
   Payment of dividend, related party ...................     (1,250,000)                 --
   Proceeds from sale of common stock ...................             --             249,920
   Proceeds from paid-in capital ........................             --           4,000,000
                                                            ------------        ------------
Net cash provided by financing activities ...............     29,935,145          21,096,183
                                                            ------------        ------------
Net increase in cash and cash equivalents ...............       (599,895)          2,093,797
Cash and cash equivalents at beginning of year ..........      2,093,897                 100
                                                            ------------        ------------
Cash and cash equivalents at end of year ................   $  1,494,002        $  2,093,897
                                                            ============        ============

Supplemental disclosure of cash flow items:
     Income taxes paid .................................    $         --        $         --
     Interest paid .....................................    $  3,355,146        $    380,122
</TABLE>

   THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                      F-5
<PAGE>
                        MEDICAL CAPITAL MANAGEMENT, INC.
                        STATEMENT OF STOCKHOLDER'S EQUITY
                FOR THE YEARS ENDED TO DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                 Common stock           Additional                     Total
                                          --------------------------      paid-in      Retained     stockholder's
                                            Shares         Amount         Capital      earnings        equity
                                          -----------    -----------    -----------   -----------    -----------
<S>                                       <C>            <C>            <C>           <C>            <C>
Balance - January 31, 2001 ............         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
Payment of dividend, related party ....                                  (1,250,000)                  (1,250,000)
Net loss for the twelve months
  ended December 31, 2002 .............            --             --             --    (1,197,197)    (1,197,197)
                                          -----------    -----------    -----------   -----------    -----------
Balance - December 31, 2002 ...........         2,000    $        20    $ 3,000,000   $(1,149,901)   $ 1,850,119
                                          ===========    ===========    ===========   ===========    ===========
</TABLE>

  THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

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

                          NOTES TO FINANCIAL STATEMENTS

           FOR THE YEARS ENDED DECEMBER 31, 2002 AND 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.

The accompanying  financial  statements  include all adjustments  (consisting of
only  normal  recurring  accruals)  which are,  in the  opinion  of  management,
necessary for a fair  presentation  of the results of operations for the periods
presented.

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 initial purchase amount, which is the amount
advanced  to  the  seller,  plus  discount  fee,  less  any  collections  on the
receivable.  This is the cost  basis and  equals  the fair  market  value of the
receivable  at  the  time  of  purchase.   Medical  receivables  purchased  from
affiliates  are generally  purchased for 85%-95% of fair market value,  which is
determined  as the  gross  advance  plus  the  gross  discount  less  the  gross
collections of the  receivables at the time of purchase.  The face amount of the
receivables,  or the amounts  owed to the seller by the  receivable  payor,  are
adjusted to an expected net receivable  (the Company refers to this as the "ENR"
or Expected Net Receivable) amount through the Company's  underwriting  process,
which  represents the actual amount that the Company  believes is collectible on
the receivable. The Company determines its initial purchase amount, discount fee
and reserve based on the ENR of the receivable.

                                      F-7
<PAGE>
Discounts on medical  receivables  represent a fee charged by the Company to the
seller on the  purchase of  receivables.  Discounts on medical  receivables  are
calculated  over a period  ranging  from 1-270 days from the date of purchase of
the batch of  receivables  as  submitted  for sale to the Company by the seller.
using a method that  approximates the interest  method.  Discount fee pricing is
based on a historical  analysis of the seller's accounts  receivable  collection
performance,  risk criteria and the number of days the receivable is outstanding
when purchased,  in the aggregate.  The discount fee is calculated on a batch by
batch basis based on this  analysis as the  estimated  collection  period of the
receivables  in the batch.  Although the amount of the discount is calculated at
the beginning of each purchase  transaction,  the revenue is amortized  over the
life of the contractual collection period of the receivable batch using a method
that approximates the interest method.

This  revenue is  deferred  into a "discount  reserve"  and  amortized  over the
collection period on a per client basis based upon its preliminary  underwriting
criteria,  collection history, and ongoing credit and underwriting policies. The
Company  anticipates the  receivables  upon which these reserves are based to be
collectable  and earned within the provider  contract  period.  Therefore,  this
reserve is  considered  a timing  adjustment.  As of December 31, 2002 and 2001,
this reserve was $1,243,000 and $195,836, respectively.

RELATED PARTY TRANSACTIONS:

The Company's Parent,  Medical Capital Holdings Inc., has substantial experience
and success in identifying and evaluating  healthcare providers desiring to sell
their  healthcare  receivables.  The Company uses the services and  expertise of
Medical  Capital  Holdings  and its  subsidiaries  to  purchase a  portfolio  of
healthcare  receivables.  It has  entered  into  contracts  with  MCC  and  MTS,
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.

As a normal course of business, initial purchase relationships may occur between
the seller and Medical  Capital  Holdings and its  affiliates.  Medical  Capital
Holdings has a revolving  credit line with Comerica  Bank,  which allows Medical
Capital Holdings to purchase accounts  receivable from a seller.  Then, once the
Company has funds  available,  the receivables as well as the rights,  title and
interest in the contractual  relationship between the seller and parent are sold
to the Company by Medical Capital Holdings.  For these inter-company  sales, the
receivables are sold to the Company at a price generally equal to 85-95% the sum
of the total amount  advanced to the seller of the receivable  plus the discount
fee, less any collections already received on the receivable.  To the extent the
Company has sufficient  funds available,  the Company will purchase  receivables
directly  from a  seller  without  first  being  purchased  by  Medical  Capital
Holdings.  Medical Capital Corporation makes the determination as to whether the
Company purchases receivables from the Company's affiliates or directly from the
seller. Medical Capital Corporation may also direct the sale of receivables from
one of the Company's  affiliates  to the Company,  or from the Company to one of
its  affiliates  as a method of  asset/liability  management  and to  attempt to
maintain diversification in the Company's investment portfolio. When the Company
purchases  receivables from its affiliates,  it purchases all rights,  title and
interest in the receivable that the affiliate owned,  including reserve amounts.
Therefore,  the impact on reserves is no different whether the Company purchases
receivables from its affiliates or directly from the seller.

PROVIDER CONCENTRATION:

As of December 31, 2002, medical receivables  purchased by the Company from four
providers amounted to approximately 74% of the outstanding  balance of the total
receivables due to the Company. MCM had no other  relationships,  contractual or
otherwise, with these providers.

                                      F-8
<PAGE>
RESERVES:

SELLER'S  RESERVE.  The amount of each  receivable  allocated  to each  seller's
reserve  account  is equal to the ENR,  minus  the sum of the  initial  purchase
amount and the discount. This is the batch seller's reserve for funds that could
be returned to the seller after claims are collected,  if contractual  terms are
met by the seller.  This seller reserve is rolled up into the overall  aggregate
seller  reserve on the entire pool of  receivables  purchased  from that seller.
Receivables are posted on a  receivable-by-receivable  basis,  and reported on a
batch basis.  The  receivables are also monitored by tracking the entire pool of
batches for a seller to determine the adequacy of the seller's  reserve account.
The Company  typically  tries to maintain an overall seller reserve of 10-25% of
the ENR for each  seller's  pool of  receivables  depending on various  criteria
determined  through the  underwriting  process and collection  experience of the
seller's  receivables.  If a seller's  reserve account is insufficient on a pool
basis,  an  adjustment is made to reduce the initial  purchase  amount on future
batches of receivables purchased from that seller, which increases the amount of
each batch allocated to the seller's  reserve  account.  In addition,  under the
terms  of the  Company's  purchase  agreement  with  each  seller,  any  amounts
collected  in excess of the ENR are  allocated  to the  reserve  account  of the
seller to increase that seller's reserve balance. If the seller is in compliance
with the terms of the purchase  agreement and all of its batches of  receivables
are collected on time, the Company will return to the seller all collections for
the  amounts  allocated  to the seller  reserve  account  that exceed 25% of the
outstanding balance of the seller's receivables,  calculated on a monthly basis.
In addition,  if the Company ceases to purchase  receivables from a seller, once
that seller's  outstanding  receivables  are collected in full, the Company will
return  any  collections,  as well as all  rights,  title  and  interest  in the
receivables allocated to the reserve account to the seller.

Usually  between  150 and 270 days from the date of purchase  (depending  on the
contractual terms in each seller's agreement), if the full ENR of the receivable
has not been fully  collected,  the batch of receivables and the individual open
receivable  are  considered  to have a value of zero and/or  replaced with a new
receivable.  At the same time the Company  assigns a receivable a value of zero,
it offsets the uncollected portion against the seller reserve for that seller or
withholds a portion of the advance on the next purchase of receivables from that
seller.  Even though the  receivable  is  assigned a value of zero,  the Company
continues to track the  receivable and attempts to collect it. If the receivable
is  subsequently  collected,  the Company  allocates  those  collections  to the
seller's  reserve  account  under the terms of its purchase  agreement  with the
seller.  As of December  31,  2002,  the amount  collected  (for all sellers) in
excess of their respective reserve accounts was $150,070.

DISCOUNT  RESERVE.  This reserve is established by deferring  discount income on
medical  receivables  purchased  from each seller and  recognizing  the discount
income  upon  collection  of the  receivables  at the  ENR  amount,  essentially
mimicking the straight-line, interest method commonly used by factors in similar
industries.  The Company anticipates the receivables on which these reserves are
based to be collected and earned within the seller contract period,  however, if
the Company does not collect the purchased receivables in the contractual period
(as established between the seller and the Company) then the seller forfeits the
deferred  purchase  price of the  short-collected  batch of  receivables  to the
Company.  Once that batch of receivables  is fully  collected to the ENR amount,
the Company recognizes the seller's forfeited deferred purchase price as part of
its discount revenue. As of December 31, 2002, this reserve was $1,243,000.

BAD DEBT  RESERVE  FOR  LOSSES.  The bad debt  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, 2002 and  December  31,  2001,  no reserves for losses were
needed.

                                      F-9
<PAGE>
DELINQUENT RECEIVABLES:

A  delinquent  receivable  is  determined  as such  when the  contracted  period
(collection  service life) has expired and there remains a balance  shortfall to
the ENR amount of the batch of  receivables.  The  shortfall is  determined on a
batch  basis.  Once a batch is  closed  and it is  determined  that a  shortfall
exists, the value of the delinquent receivable is reduced to zero. The amount of
the  shortfall is either  withheld  from the  seller's  next  purchase  advance,
replaced by the seller with new receivables in an amount equal to the delinquent
receivables or charged to the bad debt reserve of the seller.  Therefore,  there
were no delinquent  receivables on the Company's  books as of December 31, 2002.
After the batch is closed,  the seller is charged back a withholding of the next
purchase advance to make up the shortfall against the seller's bad debt reserves
or the seller substitutes a new receivable for the delinquent receivable.  Since
the seller is  obligated  to sell  receivables  on a forward  moving basis (i.e.
recurring)  there is sufficient  offset  capability to cover most of the risk to
collection shortfall.  If the seller no longer offers or is not required to sell
receivables to the Company and a shortfall exists for a batch of receivables, it
is the  Company's  policy to pursue all related  collection  activity to recover
collections  of the ENR  amount.  When a seller  substitutes  a  receivable,  no
adjustment  is  made  to the  discount  fee.  There  were  no  substitutions  of
receivables during the year ended December 31, 2002.

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, 2002 and 2001, the Company  capitalized
commissions of $2,717,152 and $1,176,380, respectively, and amortized $1,166,403
and $189,463, respectively.

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 37% of net income before taxes.  For the years ending December 2002 and 2001,
the Company's  income tax (benefit) was  $(703,116)  and $25,468,  respectively.
There  were no  temporary  differences  between  book and tax  bases of  various
liabilities and assets that would give rise to any material  deferred tax assets
or liabilities.

A  reconciliation  of the provision  for income taxes at statutory  rates to the
provision reported in the consolidated financial statements is as follows:

                                                        2002         2001
                                                      ---------    ---------
    Federal income tax (benefit) at statutory rates         (34)%         34%
    State income taxes (benefit), less federal
      income tax benefit                                     (6)           6
                                                      ---------    ---------

    Total provision/(benefit)                               (40)          40
    Loss for which no tax benefit is available                3           (5)
    NOL utilized                                             --           --
                                                      ---------    ---------

    Total provision (benefit)                               (37)%         35%
                                                      =========    =========

The income tax provision (benefit) is comprised of the following:

                                                        2002         2001
                                                      ---------    ---------
    Current - federal                                 $(703,116)   $  25,468
    Deferred - federal                                       --           --
                                                      ---------    ---------

    Total provision (benefit)                         $(703,116)   $  25,468
                                                      =========    =========

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

                                      F-10
<PAGE>
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
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  adoption  of FASB 144 did not have any impact to the  Company's
financial position or results of operations.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from  Extinguishment  of Debt", and an amendment of that Statement,  FASB
Statement  No.  64,  "Extinguishments  of  Debt  Made  to  Satisfy  Sinking-Fund
Requirements"  and FASB Statement No. 44,  "Accounting for Intangible  Assets of
Motor Carriers".  This Statement  amends FASB Statement No. 13,  "Accounting for
Leases",  to eliminate an  inconsistency  between the  required  accounting  for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions. The Company does not expect the adoption of SFAS No. 145 to have a
material impact on the Company's financial position or results of operations.

In June  2002,  the  FASB  issued  Statement  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullifies  Emerging  Issues Task Force ("EITF")  Issue No. 94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."  The provisions
of this  Statement  are  effective  for  exit or  disposal  activities  that are
initiated  after  December  31, 2002,  with early  application  encouraged.  The
Company does not expect the adoption to have a material  impact to the Company's
financial position or results of operations.

In October 2002,  the FASB issued  Statement No. 147,  "Acquisitions  of Certain
Financial  Institutions-an  amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", which removes acquisitions of financial institutions from

                                      F-11
<PAGE>
the scope of both  Statement 72 and  Interpretation  9 and  requires  that those
transactions be accounted for in accordance  with  Statements No. 141,  Business
Combinations,  and No. 142,  Goodwill and Other Intangible  Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived  Assets,  to  include  in its scope  long-term  customer-relationship
intangible   assets  of   financial   institutions   such  as   depositor-   and
borrower-relationship intangible assets and credit cardholder intangible assets.
The requirements relating to acquisitions of financial institutions is effective
for  acquisitions  for which the date of  acquisition  is on or after October 1,
2002.  The  provisions  related to accounting  for the impairment or disposal of
certain  long-term  customer-relationship  intangible  assets are  effective  on
October 1, 2002. The adoption of this  Statement did not have a material  impact
to the Company's  financial position or results of operations as the Company has
not engaged in either of these activities.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition  and  Disclosure",  which amends FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation,  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation.  In addition,  this Statement amends the
disclosure  requirements  of Statement 123 to require  prominent  disclosures in
both annual and interim financial  statements about the method of accounting for
stock-based employee  compensation and the effect of the method used on reported
results.  The transition guidance and annual disclosure  provisions of Statement
148 are effective for fiscal years ending after December 15, 2002,  with earlier
application   permitted  in  certain   circumstances.   The  interim  disclosure
provisions are effective for financial reports containing  financial  statements
for interim  periods  beginning  after  December 15, 2002.  The adoption of this
statement did not have a material impact on the Company's  financial position or
results of operations as the Company has elected not to change to the fair value
based method of accounting for stock-based employee compensation.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company  includes  another  entity  in its  consolidated  financial  statements.
Previously,  the  criteria  were  based  on  control  through  voting  interest.
Interpretation  46 requires a variable  interest  entity to be consolidated by a
company if that  company  is subject to a majority  of the risk of loss from the
variable interest  entity's  activities or entitled to receive a majority of the
entity's  residual  returns  or both.  A company  that  consolidates  a variable
interest  entity  is  called  the  primary   beneficiary  of  that  entity.  The
consolidation  requirements of  Interpretation  46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older  entities in the first  fiscal year or interim  period  beginning
after  June  15,  2003.  Certain  of the  disclosure  requirements  apply in all
financial  statements  issued  after  January 31, 2003,  regardless  of when the
variable  interest  entity  was  established.  The  Company  does not expect the
adoption  to have a  material  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:

                                      F-12
<PAGE>
                                                                   AS OF
                                                             DECEMBER 31, 2002
                                                             -----------------
     Physician-Client, 18%, interest only paid
       monthly, due July 1, 2003(1)                              $  300,000
     Skilled Nursing Facility, 16%, interest only
       paid monthly, due September 18, 2002(2)                      745,000
     Medical Group, 16%, interest only paid
       monthly, Various due dates (3)                             4,294,127
                                                                 ----------
     Gross short term and long notes receivable                  $5,339,127
     Less: deferred income on notes                                  62,000
                                                                 ----------
     Net short term and long term notes receivable                5,277,127
                                                                 ==========

----------
(1)  As of December 31, 2002, the December 2002 interest payment was pending.
(2)  The loan matured on September 18, 2002, but was not repaid.  As of to date,
     the borrower had continued to make interest  payments.  The borrower was in
     the  process of selling the  property  and the  Company  anticipates  being
     repaid in full as soon as the property is sold. If the property is not sold
     by April 30,  2003,  the Company  may  rewrite the loan with a  significant
     principal paydown.
(3)  As of December 31, 2002, the borrower was current on interest.  On November
     15, 2002, the Company  entered into a new loan agreement with the borrower.
     The new  agreement,  a troubled debt  restructing,  called for a $2,572,000
     increase in the  original  loan amount of  $3,000,000  to be  disbursed  in
     December  2002 and February  2003 in  accordance  with the loan  agreement.
     Interest  income earned by the Company  during the year ended  December 31,
     2002   amounted  to  $480,000.   Principal  is  to  be  repaid  in  various
     installments  in accordance with the loan agreement with the balance of the
     loan  payable on December  31,  2005.  Repayment  schedule  call for annual
     principal payments of $675,000 in 2003 and 2004, and $4,222,000 in 2005.

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.
For the twelve  months ended  December  31, 2002 and 2001,  the Company paid and
capitalized  deferred offering costs of $49,130 and $272,138  respectively,  and
amortized $127,145 and $100,014,  respectively. The amortization was included in
the interest expense during the applicable period.

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:

                                      F-13
<PAGE>
                     RATE              MATURITY DATE        DECEMBER 31, 2002
                     ----              -------------        -----------------
         Class A     9.00%       1 year from issuance date    $  4,606,000
         Class A     8.00%       1 year from issuance date      12,429,000
         Class B     9.75%       2 years from issuance date      3,258,000
         Class B     8.75%       2 years from issuance date      8,443,000
         Class C     10.25%      3 years from issuance date      2,650,000
         Class C     9.25%       3 years from issuance date      5,007,000
         Class D     10.75%      4 years from issuance date      3,267,000
         Class D     9.75%       4 years from issuance date     12,549,000
                                                              ------------
         Total face value of notes payable.................   $ 52,209,000
         Less unamortized offering costs and commissions...     (2,681,375)
                                                              ------------
                                                                49,527,625
         Less current maturities...........................     21,295,000
                                                              ------------
                                                              $ 28,232,625
                                                              ============

The maturities of notes payable as of December 31, 2002 are as follows:

                     2003           $ 21,295,000
                     2004             10,832,000
                     2005              8,664,000
                     2006             11,418,000
                                    ------------
                                    $ 52,209,000
                                    ============

As of December 31, 2002, the Company's notes were secured by medical receivables
with an expected net receivable  outstanding  balance of  $51,360,223,  by notes
receivable of $5,277,127,  and by cash and cash equivalents of $1,494,002, for a
total collateral amount of $58,131,352.

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. The Company's  current rates on its secured
notes are 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

On April 23,  2002,  the  Company's  Board of  Directors  approved a dividend of
$1,250,000 to our stockholder and Parent, Medical Capital Holdings, Inc.

8. MEDICAL RECEIVABLES

The following  table shows the expected net  receivable  amount of the Company's
receivables  purchased from third parties and purchased from  affiliates  during
the year ended December 31, 2002.

                                      F-14
<PAGE>
                                                              FOR THE YEAR ENDED
Expected Net Receivable                                        DECEMBER 31, 2002
-----------------------                                        -----------------
Direct purchases from third parties during the period ......      $34,353,064
Purchases from affiliates during the period ................       23,370,719
                                                                  -----------
Total purchases during the period ..........................      $57,723,783
                                                                  ===========

As of December  31, 2002,  the Company had an  outstanding  ENR balance,  net of
collections,  of $51,360,223.  The following table reconciles the ENR amounts to
the medical receivable oustanding on the balance sheet.

<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED    INCEPTION TO
                                                       DECEMBER 31, 2002   DECEMBER 31, 2002
                                                       -----------------   -----------------
<S>                                                       <C>                 <C>
ENR purchased                                             $57,723,783         $77,986,170
Less: collections                                          23,426,534          27,287,936
Plus: excess collections due and paid to seller               444,931             661,989
                                                          -----------         -----------
ENR balance                                                34,742,180          51,360,223
Less: deferred purchase price on purchases                  4,125,912           5,104,953
                                                          -----------         -----------
Gross medical receivable                                   30,616,268         $46,255,270
Less: net change in discount reserve                        1,047,164           1,243,000
Plus: beginning balance                                    15,443,116                   0
                                                          -----------         -----------
Net medical receivable                                    $45,012,270         $45,012,270
                                                          ===========         ===========
</TABLE>

As of December 31, 2002, the Company's medical receivables included Medicare and
Medicaid  claims  of  4,822,347,  or  8.9%  of  the  total  ENR  balance  of the
receivables.

The  following  table  shows a  roll-forward  summary of the  deferred  seller's
reserve account  inception to December 31, 2002 and for the year ending December
31, 2002.

                                      F-15
<PAGE>
<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED      INCEPTION TO
                                                       DECEMBER 31, 2002    DECEMBER 31, 2002
                                                       -----------------    -----------------
<S>                                                       <C>                  <C>
Beginning Balance                                         $  191,146           $        0
Plus: deferred purchases                                   4,125,912            5,104,963
Less: withholdings applied to collections                    345,569              682,380
Less: identified collections applied                       3,140,511            3,374,547
Less: collections remitted to seller                         294,861              511,919
                                                          ----------           ----------
Ending Balance                                            $  536,117           $  536,117
                                                          ==========           ==========
</TABLE>

From  inception to December 31, 2002,  $511,919 was remitted to the sellers from
the seller reserve accounts. The amounts remitted were as follows:

                                                          AMOUNTS REMITTED
                                                              TO SELLERS
                                                              ----------
        July 1, 2001 thought September 30, 2001               $  60,862
        October 1, 2001 though December 31, 2001                156,196
        January 1, 2002 though March 31, 2002                    20,509
        April 1, 2002 though June 30, 2002                       51,071
        July 1, 2002 though September 30, 2002                  157,231
        October 1, 2002 through December 31, 2002                66,050
                                                              ---------
        Total remitted to sellers                             $ 511,919
                                                              =========

As of December 31, 2002,  $150,070 was due to sellers from the seller's  reserve
accounts.

9. RELATED PARTY TRANSACTIONS

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  MCC  and  MTS,
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.

For the twelve months ended December 31, 2002 and 2001, MCC was  compensated for
administration  of the  healthcare  receivables  which the Company  purchased of
$1,087,960 and $439,656,  respectively. For the twelve months ended December 31,
2002 and 2001, the Company incurred  management fees provided by MCC of $126,000
and $0,  respectively.  For the twelve months ended  December 31, 2002 and 2001,
MTS was  compensated  for servicing the  Company's  receivables  of $276,846 and
$33,824,  respectively.  For the twelve months ended December 31, 2002 and 2001,
the Company incurred sales  commissions for  telemarketing  expenses provided by
MCC of $127,930 and $0, respectively.

For the twelve months ended  December 31, 2002 and 2001,  the Company  purchased
medical  receivables of various  providers from its Parent and affiliates with a
book value of $15,212,372  and  $11,088,200,  respectively,  for which it paid a
consideration  of $12,866,106 and  $10,078,564,  respectively,  in cash with the
balance  included in the  calculation  of discount  revenue  earned and reserved
(deferred).

As a normal course of business, initial purchase relationships may occur between
the seller and Medical Capital  Holdings  ("MCH") and its affiliates.  MCH has a
revolving  credit line with a U.S. bank,  which allows MCH to purchase  accounts
receivable  from a seller.  Then,  once the  Company  has funds  available,  the
receivables  as  well as the  rights,  title  and  interest  in the  contractual
relationship  between the seller and parent are sold to the Company by MCH.  For
these  inter-company  sales,  the receivables are sold to the Company at a price
generally  equal to 85-95% of the sum of the total amount advanced to the seller
of the receivable plus the discount fee, less any collections  already  received

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on the receivable.  MCH's costs,  including interest charges are included in the
purchase price. To the extent the Company has sufficient  funds  available,  the
Company will purchase  receivables  directly  from a seller  without first being
purchased by MCH. Medical Capital Corporation ("MCC") makes the determination as
to whether the Company  purchases  receivables from the Company's  affiliates or
directly from the seller.  MCC may also direct the sale of receivables  from one
of the Company's  affiliates  to the Company,  or from the Company to one of its
affiliates as a method of asset/liability  management and to attempt to maintain
diversification  in  the  Company's  investment  portfolio.   When  the  Company
purchases  receivables from its affiliates,  it purchases all rights,  title and
interest in the receivable that the affiliate owned,  including reserve amounts.
Moreover,  the Company  purchases  medical  receivables  from direct  sellers or
affiliates of the Company at fair value. Consequently,  management believes that
the  Company's  results of  operations  are not  impacted  whether  the  Company
purchases  receivables  directly  from the  seller or from one of the  Company's
affiliates.

10. TRUSTEE FEES

The Company  pledges  collateral to an  independent  bank  trustee.  The pledged
collateral  secures all of the Company's Series I 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.  For the twelve  months
ended  December 31, 2002 and 2001, the Company  prepaid  trustee fees of $54,292
and  $56,750,  respectively,  of which,  $49,768  and  $57,750  were  amortized,
respectively.

11. 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,  2002,  there were no common
stock equivalents.

12. 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.

13. INTERIM FINANCIAL STATEMENTS

During the fourth  quarter,  the  Company  recorded  an  additional  deferral of
discount  fee of  $370,000  relating  to the  prior  quarter  due to a change in
estimate of the deferred discount fee amortization  period.  In addition,  since
the Company is included in the  consolidated  tax returns of its Parent and that
realization  is reasonably  assured,  the Company also  recognized an income tax
benefit of $700,000 in the fourth quarter due to the significant net loss before
income  taxes.  Net loss would have  decreased by $230,000 or $115 per basic and
diluted share during the third quarter.

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