UNITED STATES SECURITIES AND EXCHANGE
COMMISSIONWASHINGTON, D. C. 20549

FORM 10-Q

|  |                                                                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT
 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                
|  |                                                                                                                                                                         
|  | For the
 quarterly period ended September 30, 2008                                                                                                                      
|  |                                                                                                                                                                         
|  | or                                                                                                                                                                      
|  |                                                                                                                                                                         
|o | TRANSITION REPORT PURSUANT
 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the
 transition period from: _____________________to _____________________

|                                                                        |  |                                     
|----------------------------------------------------------------------- |  | ------------------------------------
|000-161570                                                             
|(Commission file No.)                                                  
|                                                                        |  |                                     
|VELOCITY ASSET MANAGEMENT, INC.                                        
|(Exact name of Smaller Reporting Company as specified in
  its charter)
|                                                                        |  |                                     
|DELAWARE                                                                |  | 65-0008442                          
|(State or other jurisdiction of incorporation or
  organization)        |  | (I.R.S. employer identification no.)
|                                                                        |  |                                     
|1800 Route 34N, Suite 404A, Wall, NJ 07719                             
|(Address of principal executive offices)                               
|                                                                        |  |                                     
|(732) 556-9090                                                         
|(Issuers telephone number, including area code)                       

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.


Yes x No o


Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.

| |                         |   |                                                |  |                            |  
| | ----------------------- | - | ---------------------------------------------- |  | -------------------------- | -
| | Large accelerated filer | o |                                                |  | Accelerated
 filer         | o
| | Non-accelerated filer   | o | (Do not check if a smaller
 reporting company) |  | Smaller
 reporting company | x

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes oNo x

As of November 3, 2008,
there were 17,875,987 shares of the Companys common stock outstanding.

---



VELOCITY ASSET MANAGEMENT, INC.

TABLE OF CONTENTS

FORM 10-Q

September 30, 2008

|                                                                                                |                                                                                                      |      | 
|----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---- | 
|                                                                                                |                                                                                                      | Page
|                                                                                                |                                                                                                      |     
|PART I -
  FINANCIAL INFORMATION                                                                |                                                                                                      | 1   
|                                                                                                |                                                                                                      |      | 
|Item 1. Condensed Consolidated
Financial Statements                                             |                                                                                                      | 1   
|Condensed Consolidated Balance
Sheets (unaudited)                                               |                                                                                                      | 1   
|Condensed Consolidated Statements
of Income (unaudited)                                         |                                                                                                      | 2   
|Condensed Consolidated Statements
of Changes in Stockholders
  Equity (unaudited)              |                                                                                                      | 3   
|Condensed Consolidated Statements
of Cash Flows
  (unaudited)                                   |                                                                                                      | 4   
|Notes to the Condensed Consolidated
Financial
  Statements (unaudited)                          |                                                                                                      | 5   
|Item 2. Managements
Discussion and Analysis of
  Financial Condition and Results of Operations |                                                                                                      | 13  
|Item 3. Quantitative and
Qualitative Disclosure About
  Market Risks                            |                                                                                                      | 23  
|Item 4. Controls and
Procedures                                                                 |                                                                                                      | 23  
|                                                                                                |                                                                                                      |      | 
|PART II -
  OTHER INFORMATION                                                                   |                                                                                                      | 24  
|                                                                                                |                                                                                                      |      | 
|Exhibit 31.1                                                                                    | Certification of Chief
  Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |      | 
|                                                                                                |                                                                                                      |      | 
|Exhibit 31.2                                                                                    | Certification of Chief
  Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |      | 
|                                                                                                |                                                                                                      |      | 
|Exhibit 32.1                                                                                    | Certification of Chief
  Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |      | 
|                                                                                                |                                                                                                      |      | 
|Exhibit 32.2                                                                                    | Certification of Chief
  Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |      | 

i

---



PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | ----------------- | - | ---------- | -
|                                                                                                                                                                              |  | September 30, 2008 |            | December 31, 2007 |  
|                                                                                                                                                                              |  |                    |            |                   |  
|                                                                                                                                                                              |  | (Unaudited)        |            |                   |  
|ASSETS                                                                                                                                                                        |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|Cash and cash equivalents                                                                                                                                                     |  | $                  | 33,992     |                   | $ | 162,180    |  
|Consumer receivables, net                                                                                                                                                     |  |                    | 46,152,417 |                   |   | 46,971,014 |  
|Property and equipment, net of accumulated
  depreciation                                                                                                                     |  |                    | 47,347     |                   |   | 64,420     |  
|Deferred income tax asset, net                                                                                                                                                |  |                    | 83,600     |                   |   | 98,600     |  
|Security deposits                                                                                                                                                             |  |                    | 30,224     |                   |   | 30,224     |  
|Other assets (including $0 and $115,146
  employee loan to a related party at September 30, 2008 and December 31, 2007,
  respectively)                                       |  |                    | 351,035    |                   |   | 487,071    |  
|Assets of discontinued operations                                                                                                                                             |  |                    | 5,730,328  |                   |   | 6,793,319  |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|Total assets                                                                                                                                                                  |  | $                  | 52,428,943 |                   | $ | 54,606,828 |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                          |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|LIABILITIES                                                                                                                                                                   |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|Accounts payable and accrued expenses                                                                                                                                         |  | $                  | 477,590    |                   | $ | 552,269    |  
|Estimated court and media costs                                                                                                                                               |  |                    | 5,742,939  |                   |   | 7,374,212  |  
|Line of credit                                                                                                                                                                |  |                    | 9,792,567  |                   |   | 14,429,138 |  
|Notes payable                                                                                                                                                                 |  |                    | 400,000    |                   |   |           |  
|Notes payable to related parties                                                                                                                                              |  |                    | 740,000    |                   |   | 200,000    |  
|Convertible subordinated notes                                                                                                                                                |  |                    | 2,350,000  |                   |   | 2,350,000  |  
|Income taxes payable                                                                                                                                                          |  |                    | 1,605,919  |                   |   | 820,222    |  
|Liabilities from discontinued operations
  (including notes payable to related parties of $2,300,000)                                                                         |  |                    | 5,490,675  |                   |   | 4,374,441  |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|Total liabilities                                                                                                                                                             |  |                    | 26,599,690 |                   |   | 30,100,282 |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|STOCKHOLDERS EQUITY                                                                                                                                                          |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|Series A 10% convertible preferred stock,
  $0.001 par value, 10,000,000 shares authorized, 1,380,000 shares issued and
  outstanding (liquidation preference of $13,800,000) |  |                    | 1,380      |                   |   | 1,380      |  
|Common stock, $0.001 par value, 40,000,000
  shares authorized, 17,875,987 and 17,066,821 shares issued and outstanding,
  respectively                                       |  |                    | 17,875     |                   |   | 17,066     |  
|Additional paid-in-capital                                                                                                                                                    |  |                    | 25,921,639 |                   |   | 25,243,944 |  
|Accumulated deficit                                                                                                                                                           |  |                    | (111,641   | )                 |   | (755,844   | )
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|Total stockholders equity                                                                                                                                                    |  |                    | 25,829,253 |                   |   | 24,506,546 |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  
|Total liabilities and stockholders
equity                                                                                                                                    |  | $                  | 52,428,943 |                   | $ | 54,606,828 |  
|                                                                                                                                                                              |  |                    |            |                   |   |            |  

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

1

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | ---------- | ----------------------------------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  | For the Three Months Ended
  September 30, |            | For the Nine Months Ended
  September 30, |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  | 2008                                       |            | 2007                                      |   | 2008       |   | 2007 |           
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |           
|REVENUES                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Income on consumer receivables                                                                                                                                                                                                                                                                                                                                                                                            |  | $                                          | 3,447,831  |                                           | $ | 3,554,441  |   | $    | 10,942,757 |   | $ | 9,901,507  |  
|Other income                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                            | 138        |                                           |   | 3,153      |   |      | 3,334      |   |   | 27,176     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Total revenues                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                            | 3,447,969  |                                           |   | 3,557,594  |   |      | 10,946,091 |   |   | 9,928,683  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|OPERATING EXPENSES                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Professional fees (including fees paid to related
  parties of $197,436 and $257,311 and $634,081 and $868,761 for the three and
  nine month periods ended September 30, 2008 and 2007, respectively)                                                                                                                                                                                                                    |  |                                            | 1,246,701  |                                           |   | 1,313,876  |   |      | 3,817,408  |   |   | 3,438,740  |  
|General and administrative expenses                                                                                                                                                                                                                                                                                                                                                                                       |  |                                            | 358,969    |                                           |   | 751,108    |   |      | 1,557,351  |   |   | 2,156,741  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Total operating expenses                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                            | 1,605,670  |                                           |   | 2,064,984  |   |      | 5,374,759  |   |   | 5,595,481  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Income from operations                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                            | 1,842,299  |                                           |   | 1,492,610  |   |      | 5,571,332  |   |   | 4,333,202  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Interest expense (including interest
  incurred to related parties of $21,435 and $3,500 and $28,435 and $10,500 for
  the three and nine month periods ended September 30, 2008 and 2007,
  respectively)                                                                                                                                                                                                                |  |                                            | (271,286   | )                                         |   | (456,678   | ) |      | (880,064   | ) |   | (1,196,045 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Income from continuing operations before
  provision for income taxes                                                                                                                                                                                                                                                                                                                                                     |  |                                            | 1,571,013  |                                           |   | 1,035,932  |   |      | 4,691,268  |   |   | 3,137,157  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Provision for income taxes                                                                                                                                                                                                                                                                                                                                                                                                |  |                                            | 566,210    |                                           |   | 510,945    |   |      | 1,888,038  |   |   | 1,307,720  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Income from continuing operations                                                                                                                                                                                                                                                                                                                                                                                         |  |                                            | 1,004,803  |                                           |   | 524,987    |   |      | 2,803,230  |   |   | 1,829,437  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Loss from discontinued operations
  (including fees paid and interest incurred to related parties of$-0- and
  $4,531 and $-0- and $4,723 and $58,778 and $58,956 and $175,056 and $164,559
  for the three and nine months ended September 30, 2008 and 2007, respectively
  and net of tax benefit of $146,876 and $101,166 and $442,430 and $195,330 for
  the three and nine months ended September 30, 2008 and 2007 |  |                                            | (280,730   | )                                         |   | (140,378   | ) |      | (1,124,027 | ) |   | (269,288   | )
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Net income                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                            | 724,073    |                                           |   | 384,609    |   |      | 1,679,203  |   |   | 1,560,149  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Preferred dividends                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                            | (345,000   | )                                         |   | (345,000   | ) |      | (1,035,000 | ) |   | (1,035,000 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Net income attributable to common
  stockholders                                                                                                                                                                                                                                                                                                                                                                          |  | $                                          | 379,073    |                                           | $ | 39,609     |   | $    | 644,203    |   | $ | 525,149    |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Earnings (loss) per common share:                                                                                                                                                                                                                                                                                                                                                                                         |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Income from continuing operations:                                                                                                                                                                                                                                                                                                                                                                                        |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Basic                                                                                                                                                                                                                                                                                                                                                                                                                     |  | $                                          | 0.04       |                                           | $ | 0.01       |   | $    | 0.10       |   | $ | 0.05       |  
|Diluted                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $                                          | 0.04       |                                           | $ | 0.01       |   | $    | 0.10       |   | $ | 0.04       |  
|Discontinued operations:                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Basic                                                                                                                                                                                                                                                                                                                                                                                                                     |  | $                                          | (0.02      | )                                         | $ | (0.01      | ) | $    | (0.06      | ) | $ | (0.02      | )
|Diluted                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $                                          | (0.02      | )                                         | $ | (0.01      | ) | $    | (0.06      | ) | $ | (0.02      | )
|Net income:                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Basic                                                                                                                                                                                                                                                                                                                                                                                                                     |  | $                                          | 0.02       |                                           | $ |           |   | $    | 0.04       |   | $ | 0.03       |  
|Diluted                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $                                          | 0.02       |                                           | $ |           |   | $    | 0.04       |   | $ | 0.03       |  
|                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                            |            |                                           |   |            |   |      |            |   |   |            |  
|Average common shares - basic                                                                                                                                                                                                                                                                                                                                                                                             |  |                                            | 17,875,987 |                                           |   | 16,225,517 |   |      | 17,472,117 |   |   | 16,176,207 |  
|Average common shares - diluted                                                                                                                                                                                                                                                                                                                                                                                           |  |                                            | 17,875,987 |                                           |   | 18,001,859 |   |      | 17,530,210 |   |   | 17,869,236 |  

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

2

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS EQUITY
For the Nine Months Ended September 30, 2008
(Unaudited)

|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |            |   |   |            |   |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | ------------ | - | ------------------------ |  | ------------------ | ---------- | ------------------------ | - | ------ | - | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                                                                                                                            |  | Preferred Stock |           | Common Stock |   | AdditionalPaid inCapital |  | AccumulatedDeficit |            | TotalStockholdersEquity |  
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                   
|                                                                                                                                                            |  | Number ofShares |           | Par Value    |   | Number ofShares          |  | Par Value          |            |                          |   |       
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |           
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |           
|BALANCES, December 31, 2007                                                                                                                                 |  |                 | 1,380,000 |              | $ | 1,380                    |  |                    | 17,066,821 |                          | $ | 17,066 |   | $ | 25,243,944 |   | $ | (755,844   | ) | $ | 24,506,546 |  
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |            |   |   |            |   |   |            |  
|Dividends paid on preferred stock                                                                                                                           |  |                 |          |              |   |                         |  |                    |           |                          |   |       |   |   |           |   |   | (1,035,000 | ) |   | (1,035,000 | )
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |            |   |   |            |   |   |            |  
|Retirement of common stock                                                                                                                                  |  |                 |          |              |   |                         |  |                    | (136,000   | )                        |   | (136   | ) |   | (115,010   | ) |   |           |   |   | (115,146   | )
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |            |   |   |            |   |   |            |  
|Private placement offering of 945,166
  shares of common stock and warrants to purchase 236,293 shares of common
  stock (net of issuance costs of $61,350) |  |                 |          |              |   |                         |  |                    | 945,166    |                          |   | 945    |   |   | 792,705    |   |   |           |   |   | 793,650    |  
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |            |   |   |            |   |   |            |  
|Net income                                                                                                                                                  |  |                 |          |              |   |                         |  |                    |           |                          |   |       |   |   |           |   |   | 1,679,203  |   |   | 1,679,203  |  
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |            |   |   |            |   |   |            |  
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |            |   |   |            |   |   |            |  
|BALANCES, September 30, 2008                                                                                                                                |  |                 | 1,380,000 |              | $ | 1,380                    |  |                    | 17,875,987 |                          | $ | 17,875 |   | $ | 25,921,639 |   | $ | (111,641   | ) | $ | 25,829,253 |  
|                                                                                                                                                            |  |                 |           |              |   |                          |  |                    |            |                          |   |        |   |   |            |   |   |            |   |   |            |  

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

3

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)

|                                                                                   |  |                                           |            |      |   |             |  
|---------------------------------------------------------------------------------- |  | ----------------------------------------- | ---------- | ---- | - | ----------- | -
|                                                                                   |  | For the Nine Months Ended
  September 30, |           
|                                                                                   |  |                                           |           
|                                                                                   |  | 2008                                      |            | 2007 |  
|                                                                                   |  |                                           |            |      |  
|CASH FLOWS
  FROM OPERATING ACTIVITIES                                             |  |                                           |            |      |   |             |  
|Net income                                                                         |  | $                                         | 1,679,203  |      | $ | 1,560,149   |  
|Loss from
  discontinued operations                                                |  |                                           | 1,124,027  |      |   | 269,288     |  
|                                                                                   |  |                                           |            |      |   |             |  
|Income from
  continuing operations                                                |  |                                           | 2,803,230  |      |   | 1,829,437   |  
|Adjustments
  to reconcile net income to net cash provided by operating activities |  |                                           |            |      |   |             |  
|Stock compensation                                                                 |  |                                           |           |      |   | 110,000     |  
|Depreciation and amortization                                                      |  |                                           | 120,861    |      |   | 140,281     |  
|Deferred income tax                                                                |  |                                           | 15,000     |      |   | 86,800      |  
|                                                                                   |  |                                           |            |      |   |             |  
|Increase (decrease) in:                                                            |  |                                           |            |      |   |             |  
|Security deposits                                                                  |  |                                           |           |      |   | (124        | )
|Other assets                                                                       |  |                                           | 12,622     |      |   | (43,835     | )
|Accounts payable and accrued expenses                                              |  |                                           | (74,681    | )    |   | 256,925     |  
|Estimated court and media costs                                                    |  |                                           | (1,631,273 | )    |   | (1,136,414  | )
|Income taxes payable                                                               |  |                                           | 785,697    |      |   | (108,069    | )
|                                                                                   |  |                                           |            |      |   |             |  
|Net cash
  provided by operating activities                                        |  |                                           | 2,031,456  |      |   | 1,135,001   |  
|                                                                                   |  |                                           |            |      |   |             |  
|                                                                                   |  |                                           |            |      |   |             |  
|CASH FLOWS
  FROM INVESTING ACTIVITIES                                             |  |                                           |            |      |   |             |  
|Acquisition of property and equipment                                              |  |                                           | (1,122     | )    |   | (24,242     | )
|Acquisition of consumer receivables                                                |  |                                           | (1,903,802 | )    |   | (11,491,502 | )
|Collections applied to principal on
  consumer receivables                         |  |                                           | 2,678,002  |      |   | 3,156,608   |  
|                                                                                   |  |                                           |            |      |   |             |  
|Net cash
  provided by (used in) investing activities                              |  |                                           | 773,078    |      |   | (8,359,136  | )
|                                                                                   |  |                                           |            |      |   |             |  
|                                                                                   |  |                                           |            |      |   |             |  
|CASH FLOWS
  FROM FINANCING ACTIVITIES                                             |  |                                           |            |      |   |             |  
|(Repayments) borrowings under lines of
  credit, net                               |  |                                           | (4,686,571 | )    |   | 2,982,113   |  
|Proceeds of notes payable                                                          |  |                                           | 400,000    |      |   |            |  
|Proceeds of note payable from related
  parties                                    |  |                                           | 540,000    |      |   |            |  
|Net proceeds from private placement                                                |  |                                           | 793,650    |      |   | 1,290,000   |  
|Net proceeds from convertible subordinated
  notes                                 |  |                                           |           |      |   | 2,125,500   |  
|Payment of preferred dividends                                                     |  |                                           | (1,035,000 | )    |   | (1,035,000  | )
|                                                                                   |  |                                           |            |      |   |             |  
|Net cash
  (used in) provided by financing activities                              |  |                                           | (3,987,921 | )    |   | 5,362,613   |  
|                                                                                   |  |                                           |            |      |   |             |  
|                                                                                   |  |                                           |            |      |   |             |  
|CASH FLOWS
  FROM DISCONTINUED OPERATIONS, NET                                     |  |                                           |            |      |   |             |  
|Operating activities                                                               |  |                                           | 58,207     |      |   | (581,002    | )
|Investing activities                                                               |  |                                           | 100,000    |      |   | (229,486    | )
|Financing activities                                                               |  |                                           | 896,992    |      |   | 876,000     |  
|                                                                                   |  |                                           |            |      |   |             |  
|Net cash
  provided by discontinued operations                                     |  |                                           | 1,055,199  |      |   | 65,512      |  
|                                                                                   |  |                                           |            |      |   |             |  
|                                                                                   |  |                                           |            |      |   |             |  
|Net decrease
  in cash and cash equivalents                                        |  |                                           | (128,188   | )    |   | (1,796,010  | )
|                                                                                   |  |                                           |            |      |   |             |  
|Cash and
  cash equivalents, beginning of period                                   |  |                                           | 162,180    |      |   | 2,444,356   |  
|                                                                                   |  |                                           |            |      |   |             |  
|                                                                                   |  |                                           |            |      |   |             |  
|Cash and
  cash equivalents, end of period                                         |  | $                                         | 33,992     |      | $ | 648,346     |  
|                                                                                   |  |                                           |            |      |   |             |  
|                                                                                   |  |                                           |            |      |   |             |  
|Supplemental
  disclosure of cash flow information:                                |  |                                           |            |      |   |             |  
|Cash paid for interest - continuing
  operations                                   |  | $                                         | 912,107    |      | $ | 1,180,777   |  
|Cash paid for income taxes - continuing
  operations                               |  | $                                         | 785,711    |      | $ | 1,170,714   |  
|                                                                                   |  |                                           |            |      |   |             |  
|Non-cash
  item:                                                                   |  |                                           |            |      |   |             |  
|Retirement of common stock in satisfaction
  of employee receivable                |  | $                                         | 115,146    |      | $ |            |  

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

4

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS September 30,
2008
(UNAUDITED)

NOTE 1  ORGANIZATION AND BUSINESS

The condensed
consolidated financial statements of Velocity Asset Management, Inc. (VAMI)
and its wholly-owned subsidiaries, Velocity Investments, LLC (Velocity), J.
Holder, Inc. (J. Holder), VOM, LLC, (VOM), TLOP Acquisition Company, LLC
(TLOP) and SH Sales, Inc. (SH) (the Subsidiaries, and together with
Velocity Asset Management, Inc., the Company) included herein have been
prepared by the Company and are unaudited; however, such information has been
prepared in accordance with Securities and Exchange Commission regulations and
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the financial position, results of operations, and cash flows for the interim
periods to which the report relates. The results of operations for the periods
ended September 30, 2008 and 2007 are not necessarily indicative of the
operating results that may be achieved for the full year. The assets,
liabilities and results of operations of J. Holder and VOM, have been presented
as discontinued operations of these entities in these financial statements.

Certain
information and footnote disclosures, normally included in consolidated
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America, have been condensed or
omitted. It is suggested that these condensed consolidated financial statements
be read in conjunction with the audited, consolidated financial statements and
notes thereto included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2007.

The Company
has one continuing industry segment - the acquisition, management, collection
and servicing of consumer receivables.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Properties Held for Sale

Properties
held for sale consists of real property purchased by the Company for resale and
are carried at the lower of cost or market value. This includes the cost to
purchase the property and repairs or other costs required to present the
property ready for resale. The Company recognizes income and related expenses
from the sale of real property at the date the sale closes. These properties
are maintained by the Companys subsidiary, J. Holder, and are reflected as a
part of discontinued operations.

Tax Certificates Held and Accrued Interest
Receivable

The Company
records its New Jersey municipal tax liens at cost plus accrued interest.
Interest income is recognized using the effective interest method (interest
method). These assets are maintained by the Companys subsidiary, VOM and are
reflected as a part of discontinued operations.

Consumer Receivables

The Company
purchases consumer receivable portfolios at a substantial discount from their
face amount due to a deterioration of credit quality between the time of
origination and the Companys acquisition of the portfolios. Income is
recognized using either the interest method or cost recovery method. Upon
acquisition, the Company reviews each consumer receivable portfolio to
determine whether each such portfolio is to be accounted for individually or
whether such portfolio will be assembled into static pools of consumer
receivable portfolios based on common risk characteristics. Once the static
portfolio pools are created, management estimates the future anticipated cash
flows for each pool. If management can reasonably estimate the expected timing
and amount of future cash flows, the interest method is applied. However, if
the expected future cash flows cannot be reasonably estimated, the Company uses
the cost recovery method.

The Company
accounts for its investment in consumer receivable portfolios using the
interest method under the guidance of American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 03-3, Accounting for Loans
or Certain Securities Acquired in a Transfer. SOP 03-3 addresses accounting
for differences between contractual cash flows and cash flows expected to be
collected from an investors initial investment in loans or debt if those
differences are attributable, at least in part, to credit quality. Increases in
expected cash flows are recognized prospectively through adjustment of the
internal rate of return (IRR) while decreases in expected cash flows are
recognized as an impairment.

5

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTSSeptember 30, 2008(UNAUDITED)

Under the
guidance of SOP 03-3, when expected cash flows are higher than prior
projections, the increase in expected cash flows results in an increase in the
IRR and therefore, the effect of the cash flow increase is recognized as
increased revenue prospectively over the remaining life of the
affected pool. However, when expected cash flows are lower than prior
projections, SOP 03-3 requires that the expected decrease be recognized as an
impairment by decreasing the carrying value of the affected pool (rather than
lowering the IRR) so that the pool will amortize over its expected life using
the original IRR. A pool can become fully amortized (zero carrying balance on
the balance sheet) while still generating cash collections. In this case, all
cash collections are recognized as revenue when received.

Under the cost
recovery method, no revenue is recognized until the Company has fully collected
the cost of the portfolio, or until such time that the Company considers the
collections to be probable and estimable and begins to recognize income based
on the interest method as described above. The Company currently has no
consumer receivable portfolios accounted for under the cost recovery method.

The Company
estimates and capitalizes certain fees paid and to be paid to third parties
related to the direct acquisition and collection of a portfolio of accounts.
These fees are added to the cost of the individual portfolio and amortized over
the life of the portfolio using the interest method. An offsetting liability is
included as Estimated court and media costs on the balance sheet.

The Company
establishes valuation allowances for all acquired loans subject to SOP 03-3 to
reflect only those losses incurred after acquisition (that is, the present
value of cash flows initially expected at acquisition that are no longer
expected to be collected). Valuation allowances are established only subsequent
to acquisition of the loans, if necessary. At September 30, 2008 and December
31, 2007, the Company had no valuation allowances on its consumer receivables.

Use of Estimates

The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the 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 results could differ from those estimates.

With respect
to income recognition under the interest method, significant estimates have
been made by management with respect to the collectability of future cash flows
of portfolios. The Company takes into consideration the relative credit quality
of the underlying receivables constituting the portfolio acquired, the strategy
implemented to maximize collections thereof as well as other factors to
estimate the anticipated cash flows. Actual results could differ from these
estimates making it reasonably possible that a change in these estimates could
occur within one year. On a quarterly basis, management reviews the estimate of
future cash collections, and whether it is reasonably possible that its
assessment of collectability may change based on actual results and other
factors, including the current economic crisis.

Properties held for sale as discontinued operations are carried at
fair value. The Company utilizes the appraisals of third party experts
in determining fair value; however, the current economic and housing crisis may
have a material impact on the fair value of the property.

Reclassifications

Certain
reclassifications, which have no effect on net income, have been made to the prior
period financial statements to conform to the current presentation. The
operations of J. Holder and VOM, LLC have been reclassified as discontinued
operations for all periods presented.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No.157, Fair
Value Measurements (SFAS 157). SFAS 157 defines fair value to be
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date and emphasizes that fair value is a market-based measurement,
not an entity-specific measurement. It establishes a fair value hierarchy and
expands disclosures about fair value measurements in both interim and annual
periods. SFAS 157 is effective for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. FASB Staff Position No. FAS 157-2 (as amended) defers the effective date of SFAS 157 for nonfinancial assets and
nonfinancial liabilities on a non-recurring basis to fiscal years beginning after
November 15, 2008. With the exception of nonfinancial assets and nonfinancial liabilities,
the Company adopted SFAS 157 on January 1, 2008 which did not have an impact on its consolidated
financial position and results of operations.

6

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS September 30,
2008(UNAUDITED)

In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities - Including an Amendment of FASB Statement No. 115
(SFAS No. 159). This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. Most of the
provisions of SFAS No. 159 apply only to entities that elect the fair value
option. However, the amendment to SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, applies to all entities with
available-for-sale and trading securities SFAS No. 159 is effective as of the
beginning of an entitys first fiscal year that begins after November 15, 2007.
Management has not made an election to adopt this pronouncement.

In December
2007, FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (SFAS 141(R)), and
Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements,
an amendment of ARB No. 51 (SFAS
No. 160). These new standards significantly change the accounting for and
reporting of business combination transactions and noncontrolling interests
(previously referred to as minority interests) in consolidated financial
statements. Both standards are effective for fiscal years beginning on or after
December 15, 2008, with early adoption prohibited. These Statements are
effective for the Company beginning on January 1, 2009. The Company is
currently evaluating the provisions of SFAS 141(R) and SFAS 160.

In March 2008,
the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging
Activities, an amendment of FASB
Statement No. 133. This new standard enhances the disclosure
requirements related to derivative instruments and hedging activities required
by FASB Statement No. 133. This
standard is effective for fiscal years and interim periods beginning after
November 15, 2008, with early adoption encouraged. The Company is currently
evaluating the potential impact, if any, of the adoption of SFAS 161 and does
not believe that it will have a significant impact on its consolidated
financial position and results of operations.

In May 2008,
the FASB issued SFAS No. 162 The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 identifies the sources of accounting
principles generally accepted in the United States. SFAS 162 is effective sixty
days following the SECs approval of PCAOB amendments to AU Section 411, The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.

NOTE 3  CONSUMER RECEIVABLES

Consumer
receivable activity for the periods ended September 30, 2008 and 2007 was as
follows:

|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |             |   |   |             |  
|---------------------------------------------------- |  | ------------------------------------------- | ---------- | ------------------------------------------- | - | ------------------------------------------ | - | ------------------------------------------ | ----------- | - | - | ----------- | -
|                                                     |  | Three Months
  Ended
  September 30,
  2008 |            | Three Months
  Ended
  September 30,
  2007 |   | Nine Months
  Ended
  September 30,
  2008 |   | Nine Months
  Ended
  September 30,
  2007 |            
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |            
|Balance at beginning of
period                       |  | $                                           | 46,826,499 |                                             | $ | 42,879,889                                 |   | $                                          | 46,971,014  |   | $ | 38,327,926  |  
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |            
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |             |   |   |             |  
|Acquisitions and capitalized costs, net
  of returns |  |                                             | 300,720    |                                             |   | 5,041,101                                  |   |                                            | 1,903,802   |   |   | 11,491,501  |  
|Amortization of capitalized
costs                    |  |                                             | (14,799    | )                                           |   | (14,799                                    | ) |                                            | (44,397     | ) |   | (44,397     | )
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |             |   |   |             |  
|                                                     |  |                                             | 285,921    |                                             |   | 5,026,302                                  |   |                                            | 1,859,405   |   |   | 11,447,104  |  
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |             |   |   |             |  
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |             |   |   |             |  
|Cash collections (1)                                 |  |                                             | (4,393,524 | )                                           |   | (4,842,210                                 | ) |                                            | (13,553,840 | ) |   | (13,058,115 | )
|Income recognized on consumer
receivables
  (1)      |  |                                             | 3,433,521  |                                             |   | 3,554,441                                  |   |                                            | 10,875,838  |   |   | 9,901,507   |  
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |             |   |   |             |  
|Cash collections
applied to principal                |  |                                             | (960,003   | )                                           |   | (1,287,769                                 | ) |                                            | (2,678,002  | ) |   | (3,156,608  | )
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |             |   |   |             |  
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |             |   |   |             |  
|Balance at end of period                             |  | $                                           | 46,152,417 |                                             | $ | 46,618,422                                 |   | $                                          | 46,152,417  |   | $ | 46,618,422  |  
|                                                     |  |                                             |            |                                             |   |                                            |   |                                            |             |   |   |             |  

| |     |                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Excludes
  $14,310 and $66,919 derived from fully amortized pools for the three and nine
  months ended September 30, 2008, respectively.

7

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTSSeptember 30, 2008 
(UNAUDITED)

As of
September 30, 2008, based upon managements current estimate of projected
future collections, principal reductions will be as follows:

|     |  |                 |            | 
|---- |  | --------------- | ---------- | 
|     |  | September
  30, |           
|     |  |                 |           
|2009 |  | $               | 11,339,926 | 
|2010 |  |                 | 12,578,402 | 
|2011 |  |                 | 15,413,249 | 
|2012 |  |                 | 6,086,986  | 
|2013 |  |                 | 733,854    | 
|     |  |                 |            | 
|     |  |                 |            | 
|     |  | $               | 46,152,417 | 
|     |  |                 |            | 

The accretable
yield represents the amount of income the Company can expect to generate over
the remaining lives of its existing portfolios based on estimated cash flows as
of September 30, 2008 and 2007. Changes in the accretable yield are as follows:

|                                                |  |                                            |             |                                            |   |            |  
|----------------------------------------------- |  | ------------------------------------------ | ----------- | ------------------------------------------ | - | ---------- | -
|                                                |  | Nine
  Months
  Ended
  September 30, 2008 |             | Nine
  Months
  Ended
  September 30, 2007 |  
|                                                |  |                                            |             |                                            |  
|Balance at beginning of
  period                |  | $                                          | 31,442,803  |                                            | $ | 29,643,803 |  
|Income recognized on
  consumer receivables (1) |  |                                            | (10,875,838 | )                                          |   | (9,901,507 | )
|Additions                                       |  |                                            | 551,926     |                                            |   | 15,214,460 |  
|                                                |  |                                            |             |                                            |   |            |  
|                                                |  |                                            |             |                                            |   |            |  
|Balance at end of period                        |  | $                                          | 21,118,891  |                                            | $ | 34,956,756 |  
|                                                |  |                                            |             |                                            |   |            |  

|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(1) | Excludes
  $66,919 derived from fully amortized pools for the nine
  months ended September 30, 2008.

NOTE 4  DISCONTINUED OPERATIONS

On December
31, 2007, the Board of Directors voted to discontinue operations of its
wholly-owned subsidiaries J. Holder and VOM. The operations of J. Holder will
cease upon the liquidation of all real properties, assignments and judgments.
The Company is currently liquidating all of VOMs tax certificates and is accepting proposals for the
sale of VOM. The Company expects the liquidation or sale to be completed
within the next twelve months.

The
divestiture of the businesses is consistent with the Companys strategy of
concentrating resources in the core product area of consumer receivables.

Revenues and
net loss for the discontinued operations were as follows:

|                                                      |  |                                               |          |                                               |   |                                              |   |                                              |            |   |   |          |  
|----------------------------------------------------- |  | --------------------------------------------- | -------- | --------------------------------------------- | - | -------------------------------------------- | - | -------------------------------------------- | ---------- | - | - | -------- | -
|                                                      |  | Three
  Months
  Ended
  September 30,
  2008 |          | Three
  Months
  Ended
  September 30,
  2007 |   | Nine
  Months
  Ended
  September 30,
  2008 |   | Nine
  Months
  Ended
  September 30,
  2007 |           
|                                                      |  |                                               |          |                                               |   |                                              |   |                                              |           
|Revenues                                              |  | $                                             | 4,873    |                                               | $ | 529,296                                      |   | $                                            | 387,902    |   | $ | 810,437  |  
|                                                      |  |                                               |          |                                               |   |                                              |   |                                              |            |   |   |          |  
|Loss from discontinued operations before income taxes |  | $                                             | (427,606 | )                                             | $ | (241,544                                     | ) | $                                            | (1,566,457 | ) | $ | (464,618 | )
|                                                      |  |                                               |          |                                               |   |                                              |   |                                              |            |   |   |          |  

8

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2008
(UNAUDITED)

Assets and
liabilities of the discontinued businesses were as follows:

|                                                             |  |                      |           |                     |   |           | 
|------------------------------------------------------------ |  | -------------------- | --------- | ------------------- | - | --------- | 
|                                                             |  | September
  30, 2008 |           | December
  31, 2007 |  
|                                                             |  |                      |           |                     |  
|                                                             |  |                      |           |                     |  
|Notes receivable                                             |  | $                    | 25,000    |                     | $ | 25,000    | 
|Notes receivable from
  related party                        |  |                      |          |                     |   | 100,000   | 
|Deposits on properties                                       |  |                      | 10,000    |                     |   | 10,000    | 
|Properties held for sale                                     |  |                      | 4,868,052 |                     |   | 5,962,739 | 
|Tax certificates held and
  accrued interest receivable, net |  |                      | 253,353   |                     |   | 325,339   | 
|Deferred income tax asset,
  net                             |  |                      | 572,000   |                     |   | 325,000   | 
|Other assets                                                 |  |                      | 1,923     |                     |   | 45,241    | 
|                                                             |  |                      |           |                     |   |           | 
|Total assets                                                 |  | $                    | 5,730,328 |                     | $ | 6,793,319 | 
|                                                             |  |                      |           |                     |   |           | 
|                                                             |  |                      |           |                     |   |           | 
|Accounts payable and
  accrued expenses                      |  | $                    | 1,092,683 |                     | $ | 873,441   | 
|Line of credit                                               |  |                      | 212,992   |                     |   | 316,000   | 
|Notes payable                                                |  |                      | 1,885,000 |                     |   | 885,000   | 
|Notes payable to related
  parties                           |  |                      | 2,300,000 |                     |   | 2,300,000 | 
|                                                             |  |                      |           |                     |   |           | 
|Total liabilities                                            |  | $                    | 5,490,675 |                     | $ | 4,374,441 | 
|                                                             |  |                      |           |                     |   |           | 

NOTE 5  LINES OF CREDIT

In February
2008, Velocity entered into a Fourth Amendment to the Loan and Security
Agreement (the Fourth Amendment to the Loan Agreement) with Wells Fargo Foothill,
Inc. ( the Lender) to amend the Loan and Security Agreement dated
January 27, 2005 (the Original Loan Agreement). Pursuant to the Fourth
Amendment to the Loan Agreement, the Lender increased the amount of credit
available under the credit facility from $17,500,000 to $22,500,000 and
extended the maturity date until January 27, 2011. The Lender has agreed to
eliminate the requirement that certain executive officers of the Company
provide the Lender with joint and several limited guarantees of Velocitys
obligations under the Original Loan Agreement.

Use of the
credit facility is subject to certain restrictive covenants under the Fourth
Amendment to the Loan Agreement including but not limited to: a restriction on
incurring additional indebtedness or liens; a change of control of Velocity;
and a restriction on entering into transactions with affiliates outside the
course of Velocitys ordinary business. Velocity has agreed to maintain at
least $14,000,000 in members equity and subordinated debt. The Company has
also agreed to maintain at least $25,000,000 in stockholders equity and
subordinated debt for the duration of the facility. In addition, Velocity and the Company
has agreed that net income for each subsequent quarter shall not be
less than $375,000 and $200,000, respectively.

As of September 30, 2008 and December 31, 2007, the Company had $9,792,567 and
$14,429,138 outstanding on the credit facility, respectively. The rate of
interest at September 30, 2008 was 6.50%.

On June 14,
2007, the Company entered into an agreement for a revolving credit line for
$800,000 with Northern State Bank. Interest on the outstanding principal
balance is equal to the banks prime rate plus one-half percent per annum. Any
sums loaned under the line may be repaid at any time, without premium or
penalty, and reborrowed from time to time, until July 1, 2008. Payments of
interest only are due on the 1st day of each and every month until July 1,
2008, on which date the entire balance or principal, interest and fees then
unpaid was due and payable. The credit line is secured by various mortgages of
real property held by the Companys subsidiary, J. Holder. The Company had
$212,992 and $316,000 outstanding on the credit line as of September 30, 2008
and December 31, 2007, respectively, which is reported in net liabilities of
discontinued operations. On July 1, 2008, the Company extended the maturity date
of the line until January 1, 2009 and reduced the maximum principal amount of
the line to $212,992.

NOTE 6  NOTES PAYABLE

On January 25,
2008, the Company issued a promissory note for $1,000,000 with a financial
institution. The note bears interest at a rate of 7% per annum, payable monthly
in arrears, on the first day of each month with the original principal amount
plus accrued interest due October 25, 2008. On October 1, the note was extended
until January 25, 2009. The note is collateralized by specified real property
owned by the Companys subsidiary, J. Holder. The note is guaranteed by the
Company and personally by certain executive officers of the Company. J. Holder
has agreed to maintain a loan to value ratio of 33% at all times. This is
reported in net liabilities of discontinued operations.

9

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTSSeptember 30, 2008
(UNAUDITED)

On May 30,
2008 and June 10, 2008, Velocity consummated the closings of its private
placement offering of 14% Subordinated Notes (the Notes) due May and June
2011 (the Offering) to accredited investors (Investors). The Notes were
offered and sold pursuant to exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended (the Securities Act).

Velocity
issued Notes in the aggregate principal amount of $940,000. Interest is payable
quarterly in arrears beginning on the last day of the month that is four months
from the date of the Notes. Velocity will pay the principal amount of the Notes
upon the earlier of maturity or redemption. The Notes will be subordinated in
liquidation preference and in right of payment to all of the Companys existing
debt. The Notes will be senior in right of payment and in liquidation
preference to any future long term debt of the Company. Upon an event of
default, Velocity will pay the Note holder a late charge computed at the rate
of 18% per annum of the amount not paid. $540,000 of the Notes are held by
related parties of the Company.

Velocity used
the net proceeds from the offering primarily for the purchase of portfolios of
unsecured consumer receivables and for general corporate purposes, including
working capital.

NOTE 7  COMMON STOCK

On May 6,
2008, the Company consummated an initial closing of its private placement
offering of units comprised of shares of common stock and warrants to purchase
shares of common stock to accredited investors. The Company sold an aggregate
of 800,003 shares at a purchase price of $0.90 per share with three year
warrants to purchase an aggregate of 200,001 shares of the Companys common stock
at an exercise price of $1.125 per share.

On May 19,
2008, the Company consummated its second and final closing of its private
placement offering of Units comprised of shares of common stock and warrants to
purchase shares of common stock to accredited investors. Together with the
first closing, the Company sold an aggregate of 945,166 shares, 800,003 of
which were at a purchase price of $0.90 per share and 145,163 of which were at
a purchase price of $0.93 per share and delivered three-year warrants to
purchase an aggregate of 236,293 shares of the Companys common stock. The
Company used the net proceeds from the Offering primarily for the purchase of
portfolios of unsecured consumer receivables and for general corporate
purposes, including working capital.

The warrants
entitle the holders to purchase shares of the Companys common stock reserved
for issuance thereunder for a period of three years from the date of issuance.
200,001 of the warrants have an exercise price of $1.125 per share and 36,292
of the warrants have an exercise price of $1.16 per share, or the holders may
receive shares pursuant to a net settled stock appreciation right provision. The warrants contain
certain anti-dilution rights on terms specified in the warrants.

The Company
received net proceeds of $793,650 from the placement, after commissions of
approximately $61,350. The Company retained a registered FINRA broker dealer to
act as placement agent. In addition, the placement agent received three-year
warrants to acquire 80,000 shares of the Companys common stock at an exercise
price of $1.125 per share.

NOTE 8  RELATED PARTY TRANSACTIONS

In 2007, the Company
received a note receivable in the amount of $205,000 in partial payment of the
$455,000 purchase price from an officer and related party, John C. Kleinert,
for the assignment of membership interests in Ridgedale Avenue Commons, LLC,
and Morris Avenue Commons, LLC, previously owned by J. Holder, Inc. As of
December 31, 2007, the note had a balance of $100,000 which is included in the
assets of discontinued operations, along with interest at the rate of 12% which
shall accrue only on and after December 26, 2007, and is payable by means of
one lump sum payment of principal and accrued interest on August 25, 2008. On
March 14, 2008, Mr. Kleinert made a $100,000 lump sum payment to the Company
and the promissory note was retired. The Company waived $2,630 in accrued
interest on the prepayment.

On December
28, 2007, the Company paid $115,146 in withholding taxes in connection with the
vesting of 175,000 shares of restricted stock granted to James J. Mastriani. On
March 14, 2008, Mr. Mastriani returned 136,000 of such shares for cancellation
and retirement to offset this payment.

The Company
has notes payable to various related parties. Total interest expense to related
parties for the three and nine months ended September 30, 2008 and 2007 was
$80,213 and $62,456 and $203,491 and $175,059, respectively. For the three and
nine months ended September 30, 2008 and 2007, $58,778 and $58,956 and $175,056
and $164,559, respectively, are included in the results of operations of
discontinued operations.

10

---



VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTSSeptember 30, 2008
(UNAUDITED)

The Company
engages Ragan & Ragan, PC, an entity owned by Messrs. Ragan & Ragan, a
director and officer of the Company, respectively, to pursue legal collection
of its receivable portfolios with respect to obligors and properties located in
the State of New Jersey. The fee arrangements between the Companys
subsidiaries Velocity, J. Holder and VOM and Ragan & Ragan, P.C., each
dated as of January 1, 2005, have been reviewed and approved by all the members
of a committee appointed by the Board of Directors other than Mr. Ragan, Sr.
who abstained.
In May 2007, the fee arrangements were approved by Unanimous Written Consent of
the Board of Directors other than Mr. Ragan, Sr. who abstained.

Ragan and
Ragan, P.C. routinely advances court costs associated with their servicing of
consumer receivable portfolios, which are subsequently reimbursed by the
Company. These costs are included in the estimated court and media costs in the
condensed consolidated balance sheets.

Legal fees
paid to Ragan & Ragan, P.C., by the Companys subsidiaries were as follows:

|                          |  |                                               |         |                                               |   |                                              |  |                                              |         |  |   |         | 
|------------------------- |  | --------------------------------------------- | ------- | --------------------------------------------- | - | -------------------------------------------- |  | -------------------------------------------- | ------- |  | - | ------- | 
|                          |  | Three
  Months
  Ended
  September 30,
  2008 |         | Three
  Months
  Ended
  September 30,
  2007 |   | Nine
  Months
  Ended
  September 30,
  2008 |  | Nine
  Months
  Ended
  September 30,
  2007 |        
|                          |  |                                               |         |                                               |   |                                              |  |                                              |        
|Velocity Investments, LLC |  | $                                             | 197,436 |                                               | $ | 257,311                                      |  | $                                            | 634,081 |  | $ | 868,761 | 
|J. Holder, Inc.           |  |                                               |        |                                               |   | 4,500                                        |  |                                              |        |  |   | 4,500   | 
|VOM, LLC                  |  |                                               |        |                                               |   | 31                                           |  |                                              |        |  |   | 223     | 
|                          |  |                                               |         |                                               |   |                                              |  |                                              |         |  |   |         | 
|                          |  | $                                             | 197,436 |                                               | $ | 261,842                                      |  | $                                            | 634,081 |  | $ | 873,484 | 
|                          |  |                                               |         |                                               |   |                                              |  |                                              |         |  |   |         | 

NOTE 9  EARNINGS PER SHARE

Basic earnings
per share are computed using the weighted average number of shares outstanding
during each period. Diluted earnings per share are computed using the weighted
average number of shares outstanding during each period, plus the dilutive
effects of potential convertible securities related to preferred stock,
convertible notes, options and warrants. Outstanding options and warrants to
non-employees convertible into 6,207,814 and 1,342,160 shares of common stock;
convertible preferred stock, convertible into 5,520,000 shares of common stock;
and convertible notes, convertible into 940,000 and 929,670 and 940,000 and
313,187 shares for the three and nine months ended September 30, 2008 and 2007,
respectively, were not included in the dilutive per share calculations because
their effect would have been anti-dilutive.

The following
table sets forth the computation of basic and diluted earnings per share:

|                                                                   |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  
|------------------------------------------------------------------ |  | ------------------------------------------- | ---------- | ------------------------------------------- | - | ------------------------------------------ | - | ------------------------------------------ | ---------- | - | - | ---------- | -
|                                                                   |  | Three
  Months
  Ended
  September 30, 2008 |            | Three
  Months
  Ended
  September 30, 2007 |   | Nine
  Months
  Ended
  September 30, 2008 |   | Nine
  Months
  Ended
  September 30, 2007 |           
|                                                                   |  |                                             |            |                                             |   |                                            |   |                                            |           
|Numerator:                                                         |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  
|Income from continuing operations                                  |  | $                                           | 1,004,803  |                                             | $ | 524,987                                    |   | $                                          | 2,803,230  |   | $ | 1,829,437  |  
|Preferred stock dividends                                          |  |                                             | (345,000   | )                                           |   | (345,000                                   | ) |                                            | (1,035,000 | ) |   | (1,035,000 | )
|                                                                   |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  
|Income from continuing operations available to
common shareholders |  |                                             | 659,803    |                                             |   | 179,987                                    |   |                                            | 1,768,230  |   |   | 794,437    |  
|Discontinued operations, net of tax                                |  |                                             | (280,730   | )                                           |   | (140,378                                   | ) |                                            | (1,124,027 | ) |   | (269,288   | )
|                                                                   |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  
|                                                                  
|Net income attributable to common shareholders
-Basic and Diluted  |  | $                                           | 379,073    |                                             | $ | 39,609                                     |   | $                                          | 644,203    |   | $ | 525,149    |  
|                                                                   |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  
|                                                                   |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  
|Denominator:                                                       |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  
|Average shares of common stock outstanding -
Basic                 |  |                                             | 17,875,987 |                                             |   | 16,225,517                                 |   |                                            | 17,472,117 |   |   | 16,176,207 |  
|Effect of dilutive instruments:                                    |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  
|Stock options                                                      |  |                                             |           |                                             |   | 1,776,342                                  |   |                                            | 58,093     |   |   | 1,693,029  |  
|                                                                   |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  
|Weighted average shares - Diluted                                  |  |                                             | 17,875,987 |                                             |   | 18,001,859                                 |   |                                            | 17,530,210 |   |   | 17,869,236 |  
|                                                                   |  |                                             |            |                                             |   |                                            |   |                                            |            |   |   |            |  

11

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VELOCITY ASSET MANAGEMENT, INC. AND
SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTSSeptember 30, 2008
(UNAUDITED)

NOTE 10  SUBSEQUENT EVENTS

On
October 29, 2008, Velocity consummated a final closing
of a private placement offering of 14% Subordinated Notes due 2011 (the
Notes) to accredited investors. Velocity issued new Notes in the aggregate
principal amount of $360,000. The Notes were offered and sold pursuant to
exemption from registration under Section 4(2) of the Securities Act of 1933,
as amended.

Together
with the May 2008 and June 2008 private placements, Velocity has issued Notes
in the aggregate principal amount of $1,300,000 in the offering. Interest shall
be payable quarterly in arrears beginning on the last day of the month that is
four months from the date of the Notes. Velocity will pay the principal amount
of the Notes upon the earlier of maturity or redemption. The Notes will be
subordinated in liquidation preference and in right of payment to all of the
Companys existing debt. The Notes will be senior in right of payment and in
liquidation preference to any future long term debt of the Company. Upon an
event of default, Velocity will pay the Note holder a late charge computed at
the rate of 18% per annum of the amount not paid. Of the $1,300,000 in Notes
that were issued, $900,000 are held by related parties to Velocity, including a
Note in the amount of $150,000 to our CEO, John C. Kleinert, and Notes in the
aggregate of $750,000 to immediate family members of John C. Kleinert. Velocity
intends to use the net proceeds from the offering primarily for the purchase of
portfolios of unsecured consumer receivables and for general corporate purposes,
including working capital.

On
November 1, 2008, Velocity entered into a Fifth
Amendment to the Loan and Security Agreement (the Fifth Amendment to the Loan
Agreement) with the Lender. Pursuant to the Fifth Amendment to the Loan
Agreement, the applicable interest rate on loans to Velocity changed from the
prime rate plus 1.5% to the rate equal to the three-month LIBOR plus 4%. Also
pursuant to the Fifth Amendment to the Loan Agreement, the Loan Sub-Account
Amortization Schedule which sets forth the maximum principal loan amount
Velocity may have outstanding during a three-month period, has been extended
from 36 months to 42 months.

12

---



Item 2. Managements Discussion
and Analysis of
Financial Condition and Results of Operations

The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
notes thereto and the other financial information included elsewhere in this
report.

Note on Forward Looking Statements

This
quarterly report on Form 10-Q includes and incorporates by reference
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934
with respect to our financial condition, results of operations, plans,
objectives, future performance and business, which are usually identified by
the use of words such as will, may, anticipates, believes, estimates,
expects, projects, plans, predicts, continues, intends,
should,
would, or similar expressions. We intend for these forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, and are
including this statement for purposes of complying with these safe harbor
provisions.

These
forward-looking statements reflect our current views and expectations about our
plans, strategies and prospects, which are based on the information currently
available and on current assumptions.

We
cannot give any guarantee that these plans, intentions or expectations will be
achieved. Investors are cautioned that all forward-looking statements involve
risks and uncertainties, and actual results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including those Risk Factors set forth in our Form 10-K for the year ended
December 31, 2007. Listed below and discussed elsewhere in this quarterly
report are some important risks, uncertainties and contingencies that could
cause our actual results, performances or achievements to be materially
different from the forward-looking statements included in this quarterly
report. These risks, uncertainties and contingencies include, but are not
limited to, the following:

| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the availability for
  purchase of consumer receivable portfolios, interests in distressed real
  property and tax lien certificates that satisfy our criteria;                                           
| |   |                                                                                                                                                                                                           
| | · | competition in the
  industry;                                                                                                                                                                            
| |   |                                                                                                                                                                                                           
| | · | the availability of debt
  and equity financing;                                                                                                                                                          
| |   |                                                                                                                                                                                                           
| | · | future acquisitions;                                                                                                                                                                                      
| |   |                                                                                                                                                                                                           
| | · | the availability of
  qualified personnel;                                                                                                                                                                
| |   |                                                                                                                                                                                                           
| | · | international, national,
  regional and local economic and political changes;                                                                                                                             
| |   |                                                                                                                                                                                                           
| | · | general economic and
  market conditions;                                                                                                                                                                 
| |   |                                                                                                                                                                                                           
| | · | general economic conditions, including the
current economic and housing crisis could have a material effect on the
current carrying value of real properties held for sale by our
discontinued operations;
| |   |                                                                                                                                                                                                           
| | · | changes in applicable
  state and federal laws;                                                                                                                                                           
| |   |                                                                                                                                                                                                           
| | · | trends affecting our
  industry, our financial condition or results of operations;                                                                                                                        
| |   |                                                                                                                                                                                                           
| | · | the timing and amount of
  collections on our consumer receivable portfolios in light of the current
economic and housing crisis; and                                                                     
| |   |                                                                                                                                                                                                           
| | · | increases in operating
  expenses associated with the growth of our operations.                                                                                                                           

13

---



You
should read this document with the understanding that our actual future results
may be materially different from what we expect. We may not update these
forward-looking statements, even though our situation may change in the future.
We qualify all of our forward-looking statements by these cautionary
statements.

Overview

We
are a portfolio management company that purchases unsecured consumer
receivables in the secondary market and seeks to collect those receivables
through an outsourced legal collection network. Our primary business is to
acquire credit-card receivable portfolios at significant discounts to the total
amounts owed by the debtors. We use our proprietary valuation process to
calculate the purchase price so that our estimated cash flow from such
portfolios offers us an adequate return on our investment after servicing
expenses.

We generally
purchase consumer receivable portfolios that include charged-off credit card receivables,
which are accounts that have been written-off by the originators, and consumer installment loans. When
evaluating a portfolio for purchase, we conduct an extensive quantitative and
qualitative analysis of the portfolio to appropriately price the debt and to
identify portfolios that are optimal for collection through our legal collection
network. This analysis relies upon, but is not limited to, the use of our
proprietary pricing and collection probability model and draws upon our
extensive experience in the legal collection and debt-buying industry.

We
purchase consumer receivable portfolios from creditors and others through
privately negotiated direct sales and auctions in which sellers of consumer
receivables seek bids from pre-qualified debt purchasers. We pursue new
acquisitions of consumer receivable portfolios on an ongoing basis through our
relationships with industry participants, collection agencies, investors, our
financing sources, brokers who specialize in the sale of consumer receivable
portfolios and other sources. Our consumer receivable portfolios are purchased
through internally generated cash flow, seller financed credit lines/leases and
traditional leverage methods. Our profitability depends upon our ability to
purchase and collect on a sufficient volume of our consumer receivables to
generate revenue that exceeds our costs.

As
of September 30, 2008, we held approximately $500 million in consumer
receivables. We currently service approximately 115,000 accounts and place
these accounts with over 80 law firms across the 50 states and Puerto Rico. Our
portfolios have face amounts ranging from $225,000 to approximately $43 million
with purchase prices ranging from $0.017 to $0.25 per $1.00 of such face
amounts.

History

We
were organized in the State of Delaware in December 1986 as Tele-Optics, Inc.
We were inactive until February 3, 2004, when we acquired STB, Inc. Since that
acquisition, we have focused on the business of acquiring, managing and
servicing distressed assets, consisting of consumer receivable portfolios,
interests in distressed real property and tax lien certificates. Historically,
the business had been carried on by our three wholly-owned subsidiaries:
Velocity Investments, LLC (Velocity Investments), which invests in
non-performing consumer debt purchased in the secondary market at a discount
from face value and then seeks to liquidate these debt portfolios through legal
collection means; J. Holder, Inc. (JHI), which invested in distressed real
property interests, namely real property being sold at sheriffs foreclosure and
judgment execution sales, defaulted mortgages, partial interests in real
property and the acquisition of real property with clouded title; and VOM, LLC
(VOM), which invested in New Jersey municipal tax liens with the focus on
realization of value through legal collection and owned real estate
opportunities presented by the current tax environment. On December 31, 2007,
our Board of Directors unanimously approved managements plan to discontinue
the operation of JHI and VOM and to sell and dispose of the assets or
membership interests/capital stock of such subsidiaries. The divestiture of the
businesses is consistent with our strategy of concentrating our resources on
purchasing, managing, servicing and collecting portfolios of consumer
receivables. The Company
does not expect managements plan with respect to the disposal of the assets of
the discontinued operations to have a material effect on reported results of
operations.

14

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Recent Developments

On September 18, 2008, we filed a Registration Statement on
Form S-1 with respect to a secondary, firm commitment offering of shares of our common stock.  On
September 29, 2008, our stockholders approved an amendment to our Certificate
of Incorporation to effect a reverse stock split of our issued and outstanding
common stock, par value $0.001 per share of between one-for-ten (1-10) and
one-for-twenty (1-20) reverse stock split in the discretion of our Board of
Directors. On September 29, 2008, our stockholders also approved an amendment
to our Certificate of Incorporation to change the name of our company from
Velocity Asset Management, Inc. to Velocity Portfolio Group, Inc. We plan to effectuate the reverse split and name change in the fourth quarter of 2008.

Critical Accounting Policies

Our
discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the fair value of consumer receivables, the fair value of
properties held for sale and the reported amounts of revenues and expenses. On
an on-going basis, we evaluate our estimates, including those related to the
recognition of revenue, future estimated cash flows and income taxes. We base
our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates. We believe the following critical accounting
policies affect the significant judgment and estimates used in the preparation
of our consolidated financial statements.

Purchased Consumer Receivable Portfolios
and Revenue Recognition

We
purchase portfolios of consumer receivable accounts at a substantial discount
from their face amounts, usually discounted at 75% to 98% from face value. We
record these accounts at our acquisition cost, plus the estimated cost of court
filing fees and account media. The portfolios of consumer receivables contain
accounts that have experienced deterioration of credit quality between
origination and our acquisition of the consumer receivable portfolios. The
discounted amount paid for a portfolio of consumer receivable accounts reflects
our determination that it is probable we will be unable to collect all amounts
due according to the contractual terms of the accounts. At acquisition, we
review the consumer receivable accounts in the portfolio to determine whether
there is evidence of deterioration of credit quality since origination and
whether it is probable that we will be unable to collect all amounts due
according to the contractual terms of the accounts. If both conditions exist,
we determine whether each such portfolio is to be accounted for individually or
whether such portfolios will be assembled into static pools based on common
risk characteristics. We consider expected prepayments and estimate the amount
and timing of undiscounted expected principal, interest and other cash flows
for each acquired portfolio of consumer receivable accounts and subsequently
aggregated pools of consumer receivable portfolios. We determine the excess of
the pools scheduled contractual principal and contractual interest payments
over all cash flows expected at acquisition as an amount that should not be
accreted based on our proprietary acquisition models. The remaining amount,
representing the excess of the loans cash flows expected to be collected over
the amount paid, is accreted into income recognized on consumer receivables
over the remaining life of the loan or pool using the interest method.

We
acquire these consumer receivable portfolios at a significant discount to the
amount actually owed by the borrowers. We acquire these portfolios after a
qualitative and quantitative analysis of the underlying receivables and
calculate the purchase price so that our estimated cash flow provides us with a
sufficient return on our acquisition costs and servicing expenses. After
purchasing a portfolio, we actively monitor its performance and review and
adjust our collection and servicing strategies accordingly.

We
account for our investment in consumer receivables using the interest method
under the guidance of American Institute of Certified Public Accountants
Statement of Position 03-3, Accounting for Loans or Certain Securities Acquired
in a Transfer. In accordance with Statement of Position 03-03 (and the amended
Practice Bulletin 6), revenue is recognized based on our anticipated gross cash
collections and the estimated rate of return over the useful life of the pool.

15

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We
believe that the amounts and timing of cash collections for our purchased
receivables can be reasonably estimated and, therefore, we utilize the interest
method of accounting for our purchased consumer receivables prescribed by
Statement of Position 03-3. Such belief is predicated on our historical results
and our knowledge of the industry. Each static pool of receivables is
statistically modeled to determine its projected cash flows based on historical
cash collections for pools with similar risk characteristics. Statement of
Position 03-3 requires that the accrual basis of accounting be used at the time
the amount and timing of cash flows from an acquired portfolio can be
reasonably estimated and collection is probable.

Where
the future cash collections of a portfolio cannot be reasonably estimated, we
use the cost recovery method as prescribed under Statement of Position 03-3.
Under the cost recovery method, no revenue is recognized until we have fully
collected the initial acquisition cost of the portfolio. We currently have no
consumer receivable portfolios that are accounted for under the cost recovery
method.

Under
Statement of Position 03-3, to the extent that there are differences in actual
performance versus expected performance, increases in expected cash flows are
recognized prospectively through adjustment of the internal rate of return
while decreases in expected cash flows are recognized as an impairment. Under
both the guidance of Statement of Position 03-3 and the amended Practice
Bulletin 6, when expected cash flows are higher than prior projections, the
increase in expected cash flows results in an increase in the internal rate of
return and therefore, the effect of the cash flow increase is recognized as
increased revenue prospectively over the remaining life of the affected pool.
However, when expected cash flows are lower than prior projections, Statement
of Position 03-3 requires that the expected decrease be recognized as an
impairment by decreasing the carrying value of the affected pool (rather than
lowering the internal rate of return) so that the pool will amortize over its
expected life using the original internal rate of return.

Generally,
these portfolios are expected to amortize over a five year period based on our
estimated future cash flows. Historically, a majority of the cash we ultimately
collect on a portfolio is received during the first 40 months after acquiring
the portfolio, although additional amounts are collected over the remaining
period. The estimated future cash flows of the portfolios are re-evaluated
quarterly.

The
internal rate of return is estimated and periodically recalculated based on the
timing and amount of anticipated cash flows using our proprietary collection
models. A pool can become fully amortized (zero carrying balance on the balance
sheet) while still generating cash collections. In this case, all cash
collections are recognized as revenue when received. Additionally, we would use
the cost recovery method when collections on a particular pool of accounts
cannot be reasonably predicted.

We
establish valuation allowances for all acquired consumer receivable portfolios
subject to Statement of Position 03-3 to reflect only those losses incurred
after acquisition (that is, the present value of cash flows initially expected
at acquisition that are no longer expected to be collected). Valuation
allowances are established only subsequent to acquisition of the loans. At
September 30, 2008 and September 30, 2007, we had no valuation allowance on our
consumer receivables.

Application
of Statement of Position 03-3 requires the use of estimates to calculate a
projected internal rate of return for each pool. These estimates are based on
historical cash collections. If future cash collections are materially
different in amount or timing than projected cash collections, earnings could
be affected either positively or negatively. Higher collection amounts or cash
collections that occur sooner than projected cash collections will have a
favorable impact on yield and revenues. Lower collection amounts or cash
collections that occur later than projected cash collections will have an
unfavorable impact on operations. Consumer receivable activity for the three
and nine month periods ended September 30, 2008 and 2007 consisted of the
following:

|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |             |   |   |             |  
|---------------------------------------------------- |  | --------------------------------------- | ---------- | --------------------------------------- | - | -------------------------------------- | - | -------------------------------------- | ----------- | - | - | ----------- | -
|                                                     |  | Three Months Ended
  September 30, 2008 |            | Three Months Ended
  September 30, 2007 |   | Nine Months Ended
  September 30, 2008 |   | Nine Months Ended
  September 30, 2007 |            
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |            
|Balance at beginning of period                       |  | $                                       | 46,826,499 |                                         | $ | 42,879,889                             |   | $                                      | 46,971,014  |   | $ | 38,327,926  |  
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |            
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |             |   |   |             |  
|Acquisitions and capitalized costs, net of
  returns |  |                                         | 300,720    |                                         |   | 5,041,101                              |   |                                        | 1,903,802   |   |   | 11,491,501  |  
|Amortization of capitalized costs                    |  |                                         | (14,799    | )                                       |   | (14,799                                | ) |                                        | (44,397     | ) |   | (44,397     | )
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |             |   |   |             |  
|                                                     |  |                                         | 285,921    |                                         |   | 5,026,302                              |   |                                        | 1,859,405   |   |   | 11,447,104  |  
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |             |   |   |             |  
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |             |   |   |             |  
|Cash collections (1)                                 |  |                                         | (4,393,524 | )                                       |   | (4,842,210                             | ) |                                        | (13,553,840 | ) |   | (13,058,115 | )
|Income recognized on consumer receivables
  (1)      |  |                                         | 3,433,521  |                                         |   | 3,554,441                              |   |                                        | 10,875,838  |   |   | 9,901,507   |  
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |             |   |   |             |  
|Cash collections applied to principal                |  |                                         | (960,003   | )                                       |   | (1,287,769                             | ) |                                        | (2,678,002  | ) |   | (3,156,608  | )
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |             |   |   |             |  
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |             |   |   |             |  
|Balance at end of period                             |  | $                                       | 46,152,417 |                                         | $ | 46,618,422                             |   | $                                      | 46,152,417  |   | $ | 46,618,422  |  
|                                                     |  |                                         |            |                                         |   |                                        |   |                                        |             |   |   |             |  

| |     |                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Excludes
  $14,310 and $66,919 derived from fully amortized pools for the three and nine
  months ended September 30, 2008, respectively.
| |     |                                                                                                                                          

16

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Stock
Based Compensation

We
have adopted the fair value recognition provisions of Share-Based Payment
(SFAS No. 123R), which supersedes Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees. The revised statement addresses
the accounting for share-based payment transactions with employees and other
third parties, eliminates the ability to account for share-based transactions
using APB No. 25 and requires that the compensation costs relating to such
transactions be recognized in the consolidated financial statements. SFAS No.
123R requires additional disclosures relating to the income tax and cash flow
effects resulting from share-based payments. Additionally, regarding the
treatment of non-employee stock based compensation, we have followed the
guidance of EITF 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services.

New
Accounting Pronouncements

In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 157, Fair Value Measurements(SFAS 157). SFAS 157 defines fair value to be the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date and emphasizes that fair value us a
market-based measurement, not an entity-specific measurement. It establishes a fair value
hierarchy and expands disclosures about fair value measurements in both interim and annual
periods. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. FASB Staff Position No. FAS 157-2 (as amended) defers the effective
date of SFAS 157 for nonfinancial assets and nonfinancial liabilities on a non-recurring
basis to fiscal years beginning after November 15, 2008.
With the exception of nonfinancial assets and nonfinancial liabilities, the Company adopted SFAS 157 on January 1, 2008
which did not have an impact on its consolidated financial position and results of
operations.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115 (SFAS No. 159). This statement permits entities to choose
to measure many financial instruments and certain other items at fair value.
Most of the provisions of SFAS No. 159 apply only to entities that elect the
fair value option. However, the amendment to SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, applies to all entities
with available-for-sale and trading securities. SFAS No. 159 is effective as of
the beginning of an entitys first fiscal year that begins after November 15,
2007. Management has not made an election to adopt this pronouncement.

In
December 2007, FASB issued Statement of Financial Accounting Standards No.
141(R), Business Combinations
(SFAS 141(R)), and Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated
Financial
Statements, an amendment of ARB
No. 51 (SFAS 160). These new standards significantly change the
accounting for and reporting of business combination transactions and
noncontrolling interests (previously referred to as minority interests) in consolidated
financial statements. Both standards are effective for fiscal years beginning
on or after December 15, 2008, with early adoption prohibited. These Statements
are effective for the Company beginning on January 1, 2009. The Company is
currently evaluating the provisions of SFAS 141(R) and SFAS 160.

In
March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, Disclosures About Derivative
Instruments and Hedging Activities, an
amendment of FASB Statement No. 133. This new standard enhances the
disclosure requirements related to derivative instruments and hedging
activities required by FASB Statement No.
133. This standard is effective for fiscal years and interim periods
beginning after November 15, 2008, with early adoption encouraged. The Company
is currently evaluating the potential impact, if any, of the adoption of SFAS
161 and does not believe that it will have a significant impact on its
condensed consolidated financial position and results of operations.

17

---



In
May 2008, the FASB issued SFAS No. 162 The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162). SFAS 162 identifies the sources of
accounting principles generally accepted in the United States. SFAS 162 is
effective sixty days following the SECs approval of PCAOB amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Company expects that the adoption of this
standard would have no impact on its condensed consolidated financial position
and results of operations.

Results
of Operations

Total
revenues for continuing operations for the three month period ended September
30, 2008 (the 2008 Third Quarter) were $3,447,969 as compared to $3,557,594
during the three month period ended September 30, 2007 (the 2007 Third
Quarter), representing a 3.08% decrease. Revenues in the nine month period
ended September 30, 2008 (the 2008 Period) were $10,946,091 as compared to
$9,928,683 in the same period in the prior year (the 2007 Period),
representing a 10.24% increase. The slight decrease in revenues in the 2008
Third Quarter was primarily attributable to a decrease in acquisitions in
consumer receivable portfolios and resulting decrease in revenues from collections
on consumer receivables. The increase in revenues in the 2008 Period was
primarily attributable to an increase in acquisitions in consumer receivable
portfolios and resulting revenues from collections on consumer receivables.

Total
Operating Expenses

Total
operating expenses for continuing operations for the 2008 Third Quarter were
$1,605,670 as compared to $2,064,984 during the 2007 Third Quarter,
representing a 22.24% decrease. Total operating expenses for the 2008 Period
were $5,374,759 as compared to $5,595,481 during the 2007 Period, representing
a 3.94% decrease. The decrease in total operating expenses for the 2008 Third
Quarter and the 2008 Period was primarily attributable to a significant
decrease in general and administrative expenses as a result of a decrease of
due diligence expenses and electronic search fees for Velocity Investments and
a decrease in payroll expense.

Interest
Expense

Interest
expense in the 2008 Third Quarter was $271,286 as compared to $456,678 in the
2007 Third Quarter, representing a 40.6% decrease. Interest expense in the 2008
Period was $880,064 as compared to $1,196,045 in the 2007 Period, representing
a 26.42% decrease. The decrease in interest expense was primarily attributable
to declining interest rates and a reduction in amounts outstanding on Velocity
Investments line of credit with Wells Fargo Foothill, Inc.

Net
Income

Net income for the 2008 Third Quarter was $724,073, as compared to net income
for the 2007 Third Quarter of 384,069, an 88.53% increase.
Net income attributable to common stockholders for the 2008 Third Quarter was $379,073 as compared to net income
attributable to common stockholders for
the 2007 Third Quarter of $39,609, an 857.04% increase. The increase in net
income is primarily attributable to a significant decrease in interest expense
and operating expenses partially offset by a loss of $280,730 at our
discontinued operations. Income from continuing operations for the 2008 Third
Quarter was $1,004,803 as compared to income from continuing operations for the
2007 Third Quarter of $524,987, a 91.4% increase. The Company had a $280,730
loss from discontinued operations in the 2008 Third Quarter as compared to a
loss of $140,378 in the 2007 Third Quarter.
Net income for the 2008 Period was $1,679,203, as compared to net income for the 2007
Period of $1,560,149, a 7.63% increase.

Net income  attributable to common stockholders for the 2008 Period was
$644,203 as compared to net income attributable to common stockholders of $525,149 for the 2007 Period, a 22.67%
increase. Income from continuing operations for the 2008 Period was $2,803,230
as compared to income from continuing operations for the 2007 Period of
$1,829,437, a 53.23% increase. The Company had a $1,124,027 loss from
discontinued operations in the 2008 Period compared to a loss of $269,288 in
the 2007 Period. The loss from discontinued operations in the 2008 Period was primarily attributable to cumulative impairments of
approximately $660,000 in connection with
an investment property in Melbourne, Florida.

18

---



Liquidity and Capital Resources

The
term liquidity refers to our ability to generate adequate amounts of cash to
fund our operations, including portfolio purchases, operating expenses, tax
payments and dividend payments, if any. Historically, we have generated working
capital primarily from cash collections on our portfolios of consumer
receivables in excess of the cash collections required to make principal and
interest payments on our senior credit facility, and from offerings of equity
securities and debt instruments. At September 30, 2008, we had
approximately $34,000 in cash and cash equivalents, approximately $12,700,000
in credit available from our credit facility and trade accounts payable of
approximately $478,000. Management believes that the revenues expected to be
generated from operations, the May 2008 equity offering discussed below,
proceeds of the 14% subordinated debt issuance and our line of credit with Wells Fargo Foothill, Inc.
will be sufficient to finance operations through the next 12 months.
However, in order to continue to execute our business plan and grow our
consumer receivables portfolio, we will need to raise additional
capital by way of the sale of equity securities or debt instruments. If, for
any reason, our available cash otherwise proves to be insufficient to fund
operations (because of future changes in the industry, general economic
conditions, unanticipated increases in expenses, or other factors, including
acquisitions), we will be required to seek additional funding.

On
December 31, 2007, our Board of Directors  unanimously approved
managements plan to discontinue the operation of our JHI and VOM
subsidiaries. Management began implementation of the plan in the first quarter
of 2008. We do not expect managements plan with respect to the
disposal of assets of the discontinued operations to have a material effect on
our liquidity. The discontinued operations have no employees and
management believes that it will require an immaterial amount of general and
administrative expense to execute managements plan.

Net
cash provided by operating activities was approximately $2,031,000 during the
nine months ended September 30, 2008, compared to net cash provided by operating
activities of approximately $1,135,000 during the nine months ended September
30, 2007. The increase in net cash provided by operating activities was
primarily due to increase in income from continuing operations and income taxes
offset by payment of estimated court and media costs and a decrease in accounts
payable and accrued expense. Net cash provided by investing activities was
approximately $773,000 during the nine months ended September 30, 2008, as
compared to net cash used in investing activities of approximately $8,359,000
during the nine months ended September 30, 2007. The decrease in net cash used
in investing activities was primarily due to a decrease in acquisition of
consumer receivables portfolios. Net cash used in financing activities was approximately
$3,988,000 during the nine months ended September 30, 2008, as compared to net
cash provided by financing activities of approximately $5,363,000 during the
nine months ended September 30, 2007. The decrease in net cash provided by
financing activities was primarily due to collections of consumer receivables
at Velocity Investments paying down the principal amount outstanding on the
Wells Fargo Loan, partially offset by proceeds of the May 2008 equity offering
and proceeds of the 14% subordinated debt issuance. Net cash provided by
discontinued operations was approximately $1,055,000 during the nine months
ended September 30, 2008 as compared to net cash provided by discontinued
operations of approximately $66,000 during the nine months ended September 30,
2007. The increase in cash provided by discontinued operations was primarily
due to a $1,000,000 promissory note issued by J. Holder collateralized by an
investment property in Melbourne, Florida.

On
January 27, 2005, VI entered into a Loan and Security Agreement with Wells
Fargo, Inc., a California corporation, in which Wells Fargo agreed to provide
VI with a three year $12,500,000 senior credit facility to finance the
acquisition of individual pools of unsecured consumer receivables that are
approved by Wells Fargo under specific eligibility criteria set forth in the
Loan and Security Agreement.

Simultaneous
with the Loan and Security Agreement, the following agreements were also
entered into with Wells Fargo, a Continuing Guaranty, in which we
unconditionally and irrevocably guaranteed our obligations under the Loan and
Security Agreement; a Security and Pledge Agreement, in which we pledged all of
our assets to secure the credit facility, including, but not limited to, all of
our stock ownership of JHI and all our membership interests in VI and VOM; and
a Subordination Agreement, in which all sums owing to us by VI as an
intercompany payable for advances or loans made or property transferred to VI
will be subordinated to the credit facility to the extent that their sums, when
added to VI membership interest in the parent does not exceed $3,250,000. In
addition, three of our executive officers, John C. Kleinert, W. Peter Ragan,
Sr. and W. Peter Ragan, Jr., provided joint and several limited guarantees of
VIs obligations under the Loan and Security Agreement.

19

---



On
February 27, 2006, VI entered into a First Amendment to the Loan and Security
Agreement pursuant to which Wells Fargo extended the credit facility until January
27, 2009 and agreed to increase the advance rate under the facility to 75% (up
from 60%) of the purchase price of individual pools of unsecured consumer
receivables that are approved by the lender. Under the First Amendment to the
Loan and Security Agreement, Wells Fargo also agreed to reduce the interest
rate on the loan from 3.5% above the prime rate of Wells Fargo Bank, N.A. to
1.5% above such prime rate. On February 23, 2007, we entered into a Third
Amendment to the Loan Agreement dated January 27, 2005. Pursuant to the Amended
and Restated Loan Agreement, the Lender agreed to permanently increase our
credit facility up to $17,500,000. On March 3, 2008 (effective February 29,
2008), the Lender increased the amount of credit available under the Credit
Facility from $17,500,000 to $22,500,000 and extended the maturity date until
January 27, 2011. The Lender also agreed to eliminate the requirement that
certain executive officers of VI and the Company provide the Lender with joint
and several limited guarantees of VIs obligations under the Original Loan
Agreement.

Use
of the Credit Facility is subject to VI meeting certain restrictive covenants
under the Fourth Amendment to the Loan Agreement including, but not limited to:
a restriction on incurring additional indebtedness or liens; a change of
control of Velocity; a restriction on entering into transactions with
affiliates outside the course of Velocitys ordinary business; and a
restriction on making payments to the Company in compliance with the
Subordination Agreement. Velocity has agreed to maintain at least $14,000,000
in members equity and subordinated debt. The Company has also agreed to
maintain at least $25,000,000 in stockholders equity and subordinated debt for
the duration of the facility. In addition, Velocity and the Company covenant
that net income for each subsequent quarter shall not be less than $375,000 and
$200,000, respectively. The Company had approximately $9,800,000 outstanding on
the credit line as of September 30, 2008.

On
November 1, 2008, the Companys Velocity subsidiary entered into a Fifth
Amendment to the Loan and Security Agreement with the Lender. Pursuant to the
Fifth Amendment to the Loan and Security Agreement, the applicable interest
rate on loans to Velocity changed from the prime rate plus 1.5% to the rate
equal to the three-month LIBOR plus 4%. Also pursuant to the Fifth Amendment to
the Loan and Security Agreement, the loan sub-account amortization schedule
which sets forth the maximum principal loan amount Velocity may have
outstanding during a three-month period has been extended from 36 months to 42
months.

On
January 25, 2008, the Company issued a promissory note for $1,000,000 to a
financial institution. The note bears interest at a rate of 7% per annum,
payable monthly in arrears, on the first day of each month with the original
principal amount plus accrued interest due January 25, 2009. The note is
collateralized with specified real property owned by the Companys subsidiary,
J. Holder. The Note is guaranteed by the Company and personally by certain
executive officers of the Company. J. Holder has agreed to maintain a loan to
value ratio of 33% at all times.

In
May 2008, the Company consummated several closings of its private placement
offering of units comprised of shares of common stock and warrants to purchase
shares of common stock to accredited investors. The Company sold an aggregate
of 800,003 shares at a purchase price of $0.90 per share and 145,163 at $0.93
per share and 200,001 warrants at an exercise price of $1.125 per share and
36,292 warrants at an exercise price of $1.16 per share, or the holders may
receive shares pursuant to a cashless exercise provision. The Company intends
to use the net proceeds from the offering primarily for the purchase of
portfolios of unsecured consumer receivables and for general corporate
purposes, including working capital.

The
warrants contain certain anti-dilution rights on terms specified in the
warrants.

The
Company received net proceeds of $793,650 from the placement, after commissions
of approximately $61,350. The Company retained a registered FINRA broker dealer
to act as placement agent. In addition, the placement agent will receive
three-year warrants to acquire 80,000 shares of the Companys common stock at
an exercise price of $1.125 per share.

20

---



On
May 30, 2008, June 10, 2008 and October 29, 2008, our Velocity
subsidiary consummated closings of a private placement offering of 14%
Subordinated Notes due 2011 to accredited investors. The Notes were offered and
sold pursuant to exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended. Velocity
has issued Notes in the aggregate principal amount of $1,300,000 in the
Offering and also entered into Subscription Agreements with Note holders. Interest
is payable quarterly in arrears beginning on the last day of the month that is
four months from the date of the Notes. Velocity is obligated to pay the
principal amount of the Notes upon the earlier of maturity or redemption. The
Notes are subordinated in liquidation preference and in right of payment to all
of the Registrants existing debt. The Notes are senior in right of payment and
in liquidation preference to any future long term debt of the Registrant.
Upon an event of default, Velocity is obligated to pay the Note holder a late
charge computed at the rate of 18% per annum of the amount not paid. Velocity
intends to use the net proceeds from the Offering primarily for the purchase of
portfolios of unsecured consumer receivables and for general corporate
purposes, including working capital.

We
anticipate that it will be undertaking additional financing from time
to time to increase its working capital and to increase its ability to purchase
additional pools of consumer receivables. On September 18, 2008, we filed
a Registration Statement on Form S-1 with respect to a secondary, firm commitment offering of shares of our common stock.

Supplementary Information on Consumer Receivables Portfolios:

The
following tables show certain data related to our entire owned portfolios.
These tables describe the purchase price, cash collections and related
multiples. We utilize a long-term legal approach to collecting our portfolios
of consumer receivables. This approach has historically caused us to realize
significant cash collections from pools of consumer receivables years after
they are initially acquired. When we acquire a new pool of consumer
receivables, our estimates typically result in a 60 month projection of cash
collections.

The
following table shows the changes in consumer receivables, including amounts
paid to acquire new portfolios of consumer receivables for the three and nine
months ended September 30, 2008 and 2007:

|                                            |  |                                                                |         |                      |    |                |  |                                   |       |  |        |  | 
|------------------------------------------- |  | -------------------------------------------------------------- | ------- | -------------------- | -- | -------------- |  | --------------------------------- | ----- |  | ------ |  | 
|                                            |  | Portfolio
Purchases/Collections 
(dollar amounts in thousands) |        
|                                            |  |                                                                |        
|Reporting Period                            |  | Initial
Outstanding
Amount                                     |         | Portfolios
Purchased |    | Purchase
Price |  | Gross
Cash
Collections
Per Period |      
|                                            |  |                                                                |         |                      |    |                |  |                                   |      
|                                            |  |                                                                |         |                      |    |                |  |                                   |       |  |        |  | 
|Three Month Period Ended September 30, 2008 |  | $                                                              |        |                      |   |                |  | $                                 |      |  | 4,407  |  | 
|                                            |  |                                                                |         |                      |    |                |  |                                   |       |  |        |  | 
|Three Month Period Ended September 30, 2007 |  | $                                                              | 47,269  |                      | 5  |                |  | $                                 | 4,269 |  | 4,842  |  | 
|                                            |  |                                                                |         |                      |    |                |  |                                   |       |  |        |  | 
|Nine Month Period Ended September 30, 2008  |  | $                                                              | 15,866  |                      | 7  |                |  | $                                 | 957   |  | 13,620 |  | 
|                                            |  |                                                                |         |                      |    |                |  |                                   |       |  |        |  | 
|Nine Month Period Ended September 30, 2007  |  | $                                                              | 127,066 |                      | 18 |                |  | $                                 | 9,061 |  | 13,060 |  | 

21

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Portfolio Purchases and Performance

|     |  |                      |  |                                    |   |                      |  |                              |            |                                               |   |                                              |  |        |   |  |   |        | 
|---- |  | -------------------- |  | ---------------------------------- | - | -------------------- |  | ---------------------------- | ---------- | --------------------------------------------- | - | -------------------------------------------- |  | ------ | - |  | - | ------ | 
|Year |  | Total #
  Portfolios |  | Initial
  Outstanding
  Amount (1) |   | Purchase
  Price (2) |  | Gross Cash
  Collections (3) |            | Gross Cash
  Collections
  as a % of Cost (4) |   | Average Price
  Per Dollar
  Outstanding (5) | 
|     |  |                      |  |                                    |   |                      |  |                              |            |                                               |   |                                              | 
|2003 |  | 5                    |  |                                    | $ | 11,497,833           |  | $                            | 2,038,950  |                                               | $ | 8,611,681                                    |  | 422.36 | % |  | $ | 0.1773 | 
|     |  |                      |  |                                    |   |                      |  |                              |            |                                               |   |                                              |  |        |   |  |   |        | 
|2004 |  | 10                   |  |                                    | $ | 9,511,088            |  | $                            | 1,450,115  |                                               | $ | 3,493,431                                    |  | 240.91 | % |  | $ | 0.1525 | 
|     |  |                      |  |                                    |   |                      |  |                              |            |                                               |   |                                              |  |        |   |  |   |        | 
|2005 |  | 22                   |  |                                    | $ | 133,103,213          |  | $                            | 11,449,557 |                                               | $ | 17,671,641                                   |  | 154.34 | % |  | $ | 0.0860 | 
|     |  |                      |  |                                    |   |                      |  |                              |            |                                               |   |                                              |  |        |   |  |   |        | 
|2006 |  | 26                   |  |                                    | $ | 199,042,032          |  | $                            | 15,367,940 |                                               | $ | 14,984,891                                   |  | 97.51  | % |  | $ | 0.0772 | 
|     |  |                      |  |                                    |   |                      |  |                              |            |                                               |   |                                              |  |        |   |  |   |        | 
|2007 |  | 19                   |  |                                    | $ | 129,892,667          |  | $                            | 9,316,779  |                                               | $ | 5,386,499                                    |  | 57.82  | % |  | $ | 0.0717 | 
|     |  |                      |  |                                    |   |                      |  |                              |            |                                               |   |                                              |  |        |   |  |   |        | 
|2008 |  | 7                    |  |                                    | $ | 15,865,914           |  |                              | 956,882    |                                               |   | 208,155                                      |  | 21.75  | % |  | $ | 0.0603 | 

|    |                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Initial Outstanding Amount
  represents the original face amount purchased from sellers and has not been
  reduced by any adjustments including payments and returns. (Returns are
  defined as purchase price refunded by the seller due to the return of
  non-compliant accounts, such as deceased and bankrupt accounts.)
|    |                                                                                                                                                                                                                                                                                                                                
|(2) | Purchase Price represents
  the cash paid to sellers to acquire portfolios of defaulted consumer
  receivables, and does not include certain capitalized acquisition costs.                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                
|(3) | Gross Cash Collections
  include gross cash collections on portfolios of consumer receivables as of
  September 30, 2008.                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                
|(4) | Gross Cash Collections as
  a Percentage of Cost represents the gross cash collections on portfolios of
  consumer receivables as of September 30, 2008 divided by the purchase price
  such portfolios in the related calendar year.                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                
|(5) | Average Price Per Dollar
  Outstanding represents the Purchase Price of portfolios of consumer
  receivables divided by the Initial Outstanding Amount of such portfolios
  purchased in the related calendar year.                                                                                                            

The
prices we pay for our consumer receivable portfolios are dependent on many
criteria including the age of the portfolio, the type of receivable, our
analysis of the percentage of obligors who owe debt that is collectible through
legal collection means and the geographical distribution of the portfolio. When
we pay higher prices for portfolios that may have a higher percentage of
obligors whose debt we believe is collectible through legal collection means,
we believe it is not at the sacrifice of our expected returns. Price fluctuations
for portfolio purchases from quarter to quarter or year over year are
indicative of the economy or overall mix of the types of portfolios we are
purchasing.

During
the nine months ended September 30, 2008, we acquired 7 portfolios of consumer
receivables aggregating approximately $16 million in initial outstanding amount
at a purchase price of approximately $957,000, bringing the aggregate initial
outstanding amount of consumer receivables under management as of September 30,
2008 to approximately $500 million, an increase of 3.52% as compared to
approximately $483 million as of September 30, 2007. For the nine months ended
September 30, 2008, we posted gross collections of approximately $13.62
million, compared to gross collections of $13.06 million in the nine month
period ended September 30, 2007, representing a 4.28% increase.

22

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Trends

As
a result of our line of credit, notes payable and Preferred Stock offering, we
anticipate that we will incur significant increases in interest expense and
preferred dividend payments offset, over time, by expected increased revenues
from consumer receivable portfolios purchased utilizing funds under such line
of credit and the proceeds from the Preferred Stock offering. No assurance can
be given that the expected revenues from such purchased portfolios will exceed
the additional interest expense and preferred dividends. While we are not
presently aware of any other known trends that may have a material impact on
our revenues, we are continuing to monitor our collections to assess whether
the current economic and housing crisis will have a long term impact on the
collection environment and revenues from collections on consumer receivables.
We do not believe that the recent decreases in interest rates, nor the
anticipated gradual increases in interest rates, has had or will have a
material adverse effect upon our business.

Item 3. Quantitative and Qualitative Disclosure About Market
Risks

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As
of the end of the period covered by this Quarterly Report, the Companys
management, with the participation of the Companys Chief Executive Officer and
Chief Financial Officer (the Certifying Officers), conducted evaluations of
the Companys disclosure controls and procedures. As defined under Sections
13a15(e) and 15d15(e) of the Securities Exchange Act of 1934, as amended (the
Exchange Act), the term disclosure controls and procedures means controls
and other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commissions rules and forms. Disclosure
controls and procedures include without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in
the reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuers management, included the Certifying Officers, to
allow timely decisions regarding required disclosures.

Based
on this evaluation, the Certifying Officers have concluded that the Companys
disclosure controls and procedures were effective to ensure that material
information is recorded, processed, summarized and reported by management of
the Company on a timely basis in order to comply with the Companys disclosure
obligations under the Exchange Act and the rules and regulations promulgated
thereunder.

This
Report does not include an attestation report of the Companys registered
public accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by the Companys registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only managements report
in this report.

Changes
in Internal Control over Financial Reporting

Further,
there were no changes in the Companys internal control over financial
reporting during the Companys third fiscal quarter of 2008 that materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.

Limitations
on the Effectiveness of Internal Controls

Readers
are cautioned that our management does not expect that our disclosure controls
and procedures or our internal control over financial reporting will
necessarily prevent all fraud and material error. An internal control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any control design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.

23

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PART II - OTHER INFORMATION

| |        |                    
| | ------ | -------------------
| | Item 1 | Legal
  Proceedings

In
the ordinary course of our business, we are involved in numerous legal
proceedings. We regularly initiate collection lawsuits against consumers using
our network of third party law firms. Also, consumers may occasionally initiate
litigation against us in which they allege that we have violated a Federal or
state law in the process of collecting on their account. We do not believe that
these ordinary course matters are material to our business and financial
condition.

As
of September 30, 2008, there were no material pending legal proceedings to
which we or any of our subsidiaries was a party or to which any of our property
was the subject and, to the best of our knowledge, no such action against us is
contemplated or threatened.

| |        |                                                                                                                                   
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------
| | Item 2 | Unregistered
  Sales of Securities and Use of Proceeds                                                                            
| |        |                                                                                                                                   
| |        | None, other than as
  disclosed by the Company in its filings on Form-8K during the three month
  period ended September 30, 2008.
| |        |                                                                                                                                   
| | Item 3 | Defaults
  Upon Senior Securities                                                                                                 
| |        |                                                                                                                                   
| |        | None.                                                                                                                             
| |        |                                                                                                                                   
| | Item 4 | Submission
  of Matters to a Vote of Security Holders                                                                             

The Company held its 2008
Annual Meeting of Stockholders on September 29, 2008.

At the 2008 Annual Meeting
of Stockholders, the stockholders elected the following individuals as
directors, to serve until the 2009 Annual Meeting of Stockholders, and until
their successors are elected and qualified:

|                    |  |  |            |  |  |                  | 
|------------------- |  |  | ---------- |  |  | ---------------- | 
|Name                |  |  | Votes For  |  |  | Votes
  Withheld | 
|                    |  |  |            |  |  |                  | 
|John C. Kleinert    |  |  | 14,292,162 |  |  | 10,389           | 
|W. Peter Ragan, Sr. |  |  | 14,292,162 |  |  | 10,389           | 
|Steven Marcus       |  |  | 14,292,162 |  |  | 10,322           | 
|Dr. Michael Kelly   |  |  | 14,292,162 |  |  | 10,322           | 
|David Granatell     |  |  | 14,292,162 |  |  | 10,322           | 

Also, at the 2008 Annual
Meeting of Stockholders, the stockholders approved the ratification of the
appointment Weiser, LLP as the Companys independent registered public
accounting firm for the year ended December 31, 2008. There were 14,302,451
votes cast for the ratification, no votes cast against the ratification and 100
abstentions.

The stockholders also
approved amending the Companys Certificate of Incorporation to effectuate a
reverse split of the Companys issued and outstanding common stock of between
one-for-ten and one-for-twenty reverse stock split in the discretion of the
board of directors.  There were
14,211,942 votes cast for the reverse split, 90,609 votes cast against, and no
abstentions.

The stockholders also approved
amending the Companys Certificate of Incorporation to change the name of the
Company to Velocity Portfolio Group, Inc.
There were 14,302,451 votes cast for the name change, no votes cast
against the ratification and 100 abstentions.

| |        |                                                                                                          
| | ------ | ---------------------------------------------------------------------------------------------------------
| | Item 5 | Other
  Information                                                                                      
| |        |                                                                                                          
| |        | None.                                                                                                    
| |        |                                                                                                          
| | Item 6 | Exhibits                                                                                                 
| |        |                                                                                                          
| | 31.1   | Certification of Principal
  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
| |        |                                                                                                          
| | 31.2   | Certification of Principal
  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| |        |                                                                                                          
| | 32.1   | Certification of Principal
  Executive Officer pursuant to 18 U.S.C. Section 1350                        
| |        |                                                                                                          
| | 32.2   | Certification of Principal
  Financial Officer pursuant to 18 U.S.C. Section 1350.                       

24

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

|                         |                                   |                                        
|------------------------ | --------------------------------- | ---------------------------------------
|                         | VELOCITY ASSET MANAGEMENT,
  INC.
|                         |                                   |                                        
|Dated: November 10, 2008 | By:                               | /s/ John C. Kleinert                   
|                         |                                   |                                        
|                         |                                   | John C. Kleinert                       
|                         |                                   | Chief Executive Officer
  and President

25

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