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United States

SECURITIES AND
EXCHANGE COMMISSION 

Washington, D.C. 20549FORM 10-KSB

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

               
                 For the fiscal year ended December 31, 2003 or

[   ]    
            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934
           
  For the transition period from ___________ to ___________.

Commission File
Number: 0-28325TMSF HOLDINGS, INC.(Exact name of
registrant as specified in its charter)

|Delaware                                                       | 87-0642252                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

727 West Seventh
Street Suite 850 Los Angeles CA 90017

(Address of principal
executive offices and zip code)

(213) 234-2400
(Registrants
telephone number, including area code)

Securities registered pursuant to
Section 12(b) of the Exchange Act: None

Securities registered pursuant to
Section 12(g) of the Exchange Act

Title of class

          
          
          
          
          
         Common Stock, $0.001
par value

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

Yes [x] No [   ]

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

The
Registrants revenues for the year ended december 31, 2003 were $27,034,928.

On March 27, 2004 the aggregate market value of the
voting and non-voting common equity held by non-affiliates of the
registrant was approximately
$1,282,500 based on the closing sales price of common stock on the OTC
Bulletin Board of the National Association of Securities Dealers. There were 15,000,000 shares of Common Stock outstanding as of
March 27, 2004.

DOCUMENTS INCORPORATED
BY REFERENCE

Portions
of the registrants Definitive Proxy Statement issued in connection with the 2004
Annual Meeting of Stockholders of the registrant are incorporated by reference into Part
III.

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TMSF HOLDINGS, INC. 
2003 FORM 10-KSB
ANNUAL REPORT 

TABLE OF CONTENTS

|                                  |     | PART I                                                                                     |  |    | 
|--------------------------------- | --- | ------------------------------------------------------------------------------------------ |  | -- | 
|ITEM 1                            |     | BUSINESS                                                                                   |  | 1  | 
|ITEM 2                            |     | PROPERTIES                                                                                 |  | 20 | 
|ITEM 3                            |     | LEGAL PROCEEDINGS                                                                          |  | 20 | 
|ITEM 4                            |     | SUBMISSION OF MATTERS
     TO A VOTE OF SECURITY HOLDERS                                   |  | 20 | 
|                                  |     | PART II                                                                                    |  |    | 
|ITEM 5                            |     | MARKET FOR REGISTRANT'S
     COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |  | 21 | 
|ITEM 6                            |     | MANAGEMENT'S
     DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 21 | 
|ITEM 7                            |     | FINANCIAL STATEMENTS
     AND SUPPLEMENTARY DATA                                           |  | 31 | 
|ITEM 8                            |     | CHANGES IN AND DISAGREEMENTS
     WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 31
|ITEM 8A                           |     | CONTROLS AND PROCEDURES                                                                    |  | 31 | 
|                                  |     | PART III                                                                                   |  |    | 
|ITEM 9                            |     | DIRECTORS AND EXECUTIVE
      OFFICERS OF THE REGISTRANT                                   |  | 31 | 
|ITEM 10                           |     | EXECUTIVE COMPENSATION                                                                     |  | 32 | 
|ITEM 11                           |     | SECURITY OWNERSHIP OF
      CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                       |  | 32 | 
|ITEM 12                           |     | CERTAIN RELATIONSHIPS
     AND RELATED TRANSACTIONS                                        |  | 34 | 
|ITEM 13                           |     | EXHIBITS, FINANCIAL
     STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                       |  | 35 | 
|ITEM 14                           |     | PRINCIPAL ACCOUNTANT
     FEES AND SERVICES                                                |  | 36 | 
|SIGNATURES                        |     |                                                                                            |  | 37 | 
|CONSOLIDATED FINANCIAL STATEMENTS | F-1

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PART I

ITEM 1. BUSINESS

Unless
the context otherwise requires, the terms Company, we,
us, and our refer to TMSF Holdings, Inc., a Delaware corporation
incorporated in October 2002, and its wholly owned subsidiary, The Mortgage Store
Financial, Inc. a California corporation incorporated in 1992 (The Mortgage
Store). We file our annual report on Form 10-KSB, quarterly reports on Form
10-QSB, current reports on Form 8-K and any amendments to those reports filed pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the Securities and
Exchange Commission (the SEC). You can learn more about us by reviewing such
filings and other information that we may file or furnish to the SEC at the SECs
website at www.sec.gov.

Forward-Looking
Statements
     This
annual report on Form 10-KSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements, some of which are based on
various assumptions and events that are beyond our control may be identified by reference
to a future period or periods or by the use of forward-looking terminology, such as
may, will, believe, expect,
anticipate, continue, or similar terms or variations on those
terms or the negative of those terms. Actual results could differ materially from those
set forth in forward-looking statements, including, among other things, failure to achieve
projected earning levels, the timely and successful implementation of strategic
initiatives, the ability to generate sufficient liquidity, interest rate fluctuations,
changes in assumptions regarding estimated loan losses or interest rates, the availability
of financing and, if available, the terms of any financing, changes in estimations of
origination and resale pricing of mortgages, changes in markets which we serve, including
the market for Alt-A and fixed rate mortgages, the inability to originate sub-prime
mortgages, changes in general market and economic conditions and other factors described
in this annual report. For a discussion of the risks and uncertainties that could cause
actual results to differ from those contained in the forward-looking statements see
Risk Factors and Item 6. Managements Discussion and Analysis
of Financial Condition and Results of Operations in this annual report. We do not
undertake, and specifically disclaim any obligation, to publicly release the results of
any revisions that may be made to any forward-looking statements to reflect the occurrence
of anticipated or unanticipated events or circumstances after the date of such statements.

General
     We
are a financial holding company previously operating as Little Creek, Inc. In November
2002, we acquired The Mortgage Store  a nationwide mortgage lender  and
changed our name to TMSF Holdings, Inc. Prior to the acquisition of The Mortgage Store,
Little Creek Inc. did not have any significant operational activity. The following
discussion pertains to those of The Mortgage Store, our wholly owned subsidiary. We are a
nationwide mortgage banker that originates, finances, and sells conforming and
non-conforming mortgage loans secured by single-family residences. Upon origination we
sell our loans, on a whole loan basis, for cash to investors who either retain these
mortgages for their own portfolio or pool them into mortgage backed securities offered in
the financial markets. Since 1996, we have been engaged in origination of specialty
products commonly known as Alt-A mortgages for residential borrowers. Recently, we
expanded our loan programs to include Type-A loans as well as sub-prime mortgages for
borrowers with lower credit ratings. 

     We
have a wholesale division that solicits business from mortgage brokers and a retail
division that markets directly to general public. There are currently over 2000 approved
brokers out of which approximately 500 actively conduct business with us. For the year
ended December 31, 2003, we originated approximately $628.2 million of mortgage
loans, of which approximately $442.9 million were generated through third party
brokers. 
     Loan
applications are processed and underwritten by us in accordance with established
guidelines acceptable to its investors, and are funded directly through our own credit
facility (warehouse line). We do not maintain any loan portfolio for our own account, nor
do we service the funded loans. We strive to sell the entire bulk of our funding within
30-60 days to investors for a cash premium price. The premium reflects the
risk-adjusted value of the loan and is directly related to interest rates and
borrowers credit rating.

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Products

     We
offer both fixed-rate and adjustable-rate loans, as well as loans with an interest rate
that is initially fixed for a period of time and subsequently converts to an adjustable
rate. We offer a wide variety of interest rates in combination with points paid, so
borrowers can elect to pay higher points at closing to secure a lower rate over the life
of loan, or pay a higher interest rate and reduce or eliminate points payable at closing.
     We
have traditionally engaged in alternative documentation lending, which in comparison with
conventional types of mortgages allow borrowers with better credit ratings to obtain loans
based on their good credit history instead of narrower underwriting criteria of full
documentation loans. These Alt-A products currently constitute a substantial portion of
our loan programs. 
     We
originate mortgage loans, which are secured by a primary deed of trust of the property up
to a maximum of 100% of the value. We do not originate stand-alone second trust deed loans
or loans with over 100% loan-to-value (LTV) ratio. However, we may break a
high LTV loan into a primary first trust deed and a concurrent second trust deed.
     We
offer a wide range of mortgage products in order to insulate the risk of over dependence
on any product type and to increase the volume of production through existing broker
relations. These programs include conventional and jumbo full-documentation loans, and
sub-prime loans for borrowers with category B and C credit ratings
in addition to Federal Housing Administrative (FHA) and Veterans
Administration Insured (VA) loans and hybrid adjustable rate mortgages with
initial fixed interest rate period of one, two, three, five, and seven years that
subsequently adjust to adjustable rate mortgages. 
     We
believe that through such varied product mix, we can create a sustained growth through
different phases of economic cycles, which affect one category of loans more than others.
We further believe that such a strategy would also enhance our relationship with existing
brokers who would benefit from one-stop shopping for all of their clients.

Marketing
     In
the competitive environment of mortgage banking, efficiency in pricing and quality of
service are important elements for continued success and growth. Our stated mission is to
provide the highest quality of care to every customer and to assist brokers in offering
the best programs and speed of closing to their clients. Our marketing strategy is to
develop both our wholesale and retail divisions, and to expand the geographic coverage of
our activities. We have established an in-house marketing division that continuously is
introducing our programs to various participants in the industry.
     Currently,
we have a team of in-house account representatives who introduce our programs to an
increasing numbers of brokers. We intend to expand our wholesale division as new
geographic areas are canvassed and added to our operational territories. Furthermore, we
have a group of wholesale field representatives whom we rely on to establish personal
relationships with mortgage brokers in their respective territories.
     In
order to create a strong retail division, we have introduced an aggressive commission
structure for those loan officers who have established a strong track record of successful
origination to maximize their income through association with us as a direct lender. Under
this program, we have recruited over 100 loan officers that operate throughout California.
We intend to develop similar networks in other states where we are licensed as a mortgage
broker.
     Additionally,
we have established an exclusive arrangement with a mortgage franchisor in Southern
California. Through this arrangement, we fund substantially all loans originated by each
franchisee in the franchisors territory.

Operations
     In
order to provide the highest quality of service, which entails efficient communication and
responsiveness to the needs of customer as well as fast processing and closing of the
files, while maintaining prudent underwriting and quality control procedures, we have made
substantial investment in technological resources and in our professional staffing.
     By
bringing together all aspects of mortgage lending within one organization and nurturing a
culture of open access and exchange we believe that we have successfully created an
environment in which every employee shares and benefits from the success of the entire
company and is motivated to provide care and service to customers. 
      Generally
mortgage brokers submit a loan application to more than one lender at the same time in
order to compare rates and terms for the best offer. Our policy is to provide a decision
of approval or denial of a loan within 24 hours after submission of the loan application.
Upon receipt of a loan package, the borrowers information and loan data is entered
into the mortgage-banking database. Once the loan application is registered, it is
reviewed by an underwriting staff to determine that loan parameters conform to program
guidelines. The broker is then informed of denial or conditional approval of their loan.
The broker at this stage submits the whole application file including required conditions
for full review and pricing of the loan. Once the rate and terms of the loan are accepted,
the package including pre-funding conditions is submitted for underwriting, quality
control, and funding. 
     It
is possible for the broker to follow the progress of the loan application throughout this
process by accessing the same loan data residing at our network via the Internet. A loan
liaison will also be in continued contact with the broker to update him with the progress
of the application package and any additional condition that may become necessary due to
full review and quality control examinations of the loan application.

-2-

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Underwriting
     We
originate loans for resale to various investors. Therefore, our underwriting guidelines
are based on those acceptable to our investors. We use FHA and VA guidelines for loans to
be insured by these organizations respectively. All type-A loans are underwritten
according to Federal National Mortgage Association (Fannie Mae) guidelines. We
use established underwriting guidelines for other Alt-A and B or C
programs, and hybrid adjustable mortgages that are approved by our purchasers.
     The
guidelines for each program establish the requirements under which lenders will approve
the loan. These guidelines define the maximum loan-to-value ratio, the maximum amount of
loan, required credit scores and borrowers income and assets to qualify for the
loan. 
     The
underwriting guidelines include three levels of applicant documentation requirements,
referred to as the Full Documentation, Stated Income Documentation
and No Documentation programs. Under Full Documentation and Stated
Documentation programs, we review the applicants source of income, calculate the
amount of income from sources indicated on the loan application or similar documentation,
review the credit history of the applicant, calculate the debt service-to-income ratio to
determine applicants ability to repay the loan, review the type and use of the property
being financed, and review the property. In determining the ability of the applicant to
repay the loan, our underwriters use a qualifying rate that is equal to (i) the
stated interest on fixed rate loans, (ii) the initial interest rate on loans which
provide for two to five years of fixed rate before the initial rate adjustment, or
(iii) one percent above the initial interest rate on other adjustable-rate loans.

     The
underwriting guidelines require that mortgage loans be underwritten in standardized
procedure which complies with applicable federal and state laws and regulations and
requires our underwriters to be satisfied with the value of the property being financed,
as indicated by appraisal and appraisal review. In general the maximum loan amount for
mortgage loans originated under our programs is $650,000; however, larger loans may be
approved on a case-by-case basis. 
     The
underwriting guidelines for Full Documentation and Stated Income Documentation programs
permit one-to-four unit family residential property loans to have loan-to-value ratios at
origination of up to 100% for a maximum loan amount of $400,000 (on Stated Income
Documentation), and $650,000 (on Full Documentation) depending on, among other things, the
borrowers credit score, purpose of mortgage loan, repayment ability and debt
service-to-income ratio, income documentation, as well as the type and use of the
property. 
     Under
full documentation programs, applicants are generally required to submit two written forms
of verification of stable income for at least 24 months. Under the Stated Income
Documentation program an applicant may be qualified based upon monthly income as stated on
the mortgage loan application if the applicant meets certain criteria. All the foregoing
programs require that with respect to salaried employees there be a telephone verification
of the applicants employment. Verification of the source of funds required for
deposit into escrow in the case of a purchase money loan is generally required for all
Full Documentation loans and Stated Income Documentation loans, where the loan-to-value
ratio is greater than 80%. 
     Our
categories and criteria for grading the credit history of potential borrowers are set
forth in the table below. Generally, borrowers in lower credit grades are less likely to
satisfy the repayment of obligations of a mortgage loan, and therefore, are subjected to
lower loan-to-value ratios and are charged higher interest rates and loan origination fee.
Loans made to lower credit grade borrowers, including credit impaired borrowers, entail a
higher risk of delinquency, hence, borrowers are required to maintain a higher equity and
pay higher rates to mitigate these risks.

We
evaluate our underwriting guidelines on an ongoing basis and periodically modify the
guidelines to reflect The Mortgage Stores current assessment of various issues
related to an underwriting analysis. In addition, we adopt underwriting guidelines
appropriate to new loan products that we may offer. The following table summarizes our
underwriting guidelines for sub-prime loans:

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|                      | AA Credit      | A-Credit      | B Credit       | C Credit       | C-Credit             
|--------------------- | -------------- | ------------- | -------------- | -------------- | ---------------------
|Max Loan Amt          | $500000        | $5000000      | $400K Full Doc | $350K Full Doc | $300K                
|(Max amt not avail at |                |               |                | $350K Stated   | $300k Stated         
|all FICOs)            |                |               |                |                |                      
|                      |                |               |                |                |                      
|Max LTV/CLTV          |                |               |                |                |                      
|Full Doc:             | 100%*          | 100%*         | 85%            | 80%            | 70%                  
|                      | 95%            | 90%           |                |                |                      
|                      |                |               |                |                |                      
|Stated Income         | 90%            | 85%           | 75%            | 70%            | not allowed          
|Self Employed         |                |               |                |                |                      
|                      |                |               |                |                |                      
|Stated Income         | 90% for 620+   | 80%           | 75%            | 70%            | not allowed          
|Wage Earner           | 85% for 560+   |               |                |               
|                      |                |               |                |                |                      
|FICO                  | 580 Full Doc   | 560           | 540            | 560            | 500                  
|(at max LTV - 500 is  | 580 stated S/E | 540 stated W2 | 560 stated W2  |                |                      
|min for program)      | 620 stated W2  |               |                |                |                      
|                      |                |               |                |                |                      
|Mortgage History      | 1X30           | 2X30          | 1X60           | 1X90           | 2X90                 
|                      | 0X30 for 100%  | 1X30 for 100% |                |                |                      
|Credit Parameters     |                |               |                |                |                      
|Bankruptcy -          | 24 months      | 24 months     | 18 months      | 12 months      | 1 day/paid at funding
|Foreclosure -         | 36 months      | 36 months     | 24 months      | 12 months      | None open at funding 
|                      |                |               |                |                |                      

As described above, we use the foregoing categories and characteristics as underwriting guidelines
only. Our underwriters may determine that the prospective borrower warrants a risk category upgrade, a debt
service-to-income ratio exception, a pricing exception, a loan-to-value exception or an exception from
certain requirements of a particular category (collectively called an "upgrade" or an "exception"). An
upgrade or exception may generally be allowed if the application reflects certain compensating factors,
including among others: low LTV ratio, stable employment, and length of residence in subject property.
Accordingly, we may classify certain mortgage loan applications in a more favorable risk category than
other mortgage loan applications that, in the absence of such compensating factors, would only satisfy the
criteria of a less favorable risk category.     
     We have implemented a loan quality control process designed to ensure sound lending practices and
compliance with our policies and procedures. Prior to funding of a loan, we perform a "pre-funding quality
control audit" which consists of the verification of borrower's credit and employment, utilizing automated
services and verbal verification.     
     Properties underlying the potential mortgage loans are appraised by an appraiser selected by the
submitting broker. We assign all original appraisals for review to an independent appraisal review company,
which will perform an enhanced desk or a field review of the subject property to confirm the adequacy of
the property as collateral prior to funding.     
     All loan applications are also subjected to an automated data integrity scoring system ("DISSCO"),
which identifies discrepancies in information provided by the borrower on their loan application and those
retained by national credit reporting agencies. This system also provides an automated valuation of the
property and searches recorded sales transactions on the subject property for the possibility of pricing
manipulation through repeated sales in short periods of time, which is referred to as "flipping of
properties".     
     Subsequent to funding, our quality control department makes a random audit of 10% of closed loans. The
department performs a review of documentation for compliance with established underwriting guidelines and
lending procedures along with a physical inspection of property and verification of occupancy. All funding
documents are reviewed for accuracy, completeness and adherence to corporate, state, and federal
requirements. As part of this audit process, deficiencies are reported to our senior management to
determine trends and the need for additional training of our personnel.

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Funding and Sales of Mortgage Loans

Warehouse Facilities

As of year ended December 31, 2003 we have a warehouse line in the amount of $50 million with IMPAC
Warehouse Lending Group. The interest rate on this line is currently, prime plus 0.5% subject to increase
based on the length of time loans are held on the warehouse line.

Loan Sales

We follow a strategy of selling for cash substantially all of our loan origination through loan sales
in which we disposes of our entire economic interest in the loans for a cash price. We sold $663.6 million
of loans for 2003 as compared to $290 million of loans for 2002 and $146 million for 2001. Loan sales are
typically made monthly. We did not sell any loans directly through securitization during these periods.
     We have been selling our loans to various investors including DLJ Mortgage Capital, Lehman Brothers
Bank, Greenpoint Mortgage, Household Finance, IndyMac Bank, IMPAC Funding, UBS Warburg and Bear Stern/Epic
Mortgage, and etc.     
     Cash gain on sale of mortgage loans represented 83.2% of our total revenue for 2003, as compared to
83% of our total revenue for 2002. We maximize our cash gain on sale of mortgage loan revenue by closely
monitoring institutional purchaser's requirements and grouping loan types that meet each investor's
purchase criteria for highest pricing.     
     We are required to provide certain representations and warranties to investors who purchase the loans.
We may be required to repurchase or substitute a loan if certain representations or warranties are
breached. Additionally, we may be required to repurchase or substitute a loan if a payment default occurs
within a certain period ranging from one to three months after sales of these loans. We are also required
in some cases to repurchase or substitute a loan if the loan documentation is alleged to contain fraudulent
misrepresentations made by the borrower. Any claim asserted against us in the future by our loan purchasers
may result in liabilities or legal expenses that could have material adverse effect on our results of
operations and financial condition.     
     During the year ended December 31, 2003, we repurchased four mortgage loans with aggregate principal
loan value of $558,998 due to early payment defaults by the borrowers. We have classified these mortgages
as Real Estate Owned "REO"  and we expect to dispose them at no loss.

Securitization Capability
     
     While we had not sold loans directly through securitizations, part of our loan sale strategy may
include the future sale of loans directly through securitizations in the future if management determines
that such sales are more beneficial.     
     Typically in securitization, the issuer aggregates mortgages into a real estate mortgage investment
conduit trust. The regular interest or the senior tranches of the trust are investment grade. While the
issuer generally retains the residual interest in the trust, it immediately sells the regular interests and
generally uses the proceeds to repay borrowings that were used to fund or purchase the loans in the
securitized pool. The holders of the interest are entitled to receive scheduled principal collected on the
pool of securitized loans and interest at the pass-through interest rate on the certificate balance for
such interests. The residual interest represents the subordinated right to receive cash flows from the pool
of securitized loans after payment of the required amounts to the holders of regular interests and the cost
associated with the securitization.

Sub-Servicing
     
     While we currently sell substantially all of the mortgage loans we originate servicing released
(meaning we do not retain the servicing rights to such loans), we are required to service the loans from
the date of funding through the date of sale. Since we strive to conduct whole loan sales monthly, we
currently do not have a substantial servicing portfolio.     
     To the extent that we decide to retain servicing rights in the future or conduct securitizations, we
may contract the sub-servicing of such mortgage loans, which would expose us to more substantial risks
associated with contracted sub-servicing. In such event, it is expected that many of our borrowers will
require notices and reminders to keep their mortgage loans current and to prevent delinquencies and
foreclosures. A substantial increase in our delinquency rate or foreclosure rate could adversely affect our
ability to access profitably the capital market for our financing needs, including any future
securitizations.

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Interest Rate Management
     
     Our profits depend, in part, on the difference, or "spread," between the effective rate of interest
received by us on the loans we originate and the interest rates payable by us under our warehouse
facilities ( or for securities issued in any future securitizations ). The spread can be adversely affected
because of interest rate increases during the period from the date the loans are originated until the
closing of the sale ( or securitization ) of such loans.     
     Since we historically have retained loans for a short period of time pending their sales, we have not
engaged in hedging activities to date. However, in the future we may hedge our variable-rate mortgage loans
( and any interest only and residual certificates retained in connection with any future securitizations )
with hedging transactions, which may include forward sales of mortgage loans or mortgage-backed securities,
interest rate caps and floors and buying and selling of futures and options on futures. The nature and
quantity of hedging transactions will be determined by our management based on various factors, including
market conditions and the expected volume of mortgage loan originations and purchases. No assurance can be
given that any such hedging transactions will offset the risks of changes in the interest rates, and it is
possible that there will be periods during which we may incur losses after accounting for our hedging
activities.

Competition
     
     We face intense competition in the business of originating and selling conforming and non-conforming
mortgage loans. Our competitors in the industry include other consumer finance companies, mortgage banking
companies, commercial banks, credit unions, thrift institutions, credit card issuers and insurance finance
companies. Many of these entities are substantially larger and have considerably greater financial,
technical and marketing resources than us. With respect to other mortgage banking and specially finance
companies, there are many larger companies that focus on the same types of mortgage loans with which we
directly compete for product. From time to time, one or more of these companies may be dominant in the
origination and sale of mortgage loans. In addition, many financial services organizations that are much
larger than us have formed national loan origination networks offering loan products that are substantially
similar to our loan programs. Competition among industry participants can take many forms, including
convenience in obtaining a loan, customer service, marketing and distribution channels, amount and term of
the loan, loan origination fees and interest rates. In addition, the current level of gains realized by us
and our competitors on the sale of non-conforming loans could attract additional competitors into this
market. Additional competition may lower the rates we can charge borrowers, thereby potentially lowering
gain on future loan sales and future securitizations. We may in the future also face competition from,
among others, government-sponsored entities which may enter the non-conforming mortgage market. Existing or
new loan purchase programs may be expanded by the Federal National Mortgage Association ("FNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC"), or the Government National Mortgage Association ("GNMA")
to include non-conforming mortgages, particularly those in the "A-" category, which constitutes a
significant portion of our loan production. To the extent any sales competitors significantly expand their
activities into our market, we could be materially and adversely affected. Fluctuations in interest rates
and general economic conditions may also affect our competition. During periods of rising rates,
competitors that have locked in low costs may have a competitive advantage. During periods of declining
rates, competitors may solicit our customers to refinance their loans.

Regulation
     
     The consumer financing industry is a highly regulated industry. Our business is subject to extensive
and complex rules and regulations of, and examinations by, various federal, state and local government
authorities. These rules impose obligations and restrictions on our loan origination, credit activities and
secured transactions. In addition, these rules limit the interest rates, finance charges and other fees
that we may assess, mandate extensive disclosure to our customers, prohibit discrimination, and impose
multiple qualification and licensing obligations on us. Failure to comply with these requirements may
result in, among other things, loss of approved status, class action lawsuits, administrative enforcement
actions and civil and criminal liability. We believe that we are in compliance with these rules and
regulations in all material respects.     
     Our loan origination activities are subject to the laws and regulations in each of the states in which
those activities are conducted. For example, state usury laws limit the interest rates that we can charge
on our loans. Our lending activities are also subject to various federal laws, including the Truth in
Lending Act, Homeownership and Equity Protection Act of 1994, the Equal Credit Opportunity Act, the Fair
Credit Reporting Act, the Real Estate Settlement Procedure Act and the Home Mortgage Disclosure
 Act.     
     We are subject to certain disclosure requirements under the Truth-in-Lending Act ("TILA") and
Regulation Z promulgated under TILA. TILA is designed to provide consumers with uniform, understandable
information with respect to the terms and conditions of loan and credit transactions. TILA also guarantees
consumers a three-day right to cancel certain credit transactions, including loans of the type originated
by us. In addition, TILA gives consumers, among other things, a right to rescind loan transactions in
certain circumstances if the lender fails to provide the requisite disclosure to the consumer.

-6-

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We are also subject to the Homeownership and Equity Protection Act of 1994 (the "High Cost Mortgage
Act"), which makes certain amendments to TILA. The High Cost Mortgage Act generally applies to consumer
credit transactions secured by the consumer's principal residence, other than residential mortgage
transactions, reverse mortgage transactions or transactions under an open end credit plan, in which the
loan has either (i) total points and fees upon origination in excess of the greater of eight percent of the
loan amount or $400 or (ii) an annual percentage rate of more than ten percent points higher than United
States Treasury securities of comparable maturity ("Covered Loans"). The High Cost Mortgage Act imposes
additional disclosure requirements on lenders originating Covered Loans. In addition, it prohibits lenders
from, among other things, originating Covered Loans that are underwritten solely on the basis of the
borrower's home equity without regard to the borrower's ability to repay the loan and including prepayment
fee clauses in Covered Loans to borrowers with a debt-to-income ratio in excess of 50% or Covered Loans
used to refinance existing loans originated by the same lender. The High Cost Mortgage Act also restricts,
among other things, certain balloon payments and negative amortization features.     
     We are also required to comply with the Equal Credit Opportunity Act of 1974, as amended ("ECOA"), and
Regulation B promulgated thereunder, the Fair Credit Reporting Act, as amended, the Real Estate Settlement
Procedures Act of 1975, as amended, and the Home Mortgage Disclosure Act of 1975, as amended. ECOA
prohibits creditors from discriminating against applicants on the basis of race, color, sex, age, religion,
national origin or marital status. Regulation B restricts creditors from requesting certain types of
information from loan applicants. The Fair Credit Reporting Act, as amended, requires lenders, among other
things, to supply an applicant with certain information if the lender denied the applicant credit. RESPA
mandates certain disclosure concerning settlement fees and charges and mortgage servicing transfer
practices. It also prohibits the payment or receipt of kickbacks or referral fees in connection with the
performance of settlement services. In addition, beginning with loans originated in 1977, we must file an
annual report with the U.S. Department of Housing and Urban Development ("HUD") pursuant to the Home
Mortgage Disclosure Act, which requires the collection and reporting of statistical data concerning loan
transactions.     

     In the course of our business, we may acquire properties securing loans that are in default. There is
a risk that hazardous or toxic waste could be found on such properties. In such event, we could be held
responsible for the cost of cleaning up or removing such waste, and such cost could exceed the value of the
underlying properties.     
     Because our business is highly regulated, the laws, rules and regulations applicable to us are subject
to regular modification and change. There are currently proposed various laws, rules and regulations,
which, if adopted, could impact us. There can be no assurance that these proposed laws, rules and
regulations, or other such laws, rules or regulations, will not be adopted in the future which could make
compliance much more difficult or expensive, restrict our ability to originate, broker, purchase or sell
loans, further limit or restrict the amount of commissions, interest and other charges earned on loans
originated, brokered, purchased or sold by us, or otherwise adversely affect our business
prospects.

Employees     
     At December 31, 2003 we had 70 salaried employees and 136 commission based employees.
None of our employees are subject to a collective bargaining agreement.  We believe that our
relations with our employees are satisfactory

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RISK FACTORS

In addition to the other information in this annual report on Form 10-KSB, the following factors should
be considered in evaluating us and our business.

Risk Related to Our Business


We finance borrowers with lower credit ratings. The subprime loans we originate generally have higher
delinquency and default rates than prime mortgage loans, which could result in losses on loans that we are
required to repurchase

We are in the business of originating and selling conforming and non-conforming mortgage loans, which
include sub-prime mortgage loans. Non-conforming mortgage loans generally have higher delinquency and
default rates than prime mortgage loans. Delinquency interrupts the flow of projected interest income from
a mortgage loan, and default can ultimately lead to a loss if the net realizable value of the real property
securing the mortgage loan is insufficient to cover the principal and interest due on the mortgage loan.
Also, our cost of financing a delinquent or defaulted mortgage loan is generally higher than for a
performing mortgage loan. We bear the risk of delinquency and default on mortgage loans beginning when we
originate them and continuing even after we sell loans. We also reacquire the risks of delinquency and
default for mortgage loans that we are obligated to repurchase. Repurchase obligations are typically
triggered in loan sale transactions if a loan becomes more than 30 days delinquent on the loan for the
first 90 days after transfer date, or in any sale (or securitization if we engage in securitizations in the
future) if the loan materially violates our representations or warranties. At December 31, 2003, there was
$584,250 of loans to be repurchased. No provision for losses has been taken as the management believes
there is sufficient equity and Mortgage Insurance coverage for offsetting any shortcomings from forced
sales.

We attempt to manage these risks with risk-based mortgage loan pricing and appropriate underwriting
policies and loan collection methods. However, if such policies and methods are insufficient to control our
delinquency and default risks and do not result in appropriate loan pricing, our business, financial
condition, liquidity and results of operations could be significantly harmed.Any substantial economic slowdown could increase delinquencies, defaults and foreclosures and reduce our
ability to originate loans

Periods of economic slowdown or recession may be accompanied by decreased demand for consumer credit,
decreased real estate values, and an increased rate of delinquencies, defaults and foreclosures. Any
material decline in real estate values would increase the loan-to-value ratios ("LTVs") on mortgage loans
that we hold pending sale, weaken our collateral coverage and increase the possibility of a loss if a
borrower defaults. Many of the mortgage loans that we originate are to borrowers who make little or no down
payment, resulting in higher LTVs.

A lack of equity in the home may reduce the incentive a borrower has to meet his payment obligations during
periods of financial hardship, which might result in higher delinquencies, defaults and foreclosures. These
factors would reduce our ability to originate mortgage loans. In addition, mortgage loans that we originate
during an economic slowdown may not be as valuable to us because potential purchasers of our mortgage loans
might reduce the premiums they pay for the loans to compensate for any increased risks arising during such
periods. Any sustained increase in delinquencies, defaults or foreclosures are likely to significantly harm
the pricing of our future mortgage loan sales and also our ability to finance our mortgage loan
originations.

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An increase in interest rates could result in a reduction in our mortgage loan origination volumes, an
increase in delinquency, default and foreclosure rates and a reduction in the value of and income from our
loans

The following are some of the risks we face related to an increase in interest rates:

A substantial and sustained increase in interest rates could harm our ability to originate mortgage loans
because refinancing an existing mortgage loan would be less attractive and qualifying for a purchase
mortgage loan may be more difficult. Existing borrowers with adjustable-rate mortgages may incur higher
monthly payments as the interest rate increases, which may lead to higher delinquency and
 default rates.

If prevailing interest rates increase after we fund a mortgage loan, the value that we receive upon the
sale or any securitization of the mortgage loan decreases. The cost of financing our mortgage loans prior
to sale is based primarily upon the prime rate of interest. The interest rates we charge on our mortgage
loans are based, in part, upon prevailing interest rates at the time of origination, and the interest rates
on all of our mortgage loans are fixed for at least the first two or three years. If the prime rate of
interest increases after the time of loan origination, our net interest income--which represents the
difference between the interest rates we receive on our mortgage loans pending sale and our prime
rate-based cost of financing such loans--will be reduced. Accordingly, our business, financial condition,
liquidity and results of operations may be significantly harmed as a result of increased
interest rates.We face intense competition that could adversely impact our market share and our revenues

We face intense competition from finance and mortgage banking companies, Internet-based lending companies
where entry barriers are relatively low, and, to a growing extent, from traditional bank and thrift lenders
that have entered the non-conforming and subprime mortgage industry. As we seek to expand our business
further, we will face a significant number of additional competitors, many of whom will be well established
in the markets we seek to penetrate. Some of our competitors are much larger than we are, have better name
recognition than we do, and have far greater financial and other resources.

The government-sponsored entities Fannie Mae and Freddie Mac are also expanding their participation in the
mortgage industry. These government-sponsored entities have a size and cost-of-funds advantage that allows
them to purchase mortgage loans with lower rates or fees than we are willing to offer. While the
government-sponsored entities presently do not have the legal authority to originate mortgage loans,
including subprime mortgage loans, they do have the authority to buy mortgage loans. A material expansion
of their involvement in the market to purchase non-conforming and subprime mortgage loans could change the
dynamics of the industry by virtue of their sheer size, pricing power and the inherent advantages of a
government charter. In addition, if as a result of their purchasing practices, these government-sponsored
entities experience significantly higher-than-expected losses, such experience could adversely affect the
overall investor perception of the subprime mortgage industry.

The intense competition in the non-conforming and subprime mortgage industries has also led to rapid
technological developments, evolving industry standards and frequent releases of new products and
enhancements. As mortgage products are offered more widely through alternative distribution channels, such
as the Internet, we may be required to make significant changes to our current retail and wholesale
structure and information systems to compete effectively. Our inability to continue enhancing our current
Internet capabilities, or to adapt to other technological changes in the industry, could significantly harm
our business, financial condition, liquidity and results of operations.

Competition in the industry can take many forms, including interest rates and costs of a mortgage loan,
less stringent underwriting standards, convenience in obtaining a mortgage loan, customer service, amount
and term of a mortgage loan and marketing and distribution channels. The need to maintain mortgage loan
volume in this competitive environment creates a risk of price competition in the non-conforming and
subprime mortgage industries. Price competition could cause us to lower the interest rates that we charge
borrowers, which could lower the value of our mortgage loans. If our competitors adopt less stringent
underwriting standards we will be pressured to do so as well, which would result in greater loan risk
without compensating pricing. If we do not relax underwriting standards in response to our competitors, we
may lose market share. Any increase in these pricing and underwriting pressures could reduce the volume of
our mortgage loan originations and sales and significantly harm our business, financial condition,
liquidity and results of operations.

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Our business may be significantly harmed by a slowdown in the economy of California, where we conduct a
significant amount of business

Since inception, a significant portion of the mortgage loans we have originated have been secured by
property in California. For the years ended December 31, 2003 and 2002,
approximately 91% and 91%, respectively, of the loans we originated were collaterized by property located
in California. An overall decline in the economy or the residential real estate market, or the occurrence
of a natural disaster that is not covered by standard homeowners' insurance policies, such as an
earthquake, in California could decrease the value of mortgaged properties in California. This, in turn,
would increase the risk of delinquency, default or foreclosure on mortgage loans in our portfolio or that
we have sold to others. This could restrict our ability to originate or sell mortgage loans, and
significantly harm our business, financial condition, liquidity and results of operations.Our business requires a significant amount of cash and if it is not available our business will be
significantly harmed

Our primary source of cash is our existing warehouse credit facilities and the proceeds from the sales of
our mortgage loans. We require substantial cash to fund our mortgage loan originations, to pay our mortgage
loan origination expenses and to hold our mortgage loans pending sale. Our warehouse credit facilities also
require us to observe certain financial covenants, including the maintenance of certain levels of cash and
general liquidity.

As of year ended December 31, 2003, we financed substantially all of our existing loans through two
separate warehouse credit facilities.  One of our existing facilities is cancelable by the lender for cause
at anytime and has a renewable one year term.  The second warehouse had a term that expired on October 21,
2003 and the management decided not to renew this line after the expiration of its term. Because these are
short-term commitments of capital, the lenders may respond to market conditions, which may favor an
alternative investment strategy for them, making it more difficult for us to secure continued financing. If
we are not able to renew our existing warehouse credit facilities or arrange for new financing on terms
acceptable to us, or if we default on our covenants or are otherwise unable to access funds under any of
these facilities, we will have to curtail our mortgage loan origination activities. This would result in
decreased revenues and profits from mortgage loan sales.

In addition, for the year ended December 31, 2003 we had a positive operating cash flow of $40.7 million,
and for the year ended December 31, 2002, we had negative operating cash flow of approximately, $66.9
million, which resulted from the use of approximately, $628.2 million, and $358 million, respectively, of
cash for new loan originations offset by cash proceeds from the sale of loans of, $663.6 million, and $290
million, respectively. The timing of our mortgage loan dispositions (which are periodic) is not always
matched to the timing of our expenses (which are continuous). This requires us to maintain significant
levels of cash to maintain acceptable levels of liquidity. Any decrease in demand in the whole mortgage
loan market such that we are unable to timely and profitably sell our mortgage loans would inhibit our
ability to meet our liquidity demands.Our existing warehouse credit facilities contain covenants that restrict our operations and may inhibit our
ability to grow our business and increase revenues

Our existing warehouse credit facilities contain extensive restrictions and covenants that, among other
things, require us to satisfy specified financial, asset quality and loan performance tests. If we fail to
meet or satisfy any of these covenants, we would be in default under these agreements and our lenders could
elect to declare all amounts outstanding under the agreements to be immediately due and payable, enforce
their interests against collateral pledged under such agreements and restrict our ability to make
additional borrowings. Our existing agreements also contain cross-default provisions, so that if a default
occurs under any one agreement, the lenders under our other agreements could also declare a
default.

The covenants and restrictions in our warehouse credit facilities may restrict our ability to, among other
things: incur additional debt; make certain investments or acquisitions; repurchase or redeem capital
stock; engage in mergers or consolidations; finance mortgage loans with certain attributes; reduce
liquidity below certain levels; and hold mortgage loans for longer than established time periods.


These restrictions may interfere with our ability to obtain financing or to engage in other business
activities, which may significantly harm our business, financial condition, liquidity and results of
operations.

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If we do not manage our growth effectively, our financial performance could be harmed

In recent years, we have experienced rapid growth that has placed, and will continue to place, certain
pressures on our management, administrative, operational and financial infrastructure. As of December 31,
2002, we had 76 employees, and by year end December 31, 2003, we had 70 full time and 136 commission based
employees. Many of our current employees have very limited experience with us and a limited understanding
of our systems and controls. The increase in the size of our operations may make it more difficult for us
to ensure that we originate quality mortgage loans and that we service them effectively. We will need to
attract and hire additional sales and management personnel in an intensely competitive hiring environment
in order to preserve and increase our market share. At the same time, we will need to continue to upgrade
and expand our financial, operational and managerial systems and controls. We also intend to continue to
grow our business in the future, which could require capital, systems development and human resources
beyond what we currently have. We cannot assure you that we will be able to:

- meet our capital needs;
- expand our systems effectively;
- allocate our human resources optimally;
- identify and hire qualified employees;
- satisfactorily perform our servicing obligations; or
- incorporate effectively the components of any businesses
 that we may acquire in our effort to achieve growth.

The failure to manage growth effectively would significantly harm our business, financial condition,
liquidity and results of operations.The inability to attract and retain qualified employees could significantly harm our
business

We depend upon our wholesale account executives and retail mortgage loan officers to attract borrowers by,
among other things, developing relationships with financial institutions, other mortgage companies and
brokers, real estate agents, borrowers and others. We believe that these relationships lead to repeat and
referral business. The market for skilled executive officers, account executives and loan officers is
highly competitive and historically has experienced a high rate of turnover. In addition, if a manager
leaves our company there is an increased likelihood that other members of his or her team will follow.
Competition for qualified account executives and loan officers may lead to increased hiring and retention
costs. If we are unable to attract or retain a sufficient number of skilled account executives at
manageable costs, we will be unable to continue to originate quality mortgage loans that we are able to
sell for a profit, which will reduce our revenues.An interruption in or breach of our information systems may result in lost business

We rely heavily upon communications and information systems to conduct our business. As we implement our
growth strategy and increase our volume of mortgage loan production, that reliance will increase. Any
failure or interruption or breach in security of our information systems or the third-party information
systems on which we rely could cause underwriting or other delays and could result in fewer mortgage loan
applications being received and slower processing of applications. We cannot assure you that such failures
or interruptions will not occur or if they do occur that they will be adequately addressed by us or the
third parties on which we rely. The occurrence of any failures or interruptions could significantly harm
our business.

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Terrorist attacks or military actions may adversely affect our financial results

The effects that terrorist attacks in the United States or other incidents and related military action, or
the result of the military actions by the U.S. and Coalition forces in Iraq or other regions, may have on
our ability to originate mortgages on the values of the mortgaged properties can not be determined at this
time. As a result of terrorist activity and military action, there may be a reduction in the new mortgages,
which will adversely affect our ability to expand our mortgage originations. These potential consequences
of terrorist attacks or military action will have an adverse affect on our financial results. Federal
agencies and non-governmental lenders have, and may continue to, defer, reduce or forgive payments and
delay foreclosure proceedings in respect of loans to borrowers affected in some way be recent and possible
future events. In addition, activation of a substantial number of U.S. military reservists or members of
the National Guard may significantly increase the proposition of mortgage loans whose mortgage rates are
reduced by the application of the Soldiers' and Sailors' Civil Relief Act of 1940 or similar state laws,
and neither the master service nor the services will be required to advance for any interest shortfall
caused by any such reduction.The success and growth of our business will depend upon our ability to adapt to and implement technological
changes

Our mortgage loan origination business is currently dependent upon our ability to effectively interface
with our brokers, borrowers and other third parties and to efficiently process loan applications and
closings. The origination process is becoming more dependent upon technological advancement, such as the
ability to process applications over the Internet, accept electronic signatures, provide process status
updates instantly and other customer-expected conveniences that are cost-efficient to our process.
Implementing this new technology and becoming proficient with it may also require significant capital
expenditures. As these requirements increase in the future, we will have to fully develop these
technological capabilities to remain competitive or our business will be significantly harmed.If we are unable to maintain and expand our network of independent brokers, our loan origination business
will decrease

A significant majority of our originations of mortgage loans comes from independent brokers. In 2002, 80%
of our loan originations were originated through approximately 150 brokers. For the year ended December 31,
2003, 70.5% of our loans were originated through approximately 428 brokers from a list of 2200 approved
brokers; no broker represented more than 7% of our loan originations. Our brokers are not contractually
obligated to do business with us. Further, our competitors also have relationships with our brokers and
actively compete with us in our efforts to expand our broker networks. Accordingly, we cannot assure you
that we will be successful in maintaining our existing relationships or expanding our broker networks, the
failure of which could significantly harm our business, financial condition, liquidity and results of
operations.Our financial results fluctuate as a result of seasonality and other timing factors, which makes it
difficult to predict our future performance and may affect the price of our common stock

Our business is generally subject to seasonal trends. These trends reflect the general pattern of housing
sales, which typically peak during the spring and summer seasons. Our quarterly operating results have
fluctuated in the past and are expected to fluctuate in the future, reflecting the seasonality of the
industry. Further, if the closing of a sale of mortgage loans is postponed, the recognition of gain from
the sale is also postponed. If such a delay causes us to recognize income in the next quarter, our results
of operations for the previous quarter could be significantly depressed. If our results of operations do
not meet the expectations of our stockholders and securities analysts, then the price of our common stock
may decrease.

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We are subject to losses due to fraudulent and negligent acts on the part of loan applicants, mortgage
brokers, other vendors and our employees

When we originate mortgage loans, we rely heavily upon information supplied by third parties including the
information contained in the mortgage loan application, property appraisal, title information and
employment and income documentation. If any of this information is intentionally or negligently
misrepresented and such misrepresentation is not detected prior to mortgage loan funding, the value of the
mortgage loan may be significantly lower than expected. Whether a misrepresentation is made by the loan
applicant, the mortgage broker, another third party or one of our own employees, we generally bear the risk
of loss associated with the misrepresentation. A mortgage loan subject to a material misrepresentation is
typically unsaleable or subject to repurchase if it is sold prior to detection of the misrepresentation.
Even though we may have rights against persons and entities who made or knew about the misrepresentation,
such persons and entities are often difficult to locate and it is often difficult to collect any monetary
losses that we have suffered from them.

We have controls and processes designed to help us identify misrepresented information in our loan
origination operations. We cannot assure you, however, that we have detected or will detect all
misrepresented information in our loan originations. We are subject to losses due to fraudulent and
negligent acts in other parts of our operations. If we experience a significant number of such fraudulent
or negligent acts, our business, financial condition, liquidity and results of operations would be
significantly harmed.Defective mortgage loans may harm our business

In connection with the sale of our mortgage loans, we are required to make a variety of customary
representations and warranties regarding our company and the mortgage loans. We are subject to these
representations and warranties for the life of the mortgage loan and they relate to, among
 other things:

- compliance with laws;
- regulations and underwriting standards;
- the accuracy of information in the mortgage loan documents
 and mortgage loan file; and
- the characteristics and enforceability
of the mortgage loan.

A mortgage loan that does not comply with these representations and warranties may be unsaleable or
saleable only at a discount, and, if such a mortgage loan is sold before we detect a non-compliance, we may
be obligated to repurchase the mortgage loan and bear any associated loss directly, or we may be obligated
to indemnify the purchaser against any such losses. We believe that we have qualified personnel at all
levels and have established controls to ensure that all mortgage loans are originated to the market's
requirements, but we cannot assure you that we will not make mistakes, or that certain employees will not
deliberately violate our lending policies. We seek to minimize losses from defective mortgage loans by
correcting flaws if possible and selling or re-selling such mortgage loans. We also create allowances to
provide for defective mortgage loans in our financial statements. We cannot assure you, however, that
losses associated with defective mortgage loans will not harm our results of operations or financial
condition.

If the prepayment rates for our mortgage loans are higher than expected, our results of operations may be
significantly harmed When a borrower pays off a mortgage loan prior to the loan's scheduled maturity, the
impact on us depends upon when such payoff or "prepayment" occurs. Our prepayment losses generally occur
after we sell (or securitize in the future) our mortgage loans and the extent of our losses depends on when
the prepayment occurs. If the prepayment occurs within 12 to 18 months following a whole mortgage loan
sale, we may have to reimburse the purchaser for all or a portion of the premium paid by the purchaser for
the mortgage loan, again resulting in a loss of our profit on the mortgage loan.

Prepayment rates on mortgage loans vary from time to time and tend to increase during periods of declining
interest rates. We seek to minimize our prepayment risk through a variety of means, including originating a
significant portion of mortgage loans with prepayment penalties with terms of two to five years. No
strategy, however, can completely insulate us from prepayment risks, whether arising from the effects of
interest rate changes or otherwise. See " Statutory and Regulatory Risks " below for a discussion of
statutes related to prepayment penalties.

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We are exposed to environmental liabilities, with respect to properties that we take title to upon
foreclosure, that could increase our costs of doing business and harm our results of
operations.

      In the course of our activities, we may foreclose and take title to residential properties and become
subject to environmental liabilities with respect to those properties. We may be held liable to a
governmental entity or to third parties for property damage, personal injury, investigation and clean-up
costs incurred by these parties in connection with environmental contamination, or may be required to
investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs
associated with investigation or remediation activities could be substantial. Moreover, as the owner or
former owner of a contaminated site, we may be subject to common law claims by third parties based upon
damages and costs resulting from environmental contamination emanating from the property. If we ever become
subject to significant environmental liabilities, our business, financial condition, liquidity and results
of operations would be significantly harmed.STATUTORY AND REGULATORY RISKSThe nationwide scope of our operations exposes us to risks of noncompliance with an increasing and
inconsistent body of complex laws and regulations at the federal, state and local levels

Because we originate mortgage loans on a national basis, we must comply with a multitude of extensive
federal and state laws and regulations, as well as judicial and administrative decisions of all
jurisdictions. The volume of new or modified laws and regulations has increased in recent years, and, in
addition, individual cities and counties have begun to enact laws that restrict sub-prime mortgage loan
origination activities in those cities and counties. The laws and regulations of each of these
jurisdictions are different, complex and, in some cases, in direct conflict with each other. As our
operations continue to grow, it may be more difficult to comprehensively identify, to accurately interpret
and to properly program our technology systems and effectively train our personnel with respect to all of
these laws and regulations, thereby potentially increasing our exposure to the risks of noncompliance with
these laws and regulations. At the federal level, these laws and regulations include:

- the Equal Credit Opportunity Act;
- the Federal Truth in Lending Act and Regulation Z;
- the Home Ownership and Equity Protection Act;
- the Real Estate Settlement Procedures Act;
- the Fair Credit Reporting Act;
- the Fair Debt Collection Practices Act;
- the Home Mortgage Disclosure Act;
- the Fair Housing Act; and
- the Gramm-Leach-Bliley Act.

These laws and regulations among
other things:

- impose licensing obligations and financial requirements on us;
- limit the interest rates, finance charges, and other fees that we may
charge;
- prohibit discrimination;
- impose underwriting requirements;
- mandate disclosures and notices to
consumers; and
- in some cases, impose assignee liability
 on the entities that purchase our mortgage loans or on us for loans we purchase.

Our failure to comply with these laws
can lead to:

- civil and criminal liability;
- loss of approved status;
- demands for indemnification or loan
repurchases from purchasers of our loans;
- class action lawsuits; and
- administrative enforcement actions.

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New areas of regulation
Regulatory and legal requirements are subject
to change, making our compliance more difficult or expensive, or otherwise restricting our
ability to conduct our business as it is now conducted. In particular, federal, state and
local governments have become more active in the consumer protection area in recent years.
For example, the federal Gramm-Leach-Bliley financial reform legislation imposes
additional privacy obligations on us with respect to our applicants and borrowers. Several
states are also considering adopting privacy legislation. In addition, several federal,
state and local laws, rules and regulations have been adopted, or are under consideration,
that are intended to eliminate so-called predatory lending practices. The
federal Home Ownership and Equity Protection Act (HOEPA) identifies a category
of mortgage loans and subjects such loans to restrictions not applicable to other mortgage
loans. Loans subject to HOEPA consist of loans on which certain points and fees or the
annual percentage rate (APR) exceed specified levels. Liability for violations
of applicable law with regard to loans subject to HOEPA would extend not only to us, but
to the purchasers of our loans as well. We generally do not make loans that are subject to
HOEPA because the purchasers of our loans and/or the lenders that provide financing for
our loan origination operations do not want to purchase or finance such loans. On October
1, 2002, the APR and points and fees thresholds for determining loans subject
to HOEPA were lowered, thereby expanding the scope of loans subject to HOEPA. We
anticipate that we will continue to avoid making loans subject to HOEPA, and the lowering
of the thresholds beyond which loans become subject to HOEPA may prevent us from making
certain loans and may cause us to reduce the APR or the points and fees on loans that we
do make. If we decide to relax our restrictions on loans subject to HOEPA because the
purchasers of our loans and/or the lenders that provide financing for our loan origination
operations relax their restrictions, we will be subject to greater risks for actual or
perceived non-compliance with HOEPA and other applicable laws, including demands for
indemnification or loan repurchases from our lenders and loan purchasers, class action
lawsuits and administrative enforcement actions.
Laws, rules and regulations have been
adopted, or are under consideration, at the state and local levels that are similar to
HOEPA in that they impose certain restrictions on loans on which certain points and fees
or the APR exceeds specified thresholds. The restrictions include prohibitions on
steering borrowers into loans with high interest rates and away from more
affordable products, selling unnecessary insurance to borrowers, flipping or
repeatedly refinancing loans and making loans without a reasonable expectation that the
borrowers will be able to repay the loans. Compliance with some of these restrictions
requires lenders to make subjective judgments, such as whether a loan will provide a
net tangible benefit to the borrower. These restrictions expose a lender to
risks of litigation and regulatory sanction no matter how carefully a loan is
underwritten. In addition, an increasing number of these laws, rules and regulations seek
to impose liability for violations on purchasers of loans, regardless of whether a
purchaser knew of or participated in the violation. 
Although it is against our policy to
engage in such practices, we have generally avoided originating loans that exceed the APR
or points and fees thresholds of these laws, rules and regulations, because
the companies that buy our loans and/or provide financing for our loan origination
operations generally do not want to buy or finance such loans. To the extent we do have
financing and purchasers for such loans, we have, on a limited basis, begun to make loans
which exceed the APR or points and fees thresholds of these laws, rules and
regulations. The continued enactment of these laws, rules and regulations may prevent us
from making certain loans and may cause us to reduce the APR or the points and fees on
loans that we do make. In addition, the difficulty of managing the risks presented by
these laws, rules and regulations may decrease the availability of warehouse financing and
the overall demand for subprime loans, making it difficult to fund, sell or securitize any
of our loans. If we decide to further relax our restrictions on loans subject to these
laws, rules and regulations, we will be subject to greater risks for actual or perceived
non-compliance with such laws, rules and regulations, including demands for
indemnification or loan repurchases from our lenders and loan purchasers, class action
lawsuits, increased defenses to foreclosure of individual loans in default, individual
claims for significant monetary damages and administrative enforcement actions. If nothing
else, the growing number of these laws, rules and regulations will increase our cost of
doing business as we are required to develop systems and procedures to ensure that we do
not violate any aspect of these new requirements. 
On July 1, 2002,
predatory lending legislation of the type described above became effective in
California. As with other predatory lending laws, the California legislation
imposes restrictions on loans which exceed points and fees or APR thresholds
defined in the law. As of the date of this report, this law had not had, and in the future
we do not expect it to have, a significant impact on the value or volume of our loan
production in California.

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Yield spread premiums
A substantial portion of our mortgage
loans are originated through independent mortgage brokers. Mortgage brokers provide
valuable services in the loan origination process and are compensated for their services
by receiving fees on loans. Brokers may be paid by the borrower, the lender or both. If a
borrower cannot or does not want to pay the mortgage brokers fees directly, the loan
can be structured so that the mortgage brokers fees are paid from the proceeds of
the loan, or the loan can provide for a higher interest rate or higher fees to the lender.
The increased value of a loan with a higher interest rate enables the lender to pay all or
a portion of the brokers compensation. This form of compensation is often referred
to as a yield spread premium. Regardless of its label or method of
calculation, the payment is intended to compensate the broker for the services actually
performed and the facilities actually provided. Competitive forces currently demand that
we pay mortgage brokers yield spread premiums on many of the loans we originate. The
federal Real Estate Settlement Procedures Act (RESPA) prohibits the payment of
fees for the mere referral of real estate settlement service business. This law does
permit the payment of reasonable value for services actually performed and facilities
actually provided unrelated to the referral. On September 18, 2002, the Eleventh Circuit
Court of Appeals issued a decision in Heimmermann v. First Union Mortgage Corp.which reversed the courts earlier decision in Culpepper v. Irwin Mortgage
Corp.in which the court found the yield spread premium payments received by a
mortgage broker to be unlawful per se under RESPA. Subsequent appellate court decisions
have held similarly. The Department of Housing and Urban development (HUD) had
responded to the Culpepperdecision by issuing a policy statement (2001-1) taking
the position that lender payments to mortgage brokers, including yield spread premiums,
are not per se illegal. The Heimmermanndecision eliminated a conflict that had
arisen between the Eleventh Circuit and the Eighth and Ninth Circuit Courts of Appeals,
with the result that all federal circuit courts which have considered the issue have
aligned with the HUD policy statement and found that yield spread premiums are not
prohibited per se. If other circuit courts that have not yet reviewed this issue disagree
with the Heimmermanndecision, there could be a substantial increase in litigation
regarding lender payments to brokers and in the potential costs of defending these types
of claims and in paying any judgments that might result. Stockholder refusal to comply with
regulatory requirements may interfere with our ability to do business in certain states
Some states in which we operate may
impose regulatory requirements on our officers and directors and persons holding certain
amounts, usually 10% or more, of our common stock. If any person holding such an amount of
our stock fails to meet or refuses to comply with a states applicable regulatory
requirements for mortgage lending, we could lose our authority to conduct business in that
state. We may be subject to fines or
other penalties based upon the conduct of our independent brokers
The mortgage brokers from which we
obtain loans have parallel and separate legal obligations to which they are subject. While
these laws may not explicitly hold the originating lenders responsible for the legal
violations of mortgage brokers, increasingly federal and state agencies have sought to
impose such assignee liability. Recently, for example, the United States Federal Trade
Commission (FTC) entered into a settlement agreement with a mortgage lender
where the FTC characterized a broker that had placed all of its mortgage loan production
with a single lender as the agent of the lender; the FTC imposed a fine on the
lender in part because, as principal, the lender was legally responsible for
the mortgage brokers unfair and deceptive acts and practices. The United States
Justice Department in the past has sought to hold a subprime mortgage lender responsible
for the pricing practices of its mortgage brokers, alleging that the mortgage lender was
directly responsible for the total fees and charges paid by the borrower under the Fair
Housing Act even if the lender neither dictated what the mortgage broker could charge nor
kept the money for its own account. Accordingly, we may be subject to fines or other
penalties based upon the conduct of our independent mortgage brokers. When we are no
longer able to rely on the Alternative Mortgage Transactions Parity Act to preempt certain
state law restrictions on prepayment penalties, we may be unable to compete effectively
with financial institutions that are exempt from such restrictions.

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We are no longer
able to rely on the Alternative Mortgage Transactions Parity Act to preempt certain state
law restrictions on prepayment penalties, and we may be unable to compete effectively with
financial institutions that are exempt from such restrictions.


The
value of a mortgage loan depends, in part, upon the expected period of time that the
mortgage loan will be outstanding. If a borrower pays off a mortgage loan in advance of
this expected period, the holder of the mortgage loan does not realize the full value
expected to be received from the loan. A prepayment penalty payable by a borrower who
repays a loan earlier than expected helps offset the reduction in value resulting from the
early payoff. Consequently, the value of a mortgage loan is enhanced to the extent the
loan includes a prepayment penalty, and a mortgage lender can offer a lower interest rate
and/or lower loan fees on a loan which has a prepayment penalty. Prepayment penalties are
an important feature to obtain value on the loans we originate.
Certain
state laws restrict or prohibit prepayment penalties on mortgage loans, and we have relied
on the federal Alternative Mortgage Transactions Parity Act (the Parity Act)
and related rules issued in the past by the Office of Thrift Supervision (the
OTS) to preempt state limitations on prepayment penalties. The Parity Act was
enacted to extend to financial institutions, other than federally chartered depository
institutions, the federal preemption which federally chartered depository institutions
enjoy. However, on September 25, 2002, the OTS released a new rule that, as of July 1,
2003, reduced the scope of the Parity Act preemption preventing us from relying on the
Parity Act to preempt state restrictions on prepayment penalties. The elimination of this
federal preemption requires us to comply with state restrictions on prepayment penalties.
This may place us at a competitive disadvantage relative to financial institutions that
continue to enjoy federal preemption of such state restrictions because such institutions
are able to charge prepayment penalties without regard to state restrictions and thereby
may be able to offer loans with interest rate and loan fee structures that are more
attractive than we are able to offer. 
In
addition, on April 24, 2003, a New Jersey state appellate court relied on the new OTS rule
to find that the Parity Act does not preempt New Jersey state law restrictions on
prepayment penalties. This ruling is contrary to previous published court opinions which
have upheld such preemption under the Parity Act, including a May 8, 2000 decision by the
United States District Court in New Jersey which upheld such preemption with respect to
New Jersey state law. Nonetheless, if the New Jersey state courts decision were
followed by other courts, it might call into question the validity of prepayment penalty
provisions under which we have previously collected prepayment penalties and which we
continued to include in our loan documentation prior to July 1, 2003 on the basis of the
Parity Act exemption. The increasing number of federal,
state and local anti-predatory lending laws may restrict our ability to
originate or increase our risk of liability with respect to certain mortgage loans and
could increase our cost of doing business.
In recent years, several federal,
state and local laws, rules and regulations have been adopted, or are under consideration,
that are intended to eliminate so-called predatory lending practices. These
laws, rules and regulations impose certain restrictions on loans on which certain points
and fees or the annual percentage rate (APR) exceeds specified thresholds.
Some of these restrictions expose a lender to risks of litigation and regulatory sanction
no matter how carefully a loan is underwritten. In addition, an increasing number of these
laws, rules and regulations seek to impose liability for violations on purchasers of
mortgage loans, regardless of whether a purchaser knew of or participated in the
violation. 
It is against our policy to engage in
predatory lending practices, and we have generally avoided, and will continue to avoid,
originating loans that exceed the APR or points and fees thresholds of these
laws, rules and regulations, because the rating agencies generally will not rate
securities backed by such loans and the companies that buy our loans and/or provide
financing for our loan origination operations generally do not want to buy or finance such
loans. The continued enactment of these laws, rules and regulations may prevent us from
making certain loans, may cause us to cease operations in certain jurisdictions altogether
and may cause us to reduce the APR or the points and fees on loans that we do make. In
addition, the difficulty of managing the risks presented by these laws, rules and
regulations may decrease the availability of warehouse financing and the overall demand
for subprime loans, making it difficult to fund, sell or securitize any of our loans. If
we decide to relax our restrictions on loans subject to these laws, rules and regulations,
we will be subject to greater risks for actual or perceived non-compliance with such laws,
rules and regulations, including demands for indemnification or loan repurchases from our
lenders and loan purchasers, class action lawsuits, increased defenses to foreclosure of
individual loans in default, individual claims for significant monetary damages, and
administrative enforcement actions. If nothing else, the growing number of these laws,
rules and regulations will increase our cost of doing business as we are required to
develop systems and procedures to ensure that we do not violate any aspect of these new
requirements. Any of the foregoing could significantly harm our business, financial
condition, liquidity and results of operations.

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RISKS RELATED TO OUR
CAPITAL STRUCTUREBecause there historically has
been a limited amount of trading in our common stock, there can be no assurance that our
stock price will not decline. 
Although our common stock trades on
the OTC Bulletin Board, the public market for our common stock historically has not been
very liquid and a regular trading market for the securities may not be sustained in the
future. Nasdaq has enacted recent changes that limit quotations on the OTC Bulletin Board
to securities of issuers that are current in their reports filed with the Securities and
Exchange Commission. The effect on the OTC Bulletin Board of these rule changes and other
proposed changes can not be determined at this time. The OTC Bulletin Board is an
inter-dealer, over-the-counter market that provides significantly less liquidity than the
Nasdaqs automated quotation system (the Nasdaq Stock Market). Quotes for
stocks included on the OTC Bulletin Board are not listed in the financial sections of
newspapers, as are those for the Nasdaq Stock Market. Therefore, prices for securities
traded solely on the OTC Bulletin Board may be difficult to obtain and holders of common
stock may be unable to resell their securities at or near their original offering price or
at any price. Our quarterly revenues and
operating results fluctuate as a result of a variety of factors that may result in
volatility of our stock price. 
Our quarterly revenues and operating
results have varied in the past and can be expected to fluctuate in the future due to a
number of factors, many of which are beyond our control, including:

- the issuance of new equity securities pursuant to a
future, offering;
- changes in interest rates;
- competitive developments, including announcements by us or our competitors of new products or
         services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital
         commitments;
- variations in quarterly operating results;
- change in financial estimates by securities
analysts;
- the depth and liquidity of the market
 for our common stock;
- investor perceptions of our company and the non-conforming and subprime mortgage industries
         generally; and
- general economic and other national
conditions.

As a result of these specific and
other general factors, our operating results will likely vary from quarter to quarter and
the results for any particular quarter may not be necessarily indicative of results for
the full year. Any shortfall in revenues or net income from levels expected by securities
analyst and investors could cause a decrease in the share price of our common stock.Sales of additional
common stock may adversely affect our market price
The sale or the proposed sale of
substantial amounts of our common stock in the public market could materially adversely
affect the market price of our common stock or other outstanding securities. As of year
end December 31, 2003, Raymond Eshaghian, our Chief Executive Officer, beneficially owned
9,500,000 shares of our common stock and four other stockholders, including M. Aaron
Yashouafar, one of our directors, beneficially owned 5,000,000 shares of our common stock,
and these five stockholders have the right to require us to register their respective
shares. The sale of a large amount of shares by one or more of the five stockholders, or
the perception that such sales may occur, could adversely affect the market price for our
common stock. In addition, we expect that the legal, accounting, and other costs
associated with the registration of those shares will be substantial.

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Our common stock is
considered a penny stock
Our common stock is considered to be
a penny stock because it meets one or more of the definitions in Rules 15g-2
through 15g-6 promulgated under Section 15(g) of the Securities Exchange Act of 1934, as
amended. These include but are not limited to the following: (i) the stock trades at a
price less than five dollars ($5.00) per share; (ii) it is NOT traded on a
recognized national exchange; (iii) it is NOT quoted on the NASDAQ Stock
Market, or even if so, has a price less than five dollars (5.00) per share; or (iv) is
issued by a company with net tangible assets less than $2,000,000, if in business more
than a continuous three years, or with average revenues of less than $6,000,000 for the
past three years. The principal result or effect of being designated a penny
stock is that securities broker-dealers cannot recommend the stock but must trade it
on an unsolicited basis. Broker-dealer
requirements may affect trading and liquidity
Section 15(g) of the Securities
Exchange Act of 1934, as amended, and Rule 15g-2 promulgated thereunder by the SEC require
broker-dealers dealing in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed and dated written
receipt of the document before effecting any transaction in a penny stock for the
investors account. 
Potential investors in our common
stock are urged to obtain and read such disclosure carefully before purchasing any shares
that are deemed to be penny stock. Moreover, Rule 15g-9 requires
broker-dealers in penny stocks to approve the account of any investor for transactions in
such stocks before selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her financial
situation, investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for the investor
and that the investor has sufficient knowledge and experience as to be reasonably capable
of evaluating the risks of penny stock transactions; (iii) provide the investor with a
written statement setting forth the basis on which the broker-dealer made the
determination in (ii) above; and (iv) receive a signed and dated copy of such statement
from the investor, confirming that it accurately reflects the investors financial
situation, investment experience and investment objectives. Compliance with these
requirements may make it more difficult for investors in our common stock to resell their
shares to third parties or to otherwise dispose of them in the market or otherwise. The shares of our common stock
will be subordinate to the rights of our wholly owned operating subsidiarys existing
and future creditors
We are a holding company and our only
assets are the shares of capital stock of our wholly owned operating subsidiary, The
Mortgage Store. As a holding company without independent means of generating operating
revenues, we depend upon dividends and other payments from The Mortgage Store to fund our
obligations and meet our cash needs. Our expenses may include the salaries of our
executive officers, insurance and professional fees. Financial covenants under the
existing or future loan agreements of The Mortgage Store, or provisions of the California
Corporations Code, may limit The Mortgage Stores ability to make sufficient dividend
or other payments to us to permit us to fund our obligations or meet our cash needs, in
whole or in part. By virtue of this holding-company structure, the shares of our common
stock purchased in this offering will be structurally junior in right of payment to all
existing and future liabilities of The Mortgage Store. Risks of unknown
liabilities as a result of reverse merger
We became a publicly traded company
through a reverse merger with an unrelated company, which had prior operations in an
unrelated business. There may be potential liabilities incurred by the prior business,
which are unknown to us for which we may be held liable. We have no insurance for
liabilities incurred as a result of business conducted prior to the reverse merger.Control by officer,
director and majority stockholder
We are controlled by Raymond
Eshaghian, who beneficially owns 64.0% of our outstanding common stock as of December 31,
2003. Mr. Eshaghian serves as our Chief Executive Officer and a member of our Board of
Directors. As a result, Mr. Eshaghian is able to (i) elect a majority of our Board of
Directors, (ii) approve the sale of our assets, mergers and other business combination
transactions and (iii) direct and control our operations, policies, and business
decisions. 
Some provisions of our Certificate of
Incorporation and Bylaws may deter takeover attempts, which may limit the opportunity of
our stockholders to sell their shares at a favorable price.

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Some of the provisions of our
Certificate of Incorporation and Bylaws could make it more difficult for a third party to
acquire us, even if doing so might be beneficial to our stockholders by providing them
with the opportunity to sell their shares possibly at a premium over the then market
price. 
For example, our Certificate of
Incorporation authorizes our Board of Directors to issue up to 10,000,000 shares of
preferred stock. The preferred stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by our Board of Directors without further
action by the stockholders. These terms may include voting rights including the right to
vote as a series on particular matters, preferences as to dividends and liquidation,
conversion rights, redemption rights and sinking fund provisions. No shares of preferred
stock will be outstanding upon the closing of this offering and we have no present plans
for the issuance of any preferred stock. The issuance of any preferred stock, however,
could diminish the rights of holders of our common stock, and therefore could reduce the
value of our common stock. In addition, specific rights granted to future holders of
preferred stock could be used to restrict our ability to merge with, or sell assets to, a
third party. The ability of our Board of Directors to issue preferred stock could make it
more difficult, delay, discourage, prevent or make it more costly to acquire or effect a
change in control, thereby preserving the current stockholders control. 
In
addition, we are also subject to Section 203 of the Delaware General Corporation Law that,
subject to certain exceptions, prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years following
the date that the stockholder became an interested stockholder. The preceding provisions
of our Certificate of Incorporation and Bylaws, as well as Section 203 of the Delaware
General Corporation Law, could discourage potential acquisition proposals, delay or
prevent a change of control and prevent changes in our management, even if such things
would be in the best interests of our stockholders.

ITEM 2. PROPERTIES
     Our
primary executive and administrative offices are located in Los Angeles, California. We
have a three-year lease expiring August 31, 2005 (with an option to renew for an
additional five years) to use approximately 13,350 square feet of office space.
The current aggregate annual rent for the leased property is approximately $264,0000.

ITEM 3. LEGAL PROCEEDINGS
      We are not a party to any material legal proceedings with respect to us, our subsidiary,
or any of our properties.

ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
     On
June 2, 2003, we held our annual meeting of stockholders. Of 13,930,000 shares eligible to
vote, 9,500,150 votes were returned, or 68.2%, formulating a quorum. At the annual
stockholders meeting, the following matters were submitted to stockholders for vote:
Proposal I  Election of Directors, Proposal II  Approval of 2003 Stock Option,
Deferred Stock and Restricted Stock Plan, which provides for 2,000,000 shares of common
stock to be authorized and reserved for issuance under the Stock Option Plan, and Proposal
III  Ratification of the appointment of Singer Lewak Greenbaum & Goldstein, LLP
(SLGG) as our independent auditors for the year ending December 31, 2003.

Proposal I 
Election of Directors. 
     The
following individuals were elected to serve as our directors at the annual
stockholders meeting, and to serve until their successors are elected and qualified
at the next annual meeting of stockholders or until death, resignation or removal.

|Director            | For       | Against | Witheld   | Elected
|------------------- | --------- | ------- | --------- | -------
|Raymond Eshaghian   | 9,500,150 | 0       | 4,429,850 | Yes    
|H. Wayne Snavely    | 9,500,150 | 0       | 4,429,850 | Yes    
|M. Aaron Yashouafar | 9,500,150 | 0       | 4,429,850 | Yes    

Proposal II  Approval of 2003
Stock Option, Deferred Stock and Restricted Stock Plan, which provides for 2,000,000
shares of our common stock to be authorized and reserved for issuance under the Stock
Option Plan. This proposal was approved with 9,500,150 shares voted for, 0 voted against
, and 4,429,850 votes withheld.

Proposal III  Ratification of
the appointment of Singer Lewak Greenbaum & Goldstein, LLP (SLGG) as our
independent auditors for the year ending December 31, 2003. This proposal was approved
with 9,500,150 shares voted for, 0 voted against, and 4,429,850 votes withheld.

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PART II

ITEM 5. MARKET FOR
REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
     Our
Common Stock is currently quoted on the OTC Bulletin Board under the symbol
TMFZ. Although shares of our Common Stock have been quoted on the OTC
Bulletin Board since April 24, 2001, there has not been any public market activity
prior to the quarter ending December 31, 2002. No assurance can be given that any
public market activity for our Common Stock will continue to develop or be maintained.
During the year ending December 31, 2003, the high and low bid price of our Common
Stock was $1.45 and $0.52, respectively. Such quotations reflect inter-dealer
prices, without retail mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions in an established trading market. 
     As
of March 27, 2003, there were 97 holders of record of our Common Stock (including
holders who are nominees for an undetermined number of beneficial owners). These figures
do not include beneficial owners who hold shares in nominee name. 
     We
have not declared or paid any cash dividends on our Common Stock. Our current policy is to
retain all of our earnings to finance the growth and development of our business.

EQUITY COMPENSATION PLAN
INFORMATION
Our equity compensation plan
information is provided as set forth in Part III, Item 11 herein.

ITEM 6.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS
The following discussion should be
read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto
appearing elsewhere in this annual report on Form 10-KSB.
This annual report may contain
forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995, including statements with regard to descriptions of our plans or objectives
for future operations, products or services, and forecasts of our revenues, earnings or
other measures of economic performance. Forward-looking statements can be identified by
the fact that they do not relate strictly to historical or current facts. They often
include the words believe, expect, anticipate,
intend, plan, estimate, or words of similar meaning,
or future or conditional verbs such as will, would,
should, could, or may. 
Forward-looking statements, by their
nature, are subject to risks and uncertainties. A number of factors  many of which
are beyond our control  could cause actual conditions, events or results to differ
significantly from those described in the forward-looking statements and reported results
should not be considered an indication of our future performance. Some of these risk
factors, include, among others certain credit, market, operational, liquidity and interest
rate risks associated with our business and operations, changes in business and economic
conditions, accounting estimates and judgments and legislation including the
Sarbanes-Oxley Act of 2002. These risk factors are not exhaustive, and additional factors
that could have an adverse effect on our business and financial performance are set forth
under Risk Factors and elsewhere in this quarterly report. 
Forward-looking statements speak only
as of the date they are made. We do not undertake to update forward-looking statements to
reflect circumstances or events that occur after the date forward-looking statements are
made.

General
We are a financial holding company
that through our wholly owned subsidiary, The Mortgage Store Financial, Inc. is engaged in
nationwide mortgage banking to originate, finance, and sell conforming and non-conforming
mortgage loans secured by single-family residences. 
We originate our loans primarily
through independent mortgage brokers across the United States and, to a lesser extent,
through our direct sales force in our retail offices. We primarily sell our loans in whole
loan transactions and currently do not retain any interest in the servicing of the loans.Revenue Model
Our operations generate revenues in
three ways:

- Income from sales of loans. We generate income from selling the loans we originate for a premium
         to originate. This accounts for a substantial percentage of our revenues.
- Mortgage interest income. We earn mortgage interest
income on loans held for sale from the time we
         originate the loan until the time we sell the loan. This income is partially offset by our
         borrowing costs under our warehouse borrowing facilities.
- Commission fee income. To a lesser extent we generate commission fee income from our retail
         origination and lending activities.
- Escrow services income. We earn a fee for services
we provide through our escrow division.

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Financial Highlights
Our operations consist primarily of originating loans that we pool and sell in the secondary markets. We
analyze and group our loans together to maximize our profit from the sale of each class of mortgages. To
date all of our loan sales are structured as whole loan sales where we dispose of our entire interest in
the loans and produce immediate cash revenues. However, in the future we may determine that other
strategies such as securitization or retaining servicing rights may be more profitable and we may begin to
engage in those activities.

The following table sets forth our results of operations for the periods indicated. All figures except
number of shares and per share data are in $000

|                                               | Years Ended December 31,
|---------------------------------------------- | ------------------------
|                                               | 2003                    
|Loan income                                   
|Income from sales of loans                     | 22,507                  
|Mortgage interest income                       | 4,182                   
|Commission income                              | 77                      
|Escrow services fees                           | 269                     
|Total loan income                              | 27,035                  
|                                               |                         
|Cost of loan origination and sale of mortgages |                         
|Commission expense                             | 9,467                   
|Warehouse interest expense                     | 3,206                   
|Other closing expenses                         | 1,583                   
|Total cost of origination and loan sale        | 14,256                  
|                                               |                         
|Gross profit                                   | 12,779                  
|                                               |                         
|Operating expenses                             |                         
|Salaries and wages                             | 6,285                   
|Occupancy                                      | 607                     
|General and administration                     | 2,412                   
|Loss from REO                                  | 0                       
|Total operating expenses                       | 9,304                   
|                                               |                         
|Income from operation                          | 3,475                   
|                                               |                         
|Other income (losses)                          | 10                      
|                                               |                         
|Income before tax                              | 3,485                   
|                                               |                         
|Provision for income tax                       | 1,312                   
|                                               |                         
|Net income                                     | 2,173                   
|                                               |                         

|                              | As of December 31,
|----------------------------- | ------------------
|Balance sheet data:           | 2003              
|Cash and cash equivalent      | 2,843             
|Restricted cash               | 489               
|Loans held for sale           | 45,398            
|Total assets                  | 49,997            
|Total liabilities             | 44,359            
|Preferred stock               | 0                 
|Total stockholder's equity    | 5,639             
|issued and outstanding shares | 15,000,000        
|Earning per share             | 0.15              

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For the year ended December 31,
2003 we had operating income of $3,485,103 before provision for income tax. The net income
available to common shareholders after provision for income tax was $2,173,103 or $0.15
per share.
During June and July 2003 the
sudden increase in mortgage interest rates significantly reduced the refinance activities
and posed new challenges for the mortgage industry. This sudden increase of rates
adversely effected our third quarter earnings. However, the companys management
introduced new mortgage loan products that effectively shifted the emphasis of its
production from refinancing of conforming type mortgages to funding purchase-money
transactions and Alt-A type loans. Thus, we were able to maintain same level of production
in the fourth quarter of 2003, while realizing higher profit margins from the sale of our
loans.
Our cash and cash equivalent as of
December 31, 2003 was $2,843,172 compared to $732,482 at December 31, 2002. On June 1,
2003 the company issued $2 million convertible subordinated debenture with interest rate
of 15% per annum, which subsequently was redeemed on December 30, 2003. This debt was
issued in order to increase the companys net worth that was required for expansion
of our warehouse credit facility.
The company had applied for
additional warehouse facilities with two national lenders that required a minimum of $5
million in net worth in order to extend an aggregate of $50 million facility in addition
to companys existing line of $50 million with IMPAC Warehouse Lending Group. As of
December 31, 2003 the stockholders equity excluding the convertible subordinated
debt was sufficient for us to secure the additional warehouse facilities, and together
with companys strong cash position, it was deemed prudent to retire the convertible
debenture that will save the company $300,000 in interest expense annually.
In April 2003 we established a new
warehouse facility with Countrywide Home Loan, we subsequently terminated this facility in
October, upon expiration of its term. This facility was restricted to funding loans that
were scheduled to be delivered to Countrywide Home Loans and did not serve our needs
effectively, especially after we shifted our product mix following rise in mortgage
interest rates. At December 31, 2003 we were approved for a credit line of up to $50
million with Aurora Loan Services, of which we are currently using a $30 million facility.
We have also obtained approval for an additional $15 million warehouse facility with
Washington Mutual Bank that will become operational during second quarter 2004.
Our recent financial highlights
include:

- Loan originations. For the twelve months ended December 31, 2003 we funded $628.2 million of loans
compared to $357.7 million for 2002. Our wholesale channel, which originates loans through independent
mortgage brokers, originated $442.9 million of loans in 2003 and $285.7 million in 2002.
- Whole loan sales - cash income from sale. For the twelve months ended December 31, 2003 we sold $663.6
million of loans compared to $289.9 million during 2002. Our revenue from sales of loan increased 99% to
$22.5 million during twelve months ended December 31, 2003 compared to 11.3 million for the same period in
2002. The weighted average premium collected from sales of loans in 2003 was 2.3% compared to 2.4% in 2002.

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Accounting for Our Loan
Sales
When we sell our mortgage loans in
whole loan sale transactions, we dispose of our entire interest in the loans. We recognize
revenue at the time of the sale of loans. The revenue consists of pricing premiums from
sales less cost of financing origination of loans. The lender and retail origination fees
are also recognized at the time we sell the loans. Lender fees and origination fees that
are payable to third party brokers and which are paid by borrowers on mortgage loans held
for sale are deferred as a balance sheet item and are recaptured as revenue in the
statements of operations when the related loans are sold. 
We separately record mortgage
interest income on loans we hold from the date of origination to the date of sale.Critical Accounting
Policies
The preparation of our financial
statements requires us to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Although we base our estimates and assumptions on historical experience and on various
other factors that we believe to be reasonable under the circumstances, our management
exercises significant judgment in the final determination of our estimates. Actual results
may differ from these estimates. 
Pursuant to our critical accounting
policies the following reflect significant judgments by management:

- Income from sale of mortgage loans
- Provision for losses
- Interest rate risk, derivatives and hedging

Income from Sales of
Loans
To date our income from sales of
mortgage loans has consisted primarily of cash gain that resulted from whole loan sales.
To date, we have sold all of our loans on a servicing released basis. Currently, we do not
retain servicing rights. However, in the future we may decide to retain the right to
service any of the loans that we have sold, in which case we may also record non-cash
sales related to the value of those servicing rights.

Gain on Sale

Gains or losses resulting from our
loan sales are recorded at the time of sale. At the closing of a sale we remove the
mortgage loans held for sale and related warehouse debt from our books and record the net
gain or loss to our income statement. 
Accordingly, our financial results
are significantly impacted by the timing of our loan sales. If we hold a significant pool
of loans at the end of a reporting period, those loans will remain on our balance sheet,
along with the related debt used to fund the loans. The revenue that we generate from
those loans will not be recorded until the subsequent reporting period when we sell the
loans. 
A number of factors influence the
timing of our loan sales and our targeted disposition strategy, including the current
market demand for our loans, liquidity needs, and our strategic objectives. We have, from
time to time, delayed the sale of loans to a later period, and may do so again in the
future.

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Provisions for Losses
We may make market valuation
adjustments on certain non-performing loans, other loans we hold for sale and real estate
owned. These adjustments are based upon our estimate of expected losses and are based upon
the value that we could reasonably expect to obtain from a sale. An allowance for losses
on loans held for sale is recorded in an amount sufficient to maintain adequate coverage
for probable losses on such loans. However, we do not record a reserve for liabilities
associated with loans sold which we may be requested to repurchase due to breaches of
representations and warranties and early payment defaults. Our estimate of expected losses
could increase or decrease if our actual loss experience or repurchase activity is
different than originally estimated, or if economic factors change the value we could
reasonably expect to obtain from a sale. In particular, if actual losses increase or if
values reasonably expected to be obtained from a sale decrease, the provision for losses
would increase. Any increase in the provision for losses could adversely affect our
results of operations.Interest Rate Risk,
Derivatives and Hedging
We face two primary types of interest
rate risk: during the period from approval of a loan application through loan funding, and
on our loans held for sale from the time of funding to the date of sale. Interest rate
risk exists during the period from approval of a loan application through loan funding and
from the time of funding to the date of sale because the premium earned on the sale of
these loans is partially contingent upon the then-current market rate of interest for
loans as compared to the contractual interest rate of the loans. In the past we have
attempted to minimize such risk through forward commitments and other such strategies.
As part of our interest rate
management process, we intend to use derivative financial instruments such as options and
futures. The use of derivatives is intended to mitigate volatility of earnings associated
with fluctuations in the gain on sale of loans due to changes in the current market rate
of interest. We do not intend to use derivatives to speculate on interest rates. For
derivative financial instruments designated as hedge instruments, we will evaluate the
effectiveness of these hedges against the mortgage loans being hedged to ensure that there
remains a highly effective correlation in the hedge relationship. To hedge the adverse
effect of interest rate changes on the fair value of mortgage loans held for sale we will
use derivatives as fair value hedges under SFAS No. 133. Once the hedge relationship is
established, the realized and unrealized changes in fair value of both the hedge
instrument and mortgage loans will be recognized in the period in which the changes occur.
The net amount recorded in our consolidated statements of operations will be referred to
as hedge ineffectiveness. Any change in the fair value of mortgage loans recognized as a
result of hedge accounting will be reversed at the time we sell the mortgage loans. This
will result in a correspondingly higher or lower gain on sale revenue at such time. For
derivative financial instruments not designated as hedge instruments, realized and
unrealized changes in fair value will be recognized in the period in which the changes
occur or when such instruments are settled.

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The following table sets forth our
results of operations as a percentage of total revenue for the three months and twelve
months ended December 31, 2002 and 2003:

|                                               | 2003    | 2002   
|---------------------------------------------- | ------- | -------
|Loan income                                   
|Income from sales of loans                     | 83.25%  | 83.01% 
|Mortgage interest income                       | 15.47%  | 16.51% 
|Commission income                              | 0.28%   | 0.48%  
|Escrow services fees                          
|Total loan income                              | 100.00% | 100.00%
|                                               |         |        
|Cost of loan origination and sale of mortgages |         |        
|Commission expense                             | 35.02%  | 37.55% 
|Warehouse interest expense                     | 11.86%  | 12.80% 
|Other closing expenses                         | 5.86%   | 5.19%  
|Total cost of origination and loan sale        | 52.73%  | 55.55% 
|                                               |         |        
|Gross profit                                   | 47.27%  | 44.45% 
|                                               |         |        
|Operating expenses                             |         |        
|Salaries and wages                             | 23.25%  | 21.05% 
|Occupancy                                      | 2.25%   | 1.51%  
|General and administration                     | 8.92%   | 12.83% 
|Loss from REO                                  | 0.00%   | 1.60%  
|Total operating expenses                       | 34.41%  | 36.99% 
|                                               |         |        
|Income from operation                          | 12.85%  | 7.47%  
|                                               |         |        
|Other income (losses)                          | 0.04%   | -0.07% 
|                                               |         |        
|Income before tax                              | 12.89%  | 7.40%  
|                                               |         |        

Results of operations for twelve
months ended December 31, 2003 compared to the same period in 2002

RevenueTotal revenue.Total revenue
increased 97.9% from $13.7 million for twelve months ended December 31, 2002 to $27.0
million for the three months ended December 31, 2003. This increase was due to increases
in income from sales of loans of $22.5 million and mortgage interest income of $4.2
million. Income from sales of loans.Income from sales of loans increased 99.1% from $11.3 million for the twelve months
ended December 31, 2002 to $22.5 million for the same period in 2003 due to higher volume
of whole loan sales. Total whole loan sales increased 141.2% from $275.1 million for the
twelve months ended December 31, 2002 to $663.6 million for the same period in 2003. This
increase was due to increased loan originations during the twelve months ended December
31, 2003 compared to the same period in 2002. The weighted average premium for whole loan
sales was 2.3% for loans sold in the twelve months ended December 31, 2003 compared to
2.4% for comparable period in 2002. 
The lower weighted average premium
we received from sales of loans in the twelve months ended December 31, 2003 reflect a
decline in value of loans with lower mortgage rates which were originated and held for
sale prior to the sharp increase of rates in June and July 2003.Interest income on loans held for
sale. Mortgage interest income increased 85.4% from $$2.3 million for the twelve
months ended December 31, 2002 to $4.2 million for the comparable period in 2003. The
increase in interest income was due to increase in the volume of loans originated in 2003
compared to 2002. Commission fee income. To
lesser extent, we earn commission fees on loans that we broker out to other lenders. The
mortgage origination fees earned by us for retail loans are recognized at the time of sale
of those mortgage loans and are included in the income from sale of loans. Commission fee
income increased twelve months ended December 31, 2003. Escrow fee income. Income from
our escrow division was $269,000 for the twelve months ended December 31, 2003. Our
escrow division was established late in 2002 and recognized negligible income in that
year.

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Cost of salesCommission Expense.Commission
expenses for mortgage loans sold during twelve months ended December 31, 2003 increased
84.58% to $9.5 million from $5.1 million in the twelve months ended December 31, 2002.
This increase was due to an increased volume of origination. Commission expense, which
is primarily pricing rebate paid by the company and origination fee deducted from
borrower's fund at origination, are recognized at the time of sale to correspond with the recognition of
income for the same loan. The commissions paid for loans which are held for sale are
included in the value of loans held for sale on our balance sheet. As of December 31,
2003, we had paid $870,000 in commissions for loans held for sale. Warehouse interest expense.Warehouse interest expense represents the interest incurred on all financing
associated with use of our warehouse credit facilities during the time our loans are on
the line prior to their sale. Interest expense increased 83.3% to $3.2 million for the
twelve months ended December 31, 2003 from $1.7 million for the same period in 2002. The
increase in interest expense was due to the increase in our volume of borrowing offset
partially by lower cost of financing of our facility with Countrywide Home Loans. Our
average warehouse borrowing increased 105.8% from $31.0 million for 2002 to $63.8 million
for 2003. The weighted average number of days we held loans before sale was 37 and 36 days
respectively. The interest rate for one of our warehouse financing is a variable rate
equal to prime rate plus 0.5%. The interest charge increased to prime plus 3% for loans
held over 60 days. The interest rate for our second warehouse facility which was in use
between April and October 2003 was equal to the 1 month LIBOR rate plus 2%. Other closing expenses. Other
closing expenses related to closing of loans, including credit check expenses, appraisal
and appraisal review fees and closing expenses, increased 123.27% to $1.6 million for the
twelve months ended December 31, 2003 from $709,000 for the comparable period in 2002.
This increase reflects the additional cost related to increased volume loan origination as
well as the added cost of acquiring leads for our retail mortgage origination.

Operating expenses

Total operating expenses.
Total operating expenses increased 84.2% from $5.1 million for the twelve months ended
December 31, 2002 to $9.3 million for the twelve months ended December 31, 2003. The
increase was the result of higher salaries, wages, and benefits expense, and increases in
other variable operating expenses associated with growth in mortgage loan volume and in
the number of employees. Salaries and wages. Salaries
and wages increased 118.6% from $2.9 million for the twelve months ended December 31, 2002
to $6.3 million for the twelve months ended December 31, 2003. The increase was due to
growth in the number of our employees, as well as higher commission and bonus expenses
related to loan production. The total number of our employees decreased from 302 at
December 31, 2002 to 206 at December 31, 2003 including 136 commission based employees.
This decrease was primarily in the number of commission only sales employees.Occupancy.Occupancy expense increased 194.7% from $206,000 for the twelve months ended
          December 31, 2002 to $607,000 for the twelve months ended December 31, 2003. The
          increase resulted from an expansion in leased office space. The occupancy
          expense in 2003 includes cost of leasehold improvements for office space which
          we occupied on a month-to-month basis and discontinued to use when we reduced
          our retail sale operation after the rise in mortgage rates and lower refinancing
          activity. General and administrative.
General and administrative expenses increased 37.6% from $1.8 million for the twelve
months ended December 31, 2002 to $2.4 million for the twelve months ended December 31,
2003. This increase was due to an increase in mortgage loan origination volume, increased
marketing expenses, and an increase in the number of employees. Loss from real estate owned.While we sell all of our loans for a cash price with servicing rights released, under
terms of our agreements with various purchasers, we make certain representations and
warranties to the purchaser, which we are obligated to satisfy or correct even after
completion of sale transaction. For example we agree to repurchase loans where borrowers
default on their payments within 90 days from date of transfer of servicing. 
As of December 31, 2003, we had not
made any provision for losses from Real Estate Owned or loans in default. While, at
December 31, 2003 we had outstanding requests from purchasers of our closed loans to
repurchase 3 loans with total note amount of $584,250 due to early payment default, the
management believes that our interest in each mortgage loan is sufficiently covered by
owners equity or private mortgage insurance. 
In September 2003 we completed the
repurchase of one loan for total amount of $315,000. Concurrently, we entered into an
agreement with the borrower where the borrower transferred the ownership of the property
to us in lieu of foreclosure. As of December 31, 2003 we had taken title to this property
and are currently collecting rent from tenants in all units. This property is classified
as REO, and we expect to sell this property at no loss. At December 31, 2003 we had two
other loans that were classified as REO. One loan in the amount of $139,000 was
repurchased due to early payment default and one loan in the amount of $118,000 was
foreclosed by us while held for sale. Subsequently, we have sold the foreclosed property
at a price above the original loan amount. The second property is covered by PMI and a
claim has been filed with the insurer and we are expecting to sell the property upon
approval of the insurer. Provision for income tax.Provision for income tax increased from $424,000 for the twelve months ended December
31, 2002 to $1,312,000 for twelve months ended December 31, 2003. This increase was a
result of the increase in our income before taxes from $1 million for the twelve months
ended December 31, 2002 to $3.5 million for the twelve months ended December 31, 2003.

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Liquidity and capital
resources
As a mortgage banking company, our
primary cash requirements include the funding of (1) mortgage loan originations, including
principal, as well as origination costs such as commissions and broker premiums, (2)
interest expense on and repayment of principal on warehouse credit facilities, (3)
operational expenses, and (4) tax payments. We fund these cash requirements with cash
received from (1) borrowings under warehouse credit facilities, (2) loan sales, (3)
mortgage interest collections on loans held for sale, (4) points and fees collected from
the origination of loans, and (5) private sales of equity and debt securities.
We use warehouse credit facilities to
finance a significant portion of our loan originations. It is our intention to utilize the
maximum allowable leverage ratio, defined as our total liabilities divided by our
stockholders equity, for our warehouse financing. 
Our liquidity strategy is to maintain
sufficient and diversified warehouse credit facilities to finance our mortgage loan
originations, to maintain strong relationships with a diverse group of whole loan
purchasers, and to establish the ability to execute our own securitizations. This provides
us with the ability to finance our growing origination operations and to maximize our
realization of the value of loans we originate. 
In the past, we have financed our
operations through increased warehouse borrowing, additional capitalization, and cash
income generated from our operations. In the future, realization of our expansion plans
will depend on our ability to secure sufficient credit facilities to fund larger volumes
of loans. The extent of this borrowing in turn depends on our net worth and requires
certain restricted cash deposits to be maintained with the lender. In addition to cash
earnings generated from our operations, we intend to increase our cash and net worth
through offerings of our equity or debt securities. 
On June 1, 2003 we entered into an
agreement to borrow $2,000,000 in the form of a convertible subordinated note to further
increase our capitalization. The three-year note, which matures on May 31, 2006, bears
interest at 15% per annum payable monthly. At the option of the holder of the note all
unpaid interest and principal is convertible into shares of our common stock at $0.70 per
share. As a result of our profitability in 2003 and our strong cash position, on
December 30, 2003 we redeemed this note in full. 
As of December 31, 2003, we had one
warehouse credit facility to finance our loan originations. After funding the loans, we
sell our mortgage loans within one to three months of origination and pay off the
warehouse credit facilities with the proceeds. Our warehouse facility is structured as
repurchase agreements, where the warehouse will provide the funds for origination of loans
and will hold the collateral until we repurchase the loans to sell them to the investors.
Under terms of such agreement, the investor would send the purchase proceeds directly to
the warehouse lender, where the principal borrowing plus accrued interest and fees are
deducted before the balance is forwarded to us. 
Our warehouse credit facility with
IMPAC Warehouse Lending Group (IWLG) in the amount of $50 million accrues interest at a
rate based upon prime rate plus a specified spread, which currently is 0.5% for all loans
less than 60 days old and 3% for loans aged over 60 days. This facility has a one year
term and is automatically renewed. The financing under this facility allows temporary
increases of up to $20 million in addition to the $50 million facility. As of December 31,
2003 we had an outstanding balance of $42.4 million on this facility. 
In April 2003, we established a new
repurchase facility with Countrywide Home Loans for total amount of up to $50 million.
This facility is structured as an early purchase plan, where the funds can be used to
originate loans which will be sold to Countrywide Home Loans. This facility contains a
sub-limit for various categories of loans such as wet funding (loans for which
the collateral custodian has not yet received the related loan documents) or Alt-A loans
and it has a six-month term. Under terms of this facility, we were obligated to repurchase
any loan which did not match CHLs investment guideline. Declination by CHL to
purchase a loan does not affect saleability of such a loan to other investors. However, we
were required to use our own funds to repurchase the loan or arrange for a transfer of
those loans to other warehouse facilities within 3 business days. In October 2003 we
terminated this facility upon expiration of its term. This early purchase plan with
Countrywide Home Loans had a cost of borrowing equal to the 1 month LIBOR rate (1.12% as
of October 21, 2003) plus 2%. As of December 31, 2003 we had no outstanding balance on this
line.

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The following is a summary of terms
and material information about each of our warehouse facilities as of December 31, 2003:

|                            | 
|--------------------------- | 
|Warehouse Lender            | 
|                            | 
|Total Facility Amount       | 
|Permissible Temporary Bulge | 
|Expiration Date             | 

Our warehouse and other credit
facilities contain customary covenants including minimum liquidity, profitability and net
worth requirements, and limitations on other indebtedness. If we fail to comply with any
of these covenants or otherwise default under a facility, the lender has the right to
terminate the facility and require immediate repayment that may require sale of the
collateral at less than optimal terms. As of December 31, 2003 we were in compliance with
covenants of our warehouse facility 
Subject to the various uncertainties
described above, and assuming that we will be able to successfully execute our liquidity
strategy, we anticipate that our liquidity, credit facilities and capital resources will
be sufficient to fund our operations for the next six months. Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have
a current or future effect on our financial condition, changes in financial condition, revenue
or expenses, results of operations, liquidity, capital expenditures or capital resources.Quantitative and
Qualitative Market Risk Disclosure
Market risks generally represent the
risk of loss that may result from the potential change in the value of a financial
instrument due to fluctuations in interest and foreign exchange rates and in equity and
commodity prices. Our market risk relates primarily to interest rate fluctuations. We may
be directly affected by the level of and fluctuations in interest rates, which affects the
spread between the rates of interest received on our mortgage loans and the related
financing rate. Our profitability could be adversely affected during any period of
unexpected or rapid changes in interest rates, by impacting the value of loans held for
sale and loans sold with retained interests. 
The objective of interest rate risk
management is to control the effects that interest rate fluctuations have on the value of
our assets and liabilities. Our management of interest rate risk is intended to mitigate
the volatility of earnings associated with fluctuations in the unrealized gain (loss) on
the mortgage-related securities and the market value of loans held for sale due to changes
in the current market rate of interest. 
We use several tools and risk
management strategies to monitor and address interest rate risk. Such tools allow us to
monitor and evaluate our exposure to these risks and to manage the risk profile to our
loan portfolio in response to changes in the market. We cannot assure you, however, that
we will adequately offset all risks associated with our loans held for sale or committed.
As part of our interest rate
management process, we may in the future use derivative financial instruments such as
financial futures and options, interest rate swaps and financial forwards. We will
designate certain derivative financial instruments used to hedge our mortgage loans held
for sale as hedge instruments under SFAS No. 133. At trade date these instruments and
their hedge relationship will be identified, designated and documented. For derivative
financial instruments designated as hedge instruments, we will evaluate the effectiveness
of these hedges against the mortgage loans being hedged to ensure that there remains a
highly effective correlation in the hedge relationship. Since our concern with interest
rates is the potential change in fair market value of the loans, we will treat these as
fair value hedges under SFAS No. 133. Once the hedge relationship is established, the
realized and unrealized changes in fair value of both the hedge instruments and mortgage
loans will be recognized in the consolidated statements of operations in the period in
which the changes occur. Any net amount recorded in the consolidated statements of
operations will be referred to as hedge ineffectiveness. 
For derivative financial instruments
not designated as hedge instruments, realized and unrealized changes in fair value are
recognized in the consolidated statements of operations in the period in which the changes
occur or when such instruments are settled.

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Interest Rate Simulation
Sensitivity Analysis
Changes in market interest rates
affect our gain (loss) from sales of mortgage loans held for sale and the fair value of
our mortgage-related securities and related derivatives when we engage in such
securitization strategy. 
As of December 31, 2002 we held $26.1
million in loans which had not been committed for sale. Increases in interest rate would
adversely affect revenue we will realize from uncommitted loans. Likewise, any decrease in
interest rates would have a positive impact on our gain from sales of the same amount of
uncommitted loans. 
The following table summarizes impact
of  100 basis points (bps), -50 bps, 50 bps and 100 bps change in the prevailing
market rates on the pricing premiums we would collect from sales of these loans, compared
to no change in prevailing rates. Since we do not recognize the revenue until loans are
sold, the impact of interest rate change will be on our future income from uncommitted
loans.

|Change in Interest Rate (bps) |  | -10 | 0 | -50 |  | 0 |  | 50   |  | 100  | 
|----------------------------- |  | --- | - | --- |  | - |  | ---- |  | ---- | 
|                              |  |     |   |     |  |   |  |      |  |      | 
|Change in Revenue from sale   |  | 65  | 2 | 326 |  | 0 |  | -326 |  | -652 | 
|of Uncommitted Loans ($ 000s) | 

Inflation
Inflation affects us most
significantly in the area of loan originations by affecting interest rates. Interest rates
normally increase during periods of high inflation (or in periods when the Federal Reserve
Bank attempts to prevent inflation) and decrease during periods of low inflation.Newly Issued Accounting
Pronouncements

In
April 2003, the Financial Accounting Standards Board (FASB) issued SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies accounting and reporting for
derivative instruments and hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for
derivative instruments and hedging activities entered into or modified after September 30,
2003, except for certain forward purchase and sale securities. For these forward purchase
and sale securities, SFAS No. 149 is effective for both new and existing securities after
September 30, 2003. Management does not expect adoption of SFAS No. 149 to have a material
impact on the Companys statements of earnings, financial position, or cash flows. 


In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes
standards for how an issuer classifies and measures in its statement of financial position
certain financial instruments with characteristics of both liabilities and equity. In
accordance with the standard, financial instruments that embody obligations for the issuer
are required to be classified as liabilities. SFAS No. 150 will be effective for financial
instruments entered into or modified after May 31, 2003 and otherwise will be effective at
the beginning of the first interim period beginning after June 15, 2003. Management does
not expect adoption of SFAS No. 150 to have a material impact on the Companys
statements of earnings, financial position, or cash flows.

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ITEM 7. FINANCIAL
STATEMENTS
     The
information required by this Item 7 is incorporated by reference to TMSF Holdings,
Inc.s Consolidated Financial Statements and Independent Auditors Report
beginning at page F-1 of this Form 10-KSB. ITEM 8. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None

ITEM 8A. CONTROLS AND PROCEDURES

     (a)  Evaluation of disclosure controls and procedures
     The term disclosures controls and procedures refers to the controls and
procedures of a company that are designed to ensure that information required to be
disclosed by a company in the reports that it files under Rules 13a  14 of the
Securities and Exchange Act of 1934 (the Exchange Act) is recorded, processed,
summarized and reported within the required time periods. As of the end of the period
covered by this report(the Evaluation Date), we carried out an evaluation
under the supervision and with participation of our Chief Executive Officer and Chief
Financial Officer of the effectiveness of our disclosure controls and procedures. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that, as of the Evaluation Date, such controls and procedures were effective in ensuring
that required information will be disclosed on a timely basis in our periodic reports
filed under the Exchange Act.
     (b)  Changes
in internal control
     
There were no significant changes to our internal control over financial reporting (as defined
in Exchange Act Rules Bu-15(f) and 15d-15(f) that occurred during the company's most recent fiscal
quarter that have materially affected, or are reasonably likely to materially effect, the company's
internal control over financial reporting.

PART III

ITEM 9. DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANTCode of Ethics

     We have adopted a code of business conduct and ethics within the meaning of Item 406(b)
of Regulation S-B. This code of ethics applies to our directors, excutive officers and
employees, including our CEO, CFO and Controller. This code of ethics is publicly available
in the corporate governance section of the investor relations page of our website located
at www.TMSFHOLDINGS.COM and in print upon request to the Secretary at TMSF Holdings, Inc.,
727 W 7th St. Suite 850, Los Angeles, California 90017. If we make amendments to the code
of ethics or grant any waiver that the SEC requires us to disclose, we will disclose the
nature of such amendment or waiver on our website.
     The
following table provides certain information with respect to the executive officers and
directors of the Company.

|Name                   | Age |  | Position                                                     
|---------------------- | --- |  | -------------------------------------------------------------
|Raymond Eshaghian      | 34  |  | Chairman of the Board, Chief Executive Officer, President and
|                       |     |  | Secretary                                                    
|Masoud Najand          | 50  |  | Chief Financial Officer                                      
|H. Wayne Snavely(1)    | 62  |  | Director                                                     
|M. Aaron Yashouafar(1) | 42  |  | Director                                                     

____________________

(1)   Member of the
Audit and Compensation Committees

Raymond
Eshaghianhas served as the Companys Chief Executive Officer, President and
Chairman of the Board since October 2002. From July 1995 to October 2002,
Mr. Eshaghian served as President of The Mortgage Store Financial, Inc., and from
September 1992 to October 2002, he served as a member of its Board of Directors.
Mr. Eshaghian also served as Vice President of The Mortgage Store Financial, Inc.
from May 1994 to July 1995.

Masoud
Najandhas served as the Companys Chief Financial Officer since October 2002.
Mr. Najand has served as the Controller of The Mortgage Store Financial, Inc. since
January 2001, and from March 1997 to January 2001, he was a consultant of The Mortgage
Store Financial, Inc.

H. Wayne
Snavelyhas served as a member of the Companys Board of Directors since October
2002. Mr. Snavely served as the Chairman of the Board and Chief Executive Officer of
Imperial Credit Industries, Inc. from December 1991 to August 2001. Mr. Snavely also
served as President of Imperial Credit Industries, Inc. from February 1996 to August 2001.
Mr. Snavely served as a member of the Board of Directors of Imperial Bank from 1975
to 1983 and from 1993 to 1998. Mr. Snavely currently serves on the Board of Visitors
of the Graduate School of Business Management at Pepperdine University.

M. 
          Aaron Yashouafarhas served as a member of the Companys Board of
          Directors since October 2002. Mr. Yashouafar is an owner of Milbank Real
          Estate Services, Inc., a commercial real estate investment and management
          company in Los Angeles, California, and he has served as its Chief Executive
          Officer since 2000. Prior to becoming its Chief Executive Officer,
          Mr. Yashouafar served as Executive Vice President of Milbank Real Estate
          Services from 1993 to 2000. Additionally, Mr. Yashouafar served as Vice
          President of Supreme Property Management Company from 1983 to 1993. Massoud
          Yashouafar graduated from California State University at Northridge in 1982 with
          a degree in Business Administration.

There
are no family relationships between any of the directors or executive officers of the
Company.

Audit Committee Financial Expert

The Company's board of directors has determined that at least one person serving on the Audit
Committee is an "audit committee financial expert" as defined under Item 401(e) of Regulation S-B.
H. Wayne Snavely is an "audit committee financial expert" and is independent as defined under Item 7(d)(3)(iv)
of Schedule 14A of the Exchange Act.

Compliance with
Section 16(a) of the Securities Exchange Act of 1934
          Section 16(a)
          of the Securities Act of 1934, as amended (the Exchange Act),
          requires the Companys directors, executive officers and persons who own
          more than 10% of a registered class of the Companys equity securities to
          file with the Securities and Exchange Commission (the SEC) initial
          reports of ownership and reports of changes in ownership of the common stock of
          the Company. Such persons are required by the SECs regulations to furnish
          the Company with copies of all Section 16(a) forms they file.
     To
the Companys knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were required,
during the fiscal year which ended December 31, 2003, all Section 16(a) filing
requirements applicable to the Companys executive officers, directors and greater
than ten percent stockholders were satisfied by such persons, except that M. Aaron
Yashouafar, and Solyman Yashouafar and H. Wayne Snavely, each filed one report late
with respect to one transaction.

-31-

---

ITEM 10. EXECUTIVE
COMPENSATION
     The
following table sets forth information concerning the annual and long-term compensation
earned by the Companys Chief Executive Officer and each of the other executive
officers whose annual salary and bonus during 2000, 2001 and 2002 exceeded $100,000 (the
Named Executive Officers).

Summary Compensation Table

|                            | Annual Compensation | Long-Term Compensation
|--------------------------- | ------------------- | ----------------------
|Name and Principal Position | Year                | Salary($)             
|                            |                     |                       
|Raymond Eshaghian           | 2003                | 250,000               
|Chairman of the Board,      | 2002                | 250,000               
|Executive Officer,          | 2001                | 250,000               
|President and Secretary     |                     |                       
|                            |                     |                       
|Masoud Najand               | 2003                | 104,000               
|Chief Financial Officer     | 2002                | 96,000                
|                            | 2001                | 89,561                

|(1) | Mr. Eshaghian has served as the Chairman of the Board, Chief Executive Officer, President and
      Secretary of the Company since October 2002 when The Mortgage Store Financial, Inc. ("The Mortgage
      Store") became a wholly-owned subsidiary of the Company and the Company changed its name from Little
      Creek, Inc. to TMSF Holdings, Inc. (the "Reorganization"). Prior to the completion of the
      Reorganization, Mr. Eshaghian served as President of The Mortgage Store. See "Certain Relationships
      and Related Transactions--The Mortgage Store." Mr. Eshaghian's compensation is reported in the table
      with respect to his positions at both the Company and The Mortgage Store for the years ended
      December 31, 2003, 2002, 2001 and 2000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(2) | Mr. Najand has served as the Chief Financial Officer of the Company since October 2002 when the
      Reorganization was completed. Prior to the completion of the Reorganization, Mr. Najand served as
      Controller of The Mortgage Store, which he joined in January 2001. Mr. Najand's compensation is
      reported in the table with respect to his positions at both the Company and The Mortgage Store for the
      years ended December 31, 2003, 2002 and 2001.                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(3) | Represents car allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(4) | Represents life insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Compensation of Directors

     The
Company does not pay its non-employee directors any annual compensation for their services
or for attendance at Board or committee meetings. However, the Company paid H. Wayne
Snavely consulting fees of $35,000 in 2002 and $40,000 in 2003. Officers of the Company
who are members of the Board of Directors are not paid any directors fees.

Stock Option Plan

     During
the year ended December 31, 2003 Mr. H. Wayne Snavely was awarded 750,000 options to
purchase Company stock at a certain price and exercisable at a certain period. These options are issued outside the
Equity Compensation Plan of the Company.

ITEM 11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
     The
following table sets forth certain information known to the Company with respect to
beneficial ownership of the Companys common stock as of March 30, 2004 by
(i) each person known to the Company to beneficially own more than five percent of
the Companys common stock, (ii) each director, (iii) the Companys
executive officers, and (iv) all directors and executive officers as a group.

-32-

---

The
percentage ownership is calculated using 15,000,000 shares of the Companys common
stock that were outstanding as of March 30, 2004. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to the securities, or the right to
acquire voting or investment power within 60 days through the exercise of an option,
warrant or right, through the conversion of a security, or through the power to revoke a
trust. To our knowledge, except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has sole voting and
investment power with respect to the shares of common stock set forth opposite such
persons name. The address of each of such persons listed below is c/o: TMSF
Holdings, Inc., 727 Seventh Street, Suite 850, Los Angeles, CA 90017.

|Name of Beneficial Owner                          | Number of Shares
     Beneficially Owned | Percentage of Shares
     Beneficially Owned
|------------------------------------------------- | ---------------------------------------- | --------------------------------------------
|                                                  |                                          |                                             
|Raymond Eshaghian                                 | 9,500,000                                |                                             
|M. Aaron Yashouafar                               | 2,000,000                                |                                             
|H. Wayne Snavely                                  | --                                       |                                             
|Masoud Najand                                     | --                                       |                                             
|Solayman Yashouafar                               | 1,790,000                                |                                             
|H. Joseph Nourmand                                | 1,070,000                                | (1)                                         
|All directors and officers as a group (4 persons) | 11,500,000                               |                                             

|(1) |  | Mr. Nourmand directly owns 535,000 shares and beneficially owns an
          additional 465,000 shares held by his wife, Doris Nourmand, 35,000 shares held
          by one minor daughter and 35,000 shares held by another minor daughter, all of
          whom share the same household. Under the rules of the Securities and Exchange
          Commission, Ms. Nourmand also beneficially owns the same 1,070,000 shares
          of our common stock
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As
of March 30, 2004, Raymond Eshaghian beneficially owned approximately 63.3% of the
voting power of the Companys common stock. By virtue of this stock ownership, Robert
Greenberg may be deemed to be a control person of the Company within the
meaning of the rules and regulations promulgated under the Securities Act of 1933, as
amended (the Securities Act).

Securities Authorized
for Issuance Under Equity Compensation Plans
     During
the year ended December 31, 2003, the Company adopted an equity compensation plan
(including individual compensation arrangements), which was approved by the Company's
stockholders, pursuant to which 2,000,000 shares. As of December 31, 2003 no shares or options
were granted pursuant to this plan.

-33-

---

ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONSThe Mortgage Store
     The
Mortgage Store Financial, Inc. (The Mortgage Store) is a wholly-owned
subsidiary of the Company, which is a holding company. The Company and The Mortgage Store
have interlocking executive positions and share common ownership. Raymond Eshaghian, the
Companys Chairman of the Board, Chief Executive Officer, President and Secretary,
and The Mortgage Stores President, is an owner of 63.3% of the outstanding shares of
the common stock of the Company.
     In
addition, as owner of a majority of the outstanding shares of voting stock of the Company,
Mr. Eshaghian has the right to elect the majority of the members of the
Companys Board of Directors and has the ability to significantly control the outcome
of matters for which the consent of the holders of the majority of the outstanding shares
of the common stock of the Company is required. Related Party
Transactions
     During
the years ended December 31, 2003 and 2002, the Company paid $0 and $30,000, respectively,
for consulting expenses to a company owned by a relative of the principal shareholder and
$60,000 and $130,000, respectively, for marketing expenses to a company owned by a
relative of the principal shareholder. In addition, during the years ended December 31,
2003 and 2002, the Company paid consulting expenses of $40,000 and $35,000, respectively,
to a director and $0 and $66,250, respectively, to a shareholder. The Company also leases
its office facilities from a shareholder(see Note 8). 
     The
Company has entered into a consulting agreement with H. Wayne Snavely, a member of the
Companys Board of Directors. See Executive CompensationCompensation of
Directors. 
     On
June 1, 2003 the Registrant sold a $2,000,000 principal amount of 15% convertible
subordinated note due May 31, 2006 to an accredited investor entity that is beneficially
owned by M. Aaron Yashouafar a director of the Company. Exemption from registration
requirements was claimed under the Securities Act of 1933 in reliance on Section 4(2)
thereof or Rule 506 of Regulation D promulgated thereunder. The three-year note,
accumulated interest at 15% per annum payable monthly. At the option of the holder of the
note, all unpaid interest and principal was convertible into shares of the
Registrants common stock at $0.70 per share. Proceeds from this offering was used to
finance the operations and expansion of the Registrant as well as to be pledged for
obtaining additional warehouse credit facilities. On December 30, 2003 the Registrant
retired the note by paying off all principal and accumulated interest.Lease
Agreement
     In
October 2002, the Company began leasing its corporate offices from Milbank Real Estate
Services, Inc., a commercial real estate investment and management company that is owned
in part by Massoud Yashouafar, who is a member of the Companys Board of Director and
10% stockholder.The Company paid approximately $311,000 to Milbank Real Estate Services for the lease of
its corporate offices during the twelve months ending December 31, 2003. The lease,
which expires in 2008, provides for future lease payments of approximately
$1.0 million during the term of the lease.Private Placement

     On November 29, 2002, an aggregate of 5,000,000 shares of the Company's common stock, par
value $0.001, was sold and issued at a price of $0.60 per share in a private offering to
four accredited investors pursuant to Regulation D of the Securities Act in exchange for
$2,000,000 principal amount of notes that was previously issued by The Mortgage Store to
affiliates of the investors and a cash payment of $1,000,000.
     Massoud
Yashouafar, a member of the Companys Board of Directors, participated in this
private offering and, as a result, he beneficially owns 2,000,000 shares of the
Companys common stock. Registration of Shares
     The
Company has agreed to register 14,500,000 shares of its outstanding common stock, which
includes 9,500,000 shares issued to Raymond Eshaghian, as well as the 5,000,000 shares
issued pursuant to the private placement in November 2002, of which 2,000,000 are
beneficially owned by Massoud Yashouafar.

-34-

---

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

(a) Exhibits

|Exhibit Number | Description of Exhibit                                                                                                                                                                                                                                                                                                                              
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                                                                                                                                                                     
|2              | Plan of Reorganization and Stock Exchange Agreement (incorporated by reference to
                   Exhibit 2 of the Registrant's Current Report on Form 8-K filed with the Securities
                   and Exchange Commission on November 20, 2002).                                                                                           
|               |                                                                                                                                                                                                                                                                                                                                                     
|3.1            | Certificate of Incorporation of the Registrant (incorporated by reference to
                   Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed with the
                   Securities and Exchange Commission on November 20, 2002).                                                                                              
|               |                                                                                                                                                                                                                                                                                                                                                     
|3.2            | Certificate of Amendment of Certificate of Incorporation of the Registrant
                  (incorporated by reference to Exhibit 3.3 of the Registrant's Current Report on
                  Form 8-K filed with the Securities and Exchange Commission on November 20, 2002).                                                                    
|               |                                                                                                                                                                                                                                                                                                                                                     
|3.3            | Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 of the
                   Registrant's Current Report on Form 8-K/A filed with the Securities and Exchange
                   Commission on December 6, 2002).                                                                                                                   
|               |                                                                                                                                                                                                                                                                                                                                                     
|4.1            | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the
                   Registrant's Annual Report on Form 10-KSB for the period ending December 31, 2002).                                                                                                                                                           
|               |                                                                                                                                                                                                                                                                                                                                                     
|4.2            | Registration Rights Agreement dated November 29, 2002 among the Registrant and
                   certain stockholders (incorporated by reference to Exhibit 4.2 of the Registrant's
                   Annual Report on Form 10-KSB for the period ending December 31, 2002).                                                                      
|               |                                                                                                                                                                                                                                                                                                                                                     
|4.2(a)         | List of Registrant's stockholders who entered into Registration Rights Agreement
                   referenced in Exhibit 4.2 with the Registrant (incorporated by reference to
                   Exhibit 4.2(a) of the Registrant's Annual Report on Form 10-KSB for the period ending
                   December 31, 2002).                     
|               |                                                                                                                                                                                                                                                                                                                                                     
|4.3            | Registration Rights Agreement dated December 6, 2002 between the Registrant and
                   Raymond Eshaghian (incorporated by reference to Exhibit 4.3 of the Registrant's
                   Annual Report on Form 10-KSB for the period ending December 31, 2002).                                                                        
|               |                                                                                                                                                                                                                                                                                                                                                     
|10.1           | 2003 Stock Option, Deferred Stock and Restricted Stock Option Plan (incorporated by
                   reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-KSB for the
                   period ending December 31, 2002).                                                                                                      
|               |                                                                                                                                                                                                                                                                                                                                                     
|10.2           | Lease Agreement dated August 31, 2002 between The Mortgage Store Financial, Inc., a subsidiary of
                   the Registrant, and Roosevelt Building (incorporated by reference to Exhibit 10.2
                   of the Registrant's Annual Report on Form 10-KSB for the period ending December 31,
                   2002).             
|               |                                                                                                                                                                                                                                                                                                                                                     
|10.3           | Consulting Services Agreement dated October 23, 2001 between The Mortgage Store Financial, Inc., a
                   subsidiary of the Registrant, and H. Wayne Snavely (incorporated by reference to
                   Exhibit 10.3 of the Registrant's Annual Report on Form 10-KSB for the period ending
                   December 31, 2002).
|               |                                                                                                                                                                                                                                                                                                                                                     
|21.1           | Subsidiaries of Registrant (incorporated by reference to Exhibit 21.1 of the
                   Registrant's Annual Report on Form 10-KSB for the period ending December 31, 2002).                                                                                                                                                                 
|               |                                                                                                                                                                                                                                                                                                                                                     
|23             | Consent of SLGG LLP.                                                                                                                                                                                                                                                                                                                                
|               |                                                                                                                                                                                                                                                                                                                                                     
|24             | Power of Attorney (included on signature page).                                                                                                                                                                                                                                                                                                     
|               |                                                                                                                                                                                                                                                                                                                                                     
|31.1           | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule
     13a - 14(a).                                                                                                                                                                                                                                                 
|               |                                                                                                                                                                                                                                                                                                                                                     
|31.2           | Certification of Chief Financial Officer pursuant to Securities and Exchange Act
     Rule 13a - 14(a).                                                                                                                                                                                                                                             
|               |                                                                                                                                                                                                                                                                                                                                                     
|32.1           | Certification Pursuant to U.S.C. 1350, as adopted pursuant to Section 906 of the
     Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                   

(b) Reports on Form 8-K
     None.

-35-

---

ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
     During
the fiscal year ended December 31, 2003, the Company retained Singer Lewak Greenbaum
& Goldstein, LLP as independent auditors and paid the following fees for services
rendered:

|                               | For the year Ended December 31,
|------------------------------ | -------------------------------
|                               | 2003                           
|Audit Fees                     | 110,000                        
|Audit-related Fees (1)         | 7,000                          
|Tax Fees (2)                   | 8,000                          
|All other fees                 | --                             
|                               |                                
|Total audit and non-audit fees | 125,000                        

(1) Review of Registration Statement for SB-2 filing.
(2) Preparation of tax return

Pre-Approval Policies and Procedures for
Audit and Non-Audit Services

The audit committee pre-approves all auditing services and permitted non-audit services, including the
fees and terms thereof, to be performed by our independent auditor, subject to the de minimis
exceptions for non-audit services described in Section 10A(i)(I)(B) of the Exchange Act which
are approved by the audit committee prior to the completion of the audit. The audit committee
may form and delegate authority to subcommittees consisting of one or more members of the audit
committee when appropriate, including the authority to grant pre-approvals of audit and permitted
non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be
presented to the full audit committee at its next scheduled meeting. In pre-approving the
services in 2003 under audit related fees, tax fees or all other fees, the audit committee did
not rely on the de minimis exception to the SEC pre-approval requirements.

-36-

---

SIGNATURES
     Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, State of California, on the 30th
day of March, 2003.

| | TMSF HOLDINGS, INC.by /S/ RAYMOND ESHAGHIAN
     Raymond EshaghianChairman of the Board
| | ---------------------------------------------------------------------------------------

-37-

---

POWER OF ATTORNEY

We,
the undersigned directors and officers of TMSF Holdings, Inc., do hereby constitute and
appoint Raymond Eshaghian and Masoud Najand, or either of them, our true and lawful
attorneys and agents, to do any and all acts and things in our name and behalf in our
capacities as directors and officers and to execute any and all instruments for us and in
our names in the capacities indicated below, which said attorneys and agents, or either of
them, may deem necessary or advisable to enable said corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements
of the Securities and Exchange Commission, in connections with this report, including
specifically, but without limitation, power and authority to sign for us or any of us in
our names and in the capacities indicated below, any and all amendments to this report,
and we do hereby ratify and confirm all that the said attorneys and agents, or either of
them, shall do or cause to be done by virtue hereof. 
     Pursuant
to the requirements of the Securities Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the dates
indicated.

|Signature                                       | Title                                                                  | Date          
|----------------------------------------------- | ---------------------------------------------------------------------- | --------------
|/S/ RAYMOND ESHAGHIANRaymond Eshaghian          | Chairman of the Board, Chief Executive Officer, Secretary and Director | March 30, 2004
|/S/ MASOUD NAJAND
     Masoud Najand            | Chief Financial Officer                                                | March 30, 2004
|/S/ M.AARON YASHOUAFAR
     M. Aaron Yashouafar | Director                                                               | March 30, 2004
|/S/ H.WAYNE SNAVELYH.Wayne Snavely              | Director                                                               | March 30, 2004

-38-

---

TMSF HOLDINGS, INC.
AND SUBSIDIARY

INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS

|                                                | Page
|----------------------------------------------- | ----
|INDEPENDENT AUDITOR'S REPORT                    | F-2 
|CONSOLIDATED FINANCIAL STATEMENTS              
|Consolidated Balance Sheet                      | F-3 
|Consolidated Statements of Earnings             | F-4 
|Consolidated Statements of Stockholders' Equity | F-5 
|Consolidated Statements of Cash Flows           | F-6 
|Notes to Consolidated Financial Statements      | F-7 
|                                                |     

F-1

---

INDEPENDENT
AUDITORS REPORT

To the Board of Directors
TMSF Holdings, Inc. and subsidiaries

We have audited the accompanying
consolidated balance sheet of TMSF Holdings, Inc. and subsidiaries as of December 31,
2003, and the related consolidated statements of income, shareholders equity, and
cash flows for each of the two years in the period ended December 31, 2003. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, consolidated the
financial statements referred to above present fairly, in all material respects, the
financial position of TMSF Holdings, Inc. and subsidiaries as of December 31, 2003, and
the results of their operations and their cash flows for each of the two years in the
period ended December 31, 2003 in conformity with accounting principles generally accepted
in the United States of America.

SINGER LEWAK GREENBAUM
& GOLDSTEIN LLP 
Los Angeles, CaliforniaFebruary 23, 2004

F-2

---

TMSF HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET



December 31, 2003

|ASSETS                      
|----------------------------
|Current assets              
|Cash and cash equivalents   
|Mortgage loans held for sale
|Prepaid expenses            
|Employee advances           
|                            
|Total current assets        
|                            
|Restricted cash             
|                            
|Real estate owned           
|                            
|Property and equipment, net 
|                            
|Deposits and other assets   
|                            
|Total assets                

|LIABILITIES AND SHAREHOLDER'S EQUITY      
|------------------------------------------
|Current liabilities                       
|Warehouse line of credit                  
|Accounts and other payables               
|Escrow funds payable                      
|Accrued expenses                          
|Accrued income taxes                      
|Deferred tax liability                    
|                                          
|                                          
|Commitments and contingencies             
|                                          
|Shareholder's equity                      
|Preferred stock, $0.001 par value         
|10,000,000 shares authorized              
|no shares issued and outstanding          
|Common stock, $0.001 par value            
|100,000,000 shares authorized             
|15,000,000 shares issued and outstanding  
|Additional paid-in capital                
|Retained earnings                         
|                                          
|Total Shareholder's Equity                
|                                          
|Total Liabilities and shareholder/s equity

F-3

---

TMSF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the years ended December 31,

|                                                      | 2003       | 2002      
|----------------------------------------------------- | ---------- | ----------
|Loan income                                           |            |           
|Sale of mortgages                                     | 22,507,254 | 11,337,711
|Interest on loans                                     | 4,182,439  | 2,255,307 
|Escrow service fees                                   | 267,796    | --        
|Loan origination fees                                 | 77,439     | 66,441    
|                                                      |            |           
|Total loan income                                     | 27,034,928 | 13,659,459
|                                                      |            |           
|Costs of loan origination and sale of mortgages       |            |           
|Appraisals                                            | 486,595    | 340,362   
|Commissions                                           | 9,467,442  | 5,128,928 
|Credit reports                                        | 164,023    | 75,968    
|Other costs                                           | 724,234    | 176,894   
|Signing service                                       | --         | 370       
|Warehouse fees                                        | 207,483    | 116,119   
|Warehouse Interest expense                            | 3,206,080  | 1,748,775 
|                                                      |            |           
|Total costs of loan origination and sale of mortgages | 14,255,857 | 7,587,416 
|                                                      |            |           
|Gross profit                                          | 12,779,071 | 6,072,043 
|                                                      |            |           
|Operating expenses                                    | 9,303,983  | 5,051,694 
|                                                      |            |           
|Income from operations                                | 3,475,088  | 1,020,349 
|                                                      |            |           
|Other income (expense)                                |            |           
|Interest income                                       | 11,909     | 12,302    
|Other income                                          | 2,215      | --        
|Loss on disposal of property and equipment            | (4,109)    | (21,096)  
|                                                      |            |           
|Total other income (expense)                          | 10,015     | (8,794)   
|                                                      |            |           
|Income before provision for income taxes              | 3,485,103  | 1,011,555 
|                                                      |            |           
|                                                      |            |           
|Provision for income taxes                            | 1,312,000  | 423,800   
|                                                      |            |           
|Net income                                            | 2,173,103  | 587,755   
|                                                      |            |           
|Less preferred stock dividends                        | --         | 194,873   
|                                                      |            |           
|Net income available to common shareholders           | 2,173,103  | 392,882   
|                                                      |            |           
|Basic and fully diluted earnings per share            | 0.15       | 0.04      
|                                                      |            |           
|Basic and fully diluted weighted-average              |            |           
|                                                      |            |           
|common shares outstanding                             | 14,984,309 | 9,569,913 

F-4

---

TMSF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
December 31, 2003

|                       | Preferred Stock |           |        | Additional |         |            
|---------------------- | --------------- | --------- | ------ | ---------- | ------- | -----------
|
|                       | Shares          | Amount    | Shares | Amount     | Shares  | Amount     
|Balance, December      |                 |           |        |            |         |            
|31, 2001               | 1,000           | 275,000   | 100    | 217,800    | 1,000   | 1,000,000  
|Issuance of            |                 |           |        |            |         |            
|preferred stock        |                 |           |        |            | 1,000   | 1,000,000  
|Redemption of          |                 |           |        |            |         |            
|preferred stock        |                 |           | (50)   | (110,200)  |         |            
|Redemption of          |                 |           |        |            |         |            
|preferred stock in     |                 |           |        |            |         |            
|share exchange         | (1,000)         | (275,000) | (50)   | (107,600)  | (2,000) | (2,000,000)
|Changes due to         |                 |           |        |            |         |            
|recapitalization       |                 |           |        |            |         |            
|Issuance of            |                 |           |        |            |         |            
|Common stock in        |                 |           |        |            |         |            
|private placement      |                 |           |        |            |         |            
|Dividend               |                 |           |        |            |         |            
|distributions          |                 |           |        |            |         |            
|Net income             |                 |           |        |            |         |            
|Balance, December      |                 |           |        |            |         |            
|31, 2002               | --              | --        | --     | --         | --      | --         
|Issuance of common     |                 |           |        |            |         |            
|stock upon exercise    |                 |           |        |            |         |            
|of warrants            |                 |           |        |            |         |            
|Net Income (unaudited) |                 |           |        |            |         |            
|Balance, December      |                 |           |        |            |         |            
|31, 2003               |                 | $--       |        | $--        |         | $--        
|Balance, December      |                 |           |        |            |         |            

F-5

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TMSF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,

|                                                       | 2003           | 2002                     
|------------------------------------------------------ | -------------- | -------------------------
|Cash flows from operating activities                  
|Net income                                             | $   2,173,103  | $      587,755           
|Adjustments to reconcile net income to net cash       
|provided by (used in) operating activities             |                |                          
|Depreciation and amortization                          | 105,191        | 44,002                   
|Loss on disposal of property and equipment             | 4,109          | 21,096                   
|(Increase) decrease in                                
|Mortgage loans held for sale                           | 37,683,320     | (68,359,714)             
|Prepaid expenses                                       | 176,570        | (206,696)                
|Income tax receivable                                  | 159,000        | (159,000)                
|Employee advances                                      | (11,140)       | (93,986)                 
|Deposits and other assets                              | 56,496         | (81,457)                 
|Increase (decrease) in                                
|Accounts and other payables                            | (556,986)      | 876,465                  
|Accrued expenses                                       | 5,146          | 53,882                   
|Income tax payable                                     | 1,195,895      | (61,747)                 
|Deferred tax liability                                 | (229,000)      | 498,000                  
|                                                       |                |                          
|Net cash provided by (used in) operating activities    | 40,761,704     | (66,881,400)             
|                                                       |                |                          
|Cash flows from investing activities                  
|Increase in restricted cash                            | 1,031,527      | (1,362,476)              
|Real estate owned                                      | (558,998)      | --                       
|Purchase of property and equipment                     | (227,628)      | (219,957)                
|                                                       |                |                          
|Net cash provided by (used in) in investing activities | 244,901        | (1,582,433)              
|Cash flows from financing activities                   |                |                          
|Warehouse lines of credit                              | (38,904,097)   | 66,635,185               
|Proceeds from convertible, subordinated note payable - |                |                          
|related party                                          |                |                          
|                                                       | 2,000,000      | --                       
|Payments on convertible, subordinated note payable -   |                |                          
|related party                                          |                |                          
|                                                       | (2,000,000)    | --                       
|Issuance of preferred stock                            |                |                          
|                                                       | --             | 1,000,000                
|Redemption of preferred stock                          |                |                          
|                                                       | --             | (492,800)                
|Dividends paid to preferred shareholder                |                |                          
|                                                       | --             | (194,873)                
|Issuance of common stock                               | 8,182          | 1,000,000                
|                                                       |                |                          
|Net cash provided by (used in) financing activities    | (38,895,915)   | 67,947,512               
|                                                       |                |                          
|Net increase (decrease) in cash and cash equivalents   | $   2,110,690  | $    (516,321)           
|                                                       |                |                          
|Cash and cash equivalents, beginning of year           | 732,482        | 1,248,803                
|                                                       |                |                          
|Cash and cash equivalents, end of year                 | $   2,843,172  | $      732,482           
|                                                       |                |                          
|Supplemental disclosures of cash flow information      |                |                          
|                                                       |                |                          
|Interest paid                                          | $      182,065 | $
                     --
|                                                       |                |                          
|Income taxes paid                                      | $      185,000 | $        82,410          
|                                                       |                |                          

Supplemental schedule of non-cash
investing and financing activities.

During the year ended December 31, 2002, the
Company issued $2,000,000 of common stock in exchange for a note payable for the same
amount.

During the year ended December 31,
2002, the Company redeemed $2,000,000 of preferred stock from its sole shareholder by
issuing a note payable for the same amount.

F-6

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TMSF HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003

NOTE 1 
ORGANIZATION AND LINE OF BUSINESS

General 
The
Mortgage Store Financial, Inc. was incorporated on August 25, 1992. The Company (as
defined in Note 2) is licensed by the California Department of Real Estate and is
principally engaged in the origination and purchase of residential mortgage loans.
Generally, such loans are subsequently sold to financial institutions or to other entities
that sell such loans to investors as a part of secured investment packages. The Company
has obtained approval from the Department of Housing and Urban Development to act as a
non-supervised mortgagee. 
In
August 2003, the Company formed a new subsidiary, CPV Limited, Inc. The sole purpose of
the new subsidiary is to hold the real estate properties repossessed by the Company.
Share Exchange,
Redemption of Stock, and Consulting Agreement
On
November 4, 2002, the Company and its sole shareholder entered into a share exchange
agreement with Little Creek, Inc. (Little Creek), a publicly trading company
listed on the NASDAQ Bulletin Board, in which the sole shareholder received 9,500,000
shares, or approximately 97% of the stock of Little Creek, in exchange for 100% of the
stock of the Company. Under the terms of the exchange agreement, 1,295,118 shares of
Little Creek were canceled prior to the transaction, and 336,365 shares remained issued
and outstanding. Subsequently, Little Creeks name was changed to TMSF Holdings,
Inc., and its incorporated domicile was changed from the state of Utah to the state of
Delaware. 
The
transaction was accounted as a reverse acquisition. The accompanying financial statements
reflect the consolidated statements of TMSF Holdings, Inc. and its wholly owned
subsidiary, The Mortgage Store Financial, Inc. Pro forma information of the combined
businesses is not furnished as Little Creek had insignificant assets, liabilities, and
operations. 
In
addition, on the closing, TMSF Holdings, Inc. entered into a one-year consulting agreement
under which it was required to pay the consultant $265,000 and issued a five-year warrant
to purchase 163,635 shares of common stock of TMSF Holdings, Inc. at a per share exercise
price of $0.05. The fair value of the warrants was insignificant. All warrants were
exercised in February 2003. The consulting fee was amortized over one year.

NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIESPrinciples of
Consolidation 

         The consolidated  financial  statements include the accounts of TMSF Holdings,  Inc. and its wholly
         owned subsidiaries,  The Mortgage Store Financial,  Inc. and CPV Limited, Inc.  (collectively,  the
         "Company").   All  significant   inter-company   accounts  and   transactions   are  eliminated  in
         consolidation.

F-7

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NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)Revenue Recognition

Loan
origination fees and other fees earned on loans brokered are recorded as income when the
related loan is sold. Comprehensive Income
The
Company utilizes Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income. This statement establishes standards for
reporting comprehensive income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during a period from
non-owner sources. Examples of items to be included in comprehensive income, which are
excluded from net income, include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities. Comprehensive income is not presented
in the Companys financial statements since the Company did not have any of the items
of comprehensive income in the periods presented. Cash and Cash
Equivalents

For
purposes of the statements of cash flows, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be cash
equivalents.Mortgage Loans Held
for Sale 
Mortgage
loans held for sale are recorded at the aggregate lower of cost or market, less an
estimated allowance for losses on repurchased loans. All mortgage loans are collateralized
by residential property. 

Revenues
associated with closing fees received by the Company and costs associated with obtaining
mortgage loans are deferred and recognized upon sale of the related mortgage loans.
Mortgage loans held for sale are reported net of such deferred revenues and costs in the
accompanying balance sheet. Property and
Equipment
Property
and equipment are stated at cost. Depreciation and amortization are provided using the
straight-line method over estimated useful lives of five to seven years.

Fair Value of
Financial Instruments

The
Companys financial instruments include cash and cash equivalents, mortgage loans
held for sale, and warehouse lines of credit. The book value of these financial
instruments are representative of their fair values. Advertising Costs
The
Company expenses advertising costs as incurred. Advertising costs for the years ended
December 31, 2003 and 2002 were $17,018 and $70,964, respectively.

F-7

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NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)Income Taxes
Deferred
income taxes are recognized for the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial report amounts at each
period end, based on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. At December 31, 2003, the net
deferred tax liability is primarily a result of the use of differing depreciation methods
between financial and tax reporting purposes, and the difference in the tax and book basis
of mortgage loans held for sale. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period, if any, and the change during the period
in deferred tax assets and liabilities.
During
the year ended December 31, 2003, the Company changed its method of reporting for tax
purposes from cash to accrued as the Company is no longer eligible to use the cash basis
for preparing its tax returns. Earnings Per Share
The
Company utilizes SFAS No. 128, Earnings per Share. Basic earning per share is
computed by dividing income available to common shareholders by the weighted-average
number of common shares outstanding. Diluted earnings per share is computed similar to
basic earnings per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. Common equivalent
shares are excluded from the computation if their effect is anti-dilutive. Reclassifications
Certain
amounts included in the prior year financial statements have been reclassified to conform
with the current year presentation. Such reclassifications did not have any effect on
reported net income. Estimates
The
preparation of financial statements 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
revenue and expenses during the reporting period. Actual results could differ from those
estimates. Concentration of
Credit Risk
At
December 31, 2003, the Company maintained cash balances with banks totaling $4,884,964 in
excess of federally insured amounts of $100,000 per bank.

F-7

---

NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)Major Customers
During
the year ended December 31, 2003, the Company sold 44%, 23%, and 13% of its mortgage loans
to three institutional investors. During the year ended December 31, 2002, the Company
sold 33%, 27%, 22%, and 12% of its mortgage loans to four institutional investors. Market Risk 
The
Company is involved in the real estate loans market. Changes in interest rates or other
market conditions within the real estate loans market may have a significant effect on the
volume and profitability of the business of the Company.
Recently Issued
Accounting Pronouncements
In
April 2003, the Financial Accounting Standards Board (FASB) issued SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies accounting and reporting for
derivative instruments and hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for
derivative instruments and hedging activities entered into or modified after September 30,
2003, except for certain forward purchase and sale securities. For these forward purchase
and sale securities, SFAS No. 149 is effective for both new and existing securities after
September 30, 2003. Management does not expect adoption of SFAS No. 149 to have a material
impact on the Companys statements of earnings, financial position, or cash flows. 


In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes
standards for how an issuer classifies and measures in its statement of financial position
certain financial instruments with characteristics of both liabilities and equity. In
accordance with the standard, financial instruments that embody obligations for the issuer
are required to be classified as liabilities. SFAS No. 150 will be effective for financial
instruments entered into or modified after May 31, 2003 and otherwise will be effective at
the beginning of the first interim period beginning after June 15, 2003. Management does
not expect adoption of SFAS No. 150 to have a material impact on the Companys
statements of earnings, financial position, or cash flows.

NOTE 3  RESTRICTED
CASH
The
Company maintains restricted cash deposits in financial institutions. These restrictions
relate to the warehouse lines of credit, whereby the Company must maintain a certain
percentage, usually 1% of the outstanding balance, on reserve. The Company does not have
access to these funds. Such cash balances at December 31, 2003 aggregated to $489,214.

F-7

---

NOTE 3  RESTRICTED
CASH (Continued)
The
Company also maintains an escrow account in a financial institution for funds that are to
be reimbursed to borrowers when the escrow closes. Cash balances in the escrow account
were $54,308 at December 31, 2003.

NOTE 4  PROPERTY
AND EQUIPMENT
Property
and equipment at December 31, 2003 consisted of the following:

|Furniture and fixtures                         | $  98,264
|---------------------------------------------- | ---------
|Office equipment                               | 138,959  
|Computer equipment                             | 293,181  
|Leasehold improvements                         | 20,000   
|                                               |          
|                                               | 550,404  
|Less accumulated depreciation and amortization | 166,572  
|                                               |          
|Total                                          | $383,832 

Depreciation
and amortization expense was $105,191 and $44,002 for the years ended December 31, 2003
and 2002, respectively.

NOTE 5  BANK LINE
OF CREDIT
The
Company maintains an unsecured bank line of credit without a stated expiration date. The
Company may borrow up to $50,000. Borrowings bear interest at the banks prime rate
(4% at December 31, 2003), plus 2.5% per annum. The bank line of credit was unused at
December 31, 2003.

NOTE 6  WAREHOUSE
LINES OF CREDIT
The
Company maintains a warehouse line of credit with a financial institution, which is
subject to renewal on an annual basis. Advances are received by the Company up to a
maximum of $50,000,000 based upon a specified percentage of mortgage loans, which are
pledged as collateral, and interest accrues at prime (4% December 31, 2003), plus 0.5% per
annum.

F-7

---

NOTE 6  WAREHOUSE
LINES OF CREDIT (Continued)
In
addition, the financial institution may allow at its discretion additional borrowings up
to $20,000,000 as an over-advance facility. As of December 31, 2003, the Company had no
borrowings under this over-advance facility. Advances are due upon the earlier of the sale
of the mortgage loans that are pledged as collateral or a specified period of time from
the date on which the advance was received. The warehouse line of credit is guaranteed by
the shareholder and contains a financial covenant concerning a minimum net worth of
$3,438,870. At December 31, 2003, management believes the Company was in compliance with
such covenant.
In
addition, the Company must maintain a balance in a separate restricted cash account as a
pledge for amounts funded by the warehouse lender in excess of a specified percentage of
the loan amount agreed upon by the warehouse lenders. At December 31, 2003, the pledged
amounts aggregated to $434,906.
During
the year ended December 31, 2003, the Company secured a second warehouse line of credit
with one of its investors. The Company could borrow up to $50,000,000 to fund mortgage
loans that met the investors criteria. Interest accrued at the one month London
Inter-Bank Offering Rate (1.12% at December 31, 2003), plus 2% for conforming loans and
2.125% for expanded and jumbo loans. Advances were due upon the sale of the mortgage loans
that were pledged as collateral. The warehouse line of credit was guaranteed by the
majority shareholder of the Company and contained financial covenants concerning a minimum
net worth of $3,500,000 and minimum liquidity of $850,000 in cash and cash equivalents.
The balance owed under this warehouse line of credit was paid in full and the line of
credit expired in October 2003.

NOTE 7 
CONVERTIBLE, SUBORDINATED NOTE PAYABLE  RELATED PARTY
During
the year ended December 31, 2003, the Company entered into a $2,000,000 note payable
agreement with a shareholder. The note payable bore interest at 15% per annum and was due
and payable on May 31, 2006. The note payable and all accrued interest were convertible
into shares of common stock at the sole option of the shareholder at a rate of $0.70 per
share, which was the fair value of the Companys common stock at the date of issuance
of the note payable. The note payable was subordinated to all of the Companys
creditors. The Company paid $169,315 in interest on this note payable during the year
ended December 31, 2003. The note payable was paid in full in December 2003.

NOTE 8 
COMMITMENTS AND CONTINGENCIESLeases

The
Company leases its office facilities from its shareholder, which expires in August 2007.
In addition, the Company leases a copier and vehicles under non-cancelable operating
leases with a third party, which expire through May 2005. The Company is required to pay
for taxes, insurance, and maintenance. 

Future
minimum lease payments under these non-cancelable operating leases as of December 31, 2003
were as follows:

|Year EndingDecember 31, | RelatedParty | Other   | Total      
|----------------------- | ------------ | ------- | -----------
|                        |              |         |            
|2004                    | 243,000      | $25,090 | $   268,090
|2005                    | 243,000      | 19,239  | 262,239    
|2006                    | 243,000      | --      | --         
|2007                    | 243,000      | --      | --         
|2008                    | 40,500       | --      | --         
|Total                   | $1,012,500   | $44,329 | $1,056,829 

Rent
expense was $411,516 and $203,848 for the years ended December 31, 2003 and 2002,
respectively. Rent paid to the shareholder for the years ended December 31, 2003 and 2002
amounted to $311,076 and $48,529, respectively. Mortgage Loan
Purchase Agreements
The
Company maintains mortgage loan purchase agreements with various mortgage bankers. The
Company is obligated to perform certain procedures in accordance with these agreements.
The agreements provide for conditions, whereby the Company may be required to repurchase
mortgage loans for various reasons, among which are either (a) a mortgage loan is
originated in violation of the mortgage bankers requirements, (b) the Company
breaches any term of the agreements, and (c) an early payment default occurs from a
mortgage originated by the Company. 
During
the year ended December 31, 2003, the Company repurchased four loans that were
collateralized by three properties with an aggregate balance of $558,998. This amount was
recorded as real estate owned at December 31, 2003. One of these properties was sold
subsequent to December 31, 2003. 
During
the year ended December 31, 2002, the Company repurchased two loans with an aggregate
balance of $848,203. The Company took title to one property in March 2002 and the other in
May 2002 and recorded these properties as real estate owned. At December 31, 2002, both of
the properties related to the purchased loans were sold, and a loss of $115,913 was
recognized on the sale.

F-7

---

NOTE 8 
COMMITMENTS AND CONTINGENCIES (Continued)Mortgage Loan
Purchase Agreements (Continued)
During
the years ended December 31, 2003 and 2002, the Company recorded losses of $127 and
$217,740, respectively, with regard to repurchased loans and the real estate owned, which
are included in operating expenses on the accompanying statements of income. Reverse Merger
The
Company became a publicly traded company through a reverse merger with an unrelated
entity, which had prior operations in an unrelated business. There may be potential
liabilities incurred by the prior business, which are unknown to the Companys
management at this time, which the Company may be held liable. The Company does not have
any insurance for liabilities incurred as result of business conducted prior to the
reverse merger.

NOTE 9 
SHAREHOLDERS EQUITYPreferred Stock (OLD)
The
Company issued 1,000 shares of Class C preferred stock for $1,000,000. 
During
the year ended December 31, 2002, the Company redeemed 1,000 shares of Class A preferred
stock for $275,000 in cash, 100 shares of Class B preferred stock for $217,800 in cash,
and 2,000 shares of Class C preferred stock for $2,000,000 in notes payable. At December
31, 2002, all Class A, B, and C preferred stock had been redeemed. Preferred Stock
(RECAPITALIZED) 
The
Company has 10,000,000, $0.001 par value, shares of preferred stock authorized for
issuance. The preferred stock carries voting rights on all matters requiring shareholder
approval. Common Stock
In
November 2002, the Company sold 5,000,000 shares of common stock in connection with a
private placement. The Company collected $1,000,000 in cash and exchanged $2,000,000 in
notes payable in connection with this transaction. Private Placement
Offering of Common Stock 
During
December 2002, the Companys Board of Directors approved to raise additional equity
capital through a private placement offering for the issuance and sale of up to 2,000,000
shares of common stock at $1.50 per share. As of December 31, 2003, no additional capital
was raised.

Private Placement
Offering of Common Stock
During
January 2003, the Companys Board of Directors approved to raise additional equity
capital through a private placement offering for the issuance and sale of up to 1,000,000
shares (unaudited) of common stock at $1.50 per share. As of December 31, 2003, no
additional capital was raised. Stock Options
In
June 2003, the Company approved the issuance of stock options to a director. The agreement
grants the director options to purchase 750,000 shares of common stock at an exercise
price of $1 per share. The options vest in 24 equal monthly installments, commencing in
December 2003, and expire in five years. The fair value of the options was estimated at
$198,700 using the Black-Scholes option-pricing model and the following assumptions: a
risk-free interest rate of 4%, expected volatility of 50%, and a dividend yield of 0%. The
expense for the year ended December 31, 2003 was immaterial.

F-7

---

NOTE 10  INCOME
TAXES
The
following table presents the current and deferred income tax provision for (benefit from)
federal and state income taxes for the years ended December 31, 2003 and 2002:

|         | 2003        | 2002     
|-------- | ----------- | ---------
|Current 
|Federal  | $ 1,204,000 | $(77,000)
|State    | 339,000     | 800      
|         | 1,543,000   | (76,200) 
|Deferred
|Federal  | (203,000)   | 402,000  
|State    | (28,000)    | 98,000   
|         | (231,000)   | 500,000  
|Total    | $ 1,312,000 | $ 423,800

At
December 31, 2003, components of net deferred tax assets (liabilities) in the accompanying
balance sheet include the following amounts of deferred tax liabilities:

|Deferred tax asset (liability)     |           
|---------------------------------- | ----------
|Current                           
|Prepaid expenses                   | $(396,000)
|Accrued expenses                   | 26,000    
|Change from cash to accrual        | (51,000)  
|State taxes                        | 139,000   
|Net operating losses               | 11,000    
|                                   |           
|Net deferred tax asset (liability) | $(271,000)

Income
tax expense differs from the amounts computed by applying the United States federal income
tax rate of 34% to income taxes as a result of the following for the years ended December
31, 2003 and 2002:

|                                                | 2003        |  | 2002    
|----------------------------------------------- | ----------- |  | --------
|Federal tax on pretax income at statutory rates | $ 1,185,000 |  | $344,000
|State tax, net of federal benefit               | 205,000     |  | 64,000  
|Net operating loss carryback                    | --          |  | 15,000  
|Other                                           | (78,000)    |  | 800     
|                                                |             |  |         
|Total                                           | $ 1,312,000 |  | $423,800

F-7

---

NOTE 11  RELATED
PARTY TRANSACTIONS
During the years ended December 31, 2003 and 2002, the Company paid $0 and $30,000, respectively,
for consulting expenses to a company owned by a relative of the principal shareholder and
$60,000 and $130,000, respectively, for marketing expenses to a company owned by a
relative of the principal shareholder. In addition, during the years ended December 31,
2003 and 2002, the Company paid consulting expenses of $40,000 and $35,000, respectively,
to a director and $0 and $66,250, respectively, to a shareholder. The Company also leases
its office facilities from a shareholder (see Note 8).

NOTE 12 
SUBSEQUENT EVENTS
In
February 2004, the Company entered into a warehouse credit agreement with a financial
institution. This credit facility is structured as a repurchase agreement where the
financial institution may, at its sole discretion, purchase mortgage loans from the
Company. The maximum purchase amount on this credit line is $30,000,000. This agreement
also requires that the Company comply with certain financial covenants.
In
February 2004, the Company entered into three consulting agreements with related parties.
The agreements are for a period of one year, and the Company is obligated to pay a total
of $500,000 under these agreements.

F-7