U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A

(MARK ONE)

[X]      Annual Report pursuant Section 13 or 15(d) of the Securities Exchange
         Act of 1934

         For the fiscal year ended June 30, 2001

                                       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 000-28709
                        --------------------------------

                             THE CREDIT STORE, INC.
             (Exact name of registrant as specified in its charter)

                DELAWARE                                     87-0296990
(State or other jurisdiction of incorporation    (I.R.S. Employer Identification
 or organization)                                 Number)


         3401 NORTH LOUISE AVENUE
      SIOUX FALLS, SOUTH DAKOTA 57107                    (800) 240-1855
  (Address of principal executive offices       (Registrant's telephone number,
               and zip code)                          including area code)

Securities registered pursuant to Section 12(b) of the Act:

                                                      Name Of Each Exchange
        Title Of Each Class                           On Which Registered
        -------------------                           -------------------------
        Common Stock                                  AMERICAN STOCK EXCHANGE
        par value $0.001 per Share

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.001 per Share

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X]        No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Aggregate market value of common stock held by non-affiliates of Registrant,
based upon the last sale price of the Common Stock reported on the American
Stock Exchange on September 30, 2001 was $45,306,904. Common stock outstanding
at September 30, 2001: 34,851,465 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement filed with the
Securities and Exchange Commission in connection with the solicitation of
proxies for the Registrant's 2001 Annual Meeting of Shareholders are
incorporated by reference in Part III, Items 10, 11, 12 and 13, of this Form
10-K/A.

<PAGE>

                                INTRODUCTORY NOTE

This amendment to Form 10-K is being filed to restate the financial statements
for the year ended June 30, 2001 to correct an error in the calculation of the
fair market value of the Company's retained interests in two securitization
transactions. This restatement results in total assets being reduced $4.1
million, unrealized gain from retained interests in securitized credit card
receivables which is recorded within other comprehensive income being reduced
$2.7 million and income tax benefit being reduced $1.4 million. The restatement
does not impact operating loss or cash flows for fiscal 2001.

This amended Annual Report on Form 10-K for the year ended June 30, 2001
includes changes to (i) Selected Financial Data (Item 6); (ii) Management's
Discussion and Analysis of the Financial Condition and Results (Item 7); (iii)
Financial Statements and Supplementary Data (Item 8), and (iv) Financial
Statements and Exhibits (Item 14).

For purposes of this amended Form 10-K, and in accordance with rule 12b-15
promulgated under the Securities and Exchange Act of 1934, the Company has
amended and restated in its entirety each item of the Company's 10-K for the
year ended June 30, 2001, which has been affected by the restatement. This
amended Form 10-K does not reflect events occurring after the filing of the
original Form 10-K, or modify or update those disclosures in any way, except as
required to reflect the effects of this restatement


                                       2
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data presented below should be read together with our
consolidated financial statements and the notes thereto. The consolidated
statement of operations data with respect to the fiscal years ended May 31,
1997, 1998, 1999, and 2000, and the fiscal year ended June 30, 2001, and the
consolidated balance sheet data at May 31, 1997, 1998, 1999, and 2000, and June
30, 2001 are derived from, and are qualified by reference to, our audited
consolidated financial statements. The consolidated financial statements as of
and for the fiscal years ended May 31, 1998, 1999 and 2000, and the fiscal year
ended June 30, 2001 were audited by Grant Thornton LLP, independent auditors.
The consolidated financial statements as of May 31, 1997 and for the fiscal year
ended May 31, 1997, which fiscal year covered the period from October 8, 1996
through May 31, 1997, were audited by Tanner & Co., independent auditors. The
following financial information should be read together with "Management's
Discussion and Analysis of Financial Condition -- Results of Operations" below.
<TABLE>
<CAPTION>
                                                                FISCAL YEAR                                    FISCAL YEAR
                                                               ENDED MAY 31,                                      ENDED
                                                                                                                 JUNE 30,
                                      ------------------------------------------------      ------------      ------------
                                          1997 **           1998              1999               2000              2001
                                      ------------      ------------      ------------      ------------      ------------
                                                                                                                 Restated
                                                                                                                 --------
<S>                                   <C>               <C>               <C>               <C>               <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:

Income from investment in             $    975,108      $ 12,089,724      $ 28,483,745      $ 30,435,832      $ 38,714,160
receivable portfolios

Securitization income and asset                 --                --        12,114,703        13,266,241         3,304,331
sales

Servicing fees and other income          1,601,228         1,292,596         1,564,356         2,684,554         5,034,187
                                      ------------      ------------      ------------      ------------      ------------

Total revenue                            2,576,336        13,382,320        42,162,804        46,386,627        47,052,678


Provision for losses                     1,494,001         6,483,736         4,607,081         5,680,975         9,305,969
                                      ------------      ------------      ------------      ------------      ------------
Net revenue                              1,082,335         6,898,584        37,555,723        40,705,652        37,746,709

Income (loss) before  income           (14,405,555)      (29,445,031)        1,889,271         2,029,820        (6,925,067)
taxes

Income tax benefit                              --                --         1,986,409         1,402,375           436,544
                                      ------------      ------------      ------------      ------------      ------------

Net income (loss)                      (14,405,555)      (29,445,031)        3,875,680         3,072,195        (6,488,523)

Dividends on preferred stock*               (7,397)         (399,996)       (1,799,999)       (2,000,000)       (2,000,000)
                                      ------------      ------------      ------------      ------------      ------------

Net income (loss)  applicable to
common stockholders
                                      $(14,412,952)     $(29,845,027)     $  2,075,681      $  1,072,195      $ (8,488,523)
                                      ============      ============      ============      ============      ============
Net income (loss) per share,          $      (0.56)     $      (0.90)     $       0.06      $       0.03      $      (0.24)
                                      ============      ============      ============      ============      ============

Net  income  (loss)  per  share,      $      (0.56)     $      (0.90)     $       0.06      $       0.03      $      (0.24)
                                      ============      ============      ============      ============      ============
</TABLE>

*  We have not paid dividends on our capital stock during the periods presented.

** Fiscal 1997 represents activity from October 8, 1996 through May 31, 1997.


                                       3
<PAGE>

<TABLE>
<CAPTION>

                                                                AS OF MAY 31,                               AS OF JUNE 30,
                                    -------------------------------------------------------------------      ------------
                                        1997              1998               1999             2000               2001
                                    ------------      ------------       ------------      ------------      ------------
                                                                                                               Restated
                                                                                                               --------
<S>                                 <C>               <C>                <C>               <C>               <C>
CONSOLIDATED BALANCE SHEET
DATA:

Cash and cash equivalents and
  restricted cash                   $  2,685,581      $  8,205,071       $  4,283,930      $  2,448,879      $  3,103,454

Investments in
  receivable portfolios, net          10,760,362        18,592,485         21,648,100        33,892,290        32,948,042

Total assets                          24,743,871        39,723,418         45,780,956        64,388,192        62,707,657

Notes payable                            428,973         5,902,041          6,086,766        23,609,326        23,186,134

Subordinated notes and
  accrued interest payable-
 related party                        10,446,043        31,807,322         19,246,595        19,139,028        19,970,834

 Total liabilities                    18,118,396        47,366,528         33,692,311        50,013,724        54,941,956

Total stockholders'
  equity (deficit)                     6,625,475        (7,643,112)        12,088,645        14,374,468         7,765,701

Credit card receivables owned
  and managed                         35,709,395        84,830,552         89,149,715        96,128,627       117,142,582

Number of credit card accounts
  owned and managed                       26,803            84,351             94,278            76,732            86,384

Total employees, end
  of period                                  233               292                305               305               288
</TABLE>

------------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of our financial condition and results of operations
should be read in connection with our consolidated financial statements and
notes thereto appearing elsewhere in this report. The following discussion
contains forward-looking statements that involve risks and uncertainties. For a
discussion of such risks and uncertainties, see "Risk Factors" below.

OVERVIEW

On May 24, 2001, we changed our fiscal year end to June 30 from May 31.
Reference in this Form 10-K to fiscal 2001 represents the twelve months ended
June 30, 2001. Reference in this Form 10-K to fiscal years 2000 and 1999
represent the twelve months ended May 31, 2000 and 1999. We have not included
financial information for the twelve months ended June 30, 2000 and 1999 in this
Form 10-K because it is not practical or cost beneficial to prepare the
information. We believe that the twelve months ended May 31, 2000 and 1999
provide a meaningful comparison to the twelve months ended June 30, 2001. We are
aware of no facts that would impact the comparability of information or trends
if the results for the twelve months ended June 30, 2000 and 1999 were presented
in lieu of results for the twelve months ended May 31, 2000 and 1999, except for
the change in the method of recording revenues relating to investments in
receivable portfolios which we disclose at page 19.


                                       4
<PAGE>

We are a technology and information based, financial services company that
provides credit card products to consumers who may otherwise fail to qualify for
a traditional unsecured bank credit card. Unlike traditional credit card
companies, we focus on consumers who have previously defaulted on debt. We reach
these consumers by acquiring their defaulted debt. We purchase portfolios for
prices typically ranging from 0.50% to 3.00% of the receivable balance. An
increasing amount of our acquisitions come from our CFC program, through which
we pay the seller an agreed on price for each account we convert to a credit
card. Under a CFC, we typically pay a higher price per account, but we only pay
for the accounts we convert to a credit card.

Through our direct mail and telemarketing operations, these consumers are
offered an opportunity to:

     o    settle their debt, typically at a discount;

     o    transfer the agreed settlement amount to a newly issued unsecured
          MasterCard(R)or Visa(R)credit card; and

     o    establish a positive credit history on their newly issued card by
          making timely and consistent payments.

We accept lump sum settlements or installment payment plans from those consumers
who do not accept the credit card offer.

After the consumers have made six or more consecutive monthly payments on their
outstanding credit card balance we consider the account seasoned and available
to sell or securitize. Because the focus of our business is to convert defaulted
debt into seasoned credit cards, we periodically sell or securitize portfolios
of these seasoned accounts. We also periodically sell into the secondary market
for non-performing consumer debt portfolios of accounts we acquired but were
unable to convert.

We have five subsidiaries, Credit Store Services, Inc., Credit Store Capital
Corp., American Credit Alliance, TCS Funding IV, Inc., and TCS Funding V, Inc.
All of these subsidiaries are wholly owned by us; however, only Credit Store
Capital Corp. and American Credit Alliance, Inc. are consolidated in our
financial statements. Credit Store Services, Inc., TCS Funding IV, Inc., and TCS
Funding V, Inc. are qualifying special purpose entities that are not required to
be consolidated. See "Business--Business Operations- Receivables Sales and
Securitizations."

Credit Store Services, Inc. and Credit Store Capital Corp. acquire
non-performing consumer receivables and contract with us to offer consumers a
credit card under our program or to accept settlements or payment plans.
American Credit Alliance owns a 50% interest in Dakota Card Fund II, a limited
liability company that contracts with us to service non-performing receivables
and credit card receivables that it owns. TCS Funding IV, Inc. and TCS Funding
V, Inc. were created in connection with securitizations for the purpose of
purchasing performing credit card receivables from us.

ACCOUNTING FOR INVESTMENTS IN RECEIVABLE PORTFOLIOS.

Effective June 1, 2000, we account for our investments in receivable portfolios
on the accrual basis of accounting in accordance with the provisions of the
AICPA's Practice Bulletin 6, "Amortization of Discounts on Certain Acquired
Loans." Before June 1, 2000, we used the cost recovery method of accounting for
acquired non-performing consumer debt portfolios. Practice Bulletin 6 requires
that the accrual basis of accounting be used at the time the amount and timing
of cash flows from an acquired portfolio can be reasonably estimated and
collection is probable. As of June 1, 2000, we had accumulated statistics in our
data warehouse on the approximately $6 billion of non-performing debt we
acquired since the beginning of fiscal 1997. At that point, we determined that
our models provided us with reliable estimates of the amounts and timing of cash
flows that portfolios of acquired debt would generate in future periods. These
estimates include the key assumptions of credit cards originated, cash flows
from these cards and from unconverted receivables, new funding and retention and
losses. As required by Practice Bulletin 6, we then converted on a prospective
basis to accrual accounting. As part of our ongoing commitment to data analysis
and statistical modeling, we update and evaluate our models on a monthly basis
to facilitate the application of the accrual method of accounting and the
internal valuation of our portfolios.

Under the accrual method and cost recovery method of accounting, static pools
are established for each portfolio acquired. Once a static pool is established,



                                       5
<PAGE>

the receivables are permanently assigned to the pool. We account for each static
pool as a unit for the economic life of the pool for recognition of income from
receivable portfolios, for collections applied to principal of receivable
portfolios and for provision for loss or impairment. Income from receivable
portfolios is accrued based on the effective interest rate determined for each
pool applied to each pool's carrying value as of June 1, 2000 or its cost if
purchased after June 1, 2000, adjusted for unpaid accrued income and principal
paydowns. The effective interest rate is the internal rate of return determined
based on the timing and amounts of actual cash received since the date of
adoption or since inception if purchased after June 1, 2000 and anticipated
future cash flow projections for each pool.

For financial statement purposes, the cost of a portfolio is the purchase price
paid to the seller plus costs directly related to the acquisition of the
portfolio. For financial statement purposes under the accrual method, the
portfolio cost also includes amortization of receivable portfolios discount. All
direct mail and scrubbing costs are expensed as incurred. From the time a
settlement has been reached with a consumer until the cardholder begins to make
new charges on the new credit card account, no incremental asset is recorded in
the financial statements. For other forms of settlement, financial statement
entries are recorded as an account holder makes payments. Under the cost
recovery method, we record the purchase price of a portfolio and any costs
directly related to the purchase as an investment in non-performing consumer
debt on the balance sheet. We apply cash flows related to the acquired portfolio
as a reduction of the investment on the balance sheet. Once the cost of a
portfolio has been recovered, the remaining cash flow is recorded as excess of
revenue over cost recovered. As a result, the application of cost recovery can
have a material negative impact on revenue and net income during periods of
increasing portfolio acquisitions and a material positive impact during periods
of decreasing portfolio acquisitions and increasing portfolios dispositions.

We monitor impairment of non-performing receivable portfolios based on the
current market environment and discounted projected future cash flows of each
portfolio compared to each portfolio's carrying amount. Provisions for losses
are charged to earnings when it is determined that the investment in a
non-performing receivable portfolio is greater than the present value of
expected future net cash flows. No provision for losses on non-performing
receivable portfolios was recorded in the year ended June 30, 2001, or the
one-month period ending June 30, 2000.

Our provision for credit card losses resulting from the funding of new purchases
and the accrued interest and fees on credit card balances includes current
period losses and an amount which, in our judgment, is necessary to maintain the
allowance for credit card losses at a level that reflects known and inherent
risks in the credit card portfolio. In evaluating the adequacy of the allowance
for credit card losses, we consider several factors, including: historical
trends of charge-off activity for each credit card portfolio, current economic
conditions and the impact current economic conditions might have on a borrowers'
ability to repay. Significant changes in these factors could affect the adequacy
of the allowance for credit card losses in the near term. Credit card accounts
are generally charged off at the end of the month during which the credit card
receivable becomes contractually 180 days past due. Bankrupt accounts and
accounts of deceased cardholders without a surviving, contractually liable
individual, are charged off immediately on receipt of formal notification of
bankruptcy or death, as the case may be.


                              RESULTS OF OPERATIONS

REVENUES. Total revenue for the fiscal year ended June 30, 2001 was $47.1
million, a 1.4% increase from the $46.4 million recorded during the fiscal year
ended May 31, 2000 which was a 10% increase from the $42.2 million in the fiscal
year ended May 31, 1999. Total revenue for the one month ended June 2000
increased 36.8% from $2.6 million in June 1999 to $3.6 million in June 2000.
Core revenues (income from all activities other than portfolio sales or interest
in affiliate revenues) increased 34.7% and 11.5% in fiscal 2001 and 2000, and
are reported as $45.4 million, $33.8 million, and $30.3 million in fiscal 2001,
2000 and 1999, respectively. Core revenue in the one month ended June 2000 was
$3.6 million which is an increase of 36.8% from the one month ended June 1999.
Increasing revenues reflect our growing base of owned and managed accounts,
increases of income resulting from retained interests in securitized credit card
receivables, and adoption of the accrual method of accounting effective June 1,
2000 (see next paragraph). Gains on sales of portfolios have decreased from
$11.9 million in fiscal 1999 to $6.1 million in fiscal 2000 to $1.5 million in
fiscal 2001. This decline is reflective of the difference in the volume of sale
activity between fiscal 1999, 2000, and 2001, and the effects of the adoption of
the accrual methodology of accounting between fiscal 2000 and 2001. In fiscal
2000, we recognized a $6.5 million gain on the sale of our interest in three



                                       6
<PAGE>

special purpose entities; no such sale occurred in fiscal 2001 or fiscal 1999.
With the adoption of the accrual method of accounting effective June 1, 2000,
sales of portfolios in fiscal 2001 result in an increase in the rate of return
over the remaining life of a portfolio instead of a one time gain. We completed
three securitizations in fiscal 1999, one securitization in fiscal 2000, and one
securitization in fiscal 2001. Servicing fees and other income has increased
from $1.6 million in fiscal 1999 to $2.7 million in fiscal 2000 and to $5.0
million in fiscal 2001. This continued increase reflects the increasing number
of accounts serviced by the Company for third parties and unconsolidated
subsidiaries formed in connection with securitizations. The provision for losses
reported for fiscal 2001, 2000 and 1999 was $9.3 million, $5.7 million, and $4.6
million. These provision amounts are 20.4%, 16.8%, and 15.2% of core revenues
for the fiscal years 2001, 2000 and 1999. The provision for losses for the one
month ended June 2000 increased 128.5% from $0.5 million in June 1999 to $1.2
million in June 2000. These increases are the result of the adoption of the
accrual method of accounting effective June 1, 2000. Irrespective of the unique
events and sales each year, net revenue has remained fairly constant at $37.7
million, $40.7 million and $37.6 million in fiscal 2001, 2000 and 1999,
respectively.

On June 1, 2000, we adopted the accrual method of accounting for our investment
in receivable portfolios. Prior to June 1, 2000, we used the cost recovery
method of accounting. Under cost recovery all cash receipts relating to
individual portfolios of non-performing consumer debt are applied first to
recover the cost of the portfolios, prior to recognizing any revenue. The
accrual method recognizes the discount on acquired portfolios over the period in
which the payments are reasonably estimable and probable of collection. The
recognition of this discount is based on the effective interest rate of each
portfolio. The accrual method accelerates the recognition of revenue as compared
to the cost recovery method. For fiscal 2001, the adoption of the accrual method
of accounting resulted in an increase of $7.7 million in income from credit card
receivables.
<TABLE>
<CAPTION>

                                                   One Month Ended                       One Month Ended
      Revenues                    Fiscal 1999       June 30, 1999       Fiscal 2000       June 30, 2000       Fiscal 2001
      --------                    -----------        -----------        -----------        -----------        -----------
<S>                               <C>                <C>                <C>                <C>                <C>
Income from investment            $28,483,745        $ 2,376,962        $30,435,832        $ 3,312,545        $38,714,160
in receivable portfolios
Securitization income                 263,624             75,548            666,976             44,488          1,777,826
Servicing fees and                  1,564,356            174,052          2,684,554            237,176          5,034,187
other income                      -----------        -----------        -----------        -----------        -----------

     Core Revenue                  30,311,725          2,626,562         33,787,362          3,594,209         45,526,173
                                  -----------        -----------        -----------        -----------        -----------
Gains on Sales                     11,851,079                 --         12,599,265                 --          1,526,505
                                  -----------        -----------        -----------        -----------        -----------
     Total Revenue                 42,162,804          2,626,562         46,386,627          3,594,209         47,052,678
                                  -----------        -----------        -----------        -----------        -----------
Provision for Losses                4,607,081            542,010          5,680,975          1,238,291          9,305,969
                                  -----------        -----------        -----------        -----------        -----------
     Net Revenue                  $37,555,723        $ 2,084,552        $40,705,652        $ 2,355,918        $37,746,709
                                  ===========        ===========        ===========        ===========        ===========
</TABLE>

EXPENSES. Total operating expenses for fiscal 2001 were $38.9 million, a 15.5%
increase from $33.7 million in fiscal 2000 which was a 6.5% increase from $31.6
million in fiscal 1999. The fiscal 2001 operating expenses include $3.8 million
of nonrecurring expenses. These nonrecurring expenses represent estimated costs
of settlement of certain contract claims, one of which is currently in
litigation. Also, the nonrecurring expenses consist of a reserve of $1.3 million
for notes receivable from an unrelated party, and a reserve of $0.5 million for
a note receivable from a former executive. Excluding these nonrecurring
expenses, operating expenses in fiscal 2001 would have been $35.1 million, a
4.3% increase from fiscal 2000. Operating expenses net of nonrecurring expenses
were 77.2%, 99.7%, and 104.4% of core revenues in fiscal 2001, 2000, and 1999,
respectively. This continued decrease in operating expenses net of nonrecurring
expenses as a percent of core revenues reflects our ability to increase the
number of accounts owned and managed while maintaining a relatively constant
expense base. We experienced a 7.9% and a 21.9% increase in the aggregate
balance of credit card receivables we owned and managed from $89.1 million as of
May 31, 1999 to $96.1 million as of May 31, 2000 to $117.1 million as of June
30, 2001. Total operating expenses increased 8.9% to $3.3 million for the one
month ended June 2000 from $3.0 million for one month ended June 1999 but
decreased as a percentage of core revenues from 114% to 91% which reflects our
ability to increase revenues faster than our growth in expenses.


                                       7
<PAGE>

Salaries and employee benefits increased 6.2% in fiscal 2001 as compared to
fiscal 2000 which was an increase of 8.1% over fiscal 1999, but decreased as a
percentage of core revenue from 41.2% in 1999 to 40.0% in 2000 to 31.5% in 2001.
Incremental expenses between years is due to increased commissions as a result
of increased acquisitions and originations.

Third party services expenses, consisting of credit card services and scrubbing
fees, decreased 3.1% and 11.1% in fiscal 2001 and fiscal 2000 respectively. As a
percentage of core revenue, third party services expenses were 8.5%, 11.8%, and
14.7% in fiscal 2001, 2000 and 1999. These costs continue to decline as we
increase our processing efficiencies to lower the costs per account.

Marketing and customer communications expense increased 47.9% and 26.4% in
fiscal 2001 and 2000 but remained fairly constant as a percentage of core
revenue at 11.0%, 10.0%, and 8.9% in fiscal 2001, 2000 and 1999, respectively.
Marketing and consumer communications expenses includes direct mail cost and
scrubbing costs, which increase with the volume of accounts acquired,
originated, and serviced. Marketing and communication expenses increased 149.4%
to $0.4 million for the one month ended June 30, 2000 from $0.2 million for the
one month ended June 30, 1999 due to increased volumes of portfolio
acquisitions.

Royalty expense, pursuant to two mutual business development agreements,
increased 12.4% from $1.5 million in fiscal 1999 to $1.7 million in fiscal 2000
and decreased 38.4% to $1.1 million in fiscal 2001. Royalty expense increased to
$0.2 million in the one month ended June 30, 2000 from the $0.04 million for the
one month ended June 30, 1999 due to increased activity in June 2000. The
royalty expense is accrued when new credit card accounts make their third
payment according to the terms of the cardholder agreement or when cash from
non-card accounts is collected. The decrease in royalty expense in fiscal 2001
is the result of the Company's decision to discontinue accrual of the royalty
expense after November 2000. The mutual business development agreements are
currently in dispute. See "Legal Proceedings". In fiscal 2001, we recorded a
$2.0 million accrual which is our estimate of the amount required to settle the
contract disputes and to terminate the agreements.

Financing fees increased 12.7% from $1.1 million in fiscal 2000 to $1.2 million
in fiscal 2001 and decreased as a percentage of core revenue from 3.2% in fiscal
2000 to 2.7% in fiscal 2001. Financing fees increased 416% from $0.2 million in
fiscal 1999 to $1.1 million in fiscal 2000 and increased as a percentage of core
revenues to 3.2% in fiscal 2000 from 0.7% in fiscal 1999. The increase from
fiscal 1999 to fiscal 2000 and 2001 resulted from our ability to obtain
additional financing sources in fiscal 2000.
<TABLE>
<CAPTION>

              Expenses                                       One Month Ended                     One Month Ended
                                                                 June 30,                              June 30,
                                           Fiscal 1999             1999          Fiscal 2000             2000       Fiscal 2001
                                           -----------          ----------       -----------          ----------    -----------
<S>                                        <C>                  <C>              <C>                  <C>           <C>
Salaries and employee benefits             $12,484,582          $1,057,276       $13,502,074          $1,130,262    $14,334,712
Professional fees                            2,701,016             198,304         2,604,992             353,592      3,048,027
Depreciation and amortization                2,614,216             228,229         2,494,489             166,133      1,990,390
Third-party credit card services             4,468,992             390,323         3,972,785             338,482      3,850,903
Marketing and customer                       2,683,270             150,596         3,391,962             375,528      5,016,901
communications
Occupancy and equipment rental               1,614,513              63,258         1,727,884             143,982      2,032,742
Royalty expense                              1,541,944              37,363         1,733,412             211,069      1,067,363
Financing fees                                 211,864             475,899         1,092,286             277,661      1,231,161
Other                                        3,316,564             328,572         3,173,999             261,259      2,567,078
Non recurring events                                --                  --                --                  --      3,787,061
                                           -----------          ----------       -----------          ----------    -----------
     Total expenses                        $31,636,961          $2,993,015       $33,693,883          $3,257,968    $38,926,338
</TABLE>



                                       8
<PAGE>


INTEREST EXPENSE. Interest expense increased to $5.7 million in fiscal 2001, a
15.3% increase from $5.0 million in fiscal 2000 which was a 23.6% increase from
$4.0 million in fiscal 1999. These increases were due to a higher average amount
of debt outstanding of $23.7 million, $17.0 million and $5.9 million in fiscal
2001, 2000 and 1999. As a result of higher core revenue in fiscal 2000 and
fiscal 2001, interest expense, as a percentage of core revenue, was 13.3% in
fiscal 1999, but decreased from 14.7% in fiscal 2000 to 12.6% in fiscal 2001.
Interest expense increased 66.0% for the one month ended June 30, 2000 as
compared to the one month ended June 30, 1999. This increase was due to a higher
outstanding balance in June 2000.
<TABLE>
<CAPTION>

                                            One Month Ended                              One Month Ended
                           Fiscal 1999       June 30, 1999            Fiscal 2000         June 30, 2000        Fiscal 2001
                           -----------       -------------            -----------         -------------        -----------
<S>                         <C>                 <C>                    <C>                   <C>                <C>
Interest Expense            $4,029,491          $286,723               $4,981,949            $476,023           $5,745,438
</TABLE>


INCOME TAX BENEFIT. We recognized a tax benefit of $0.4 million in fiscal 2001,
$1.0 million in fiscal 2000, and $2.0 million in fiscal 1999. The tax benefit in
each year represents the recognition of a tax benefit that offsets the tax
expense recorded in other comprehensive income. Fiscal 2000 and 1999 also
included a $2.0 million and $0.7 million reduction of a valuation allowance
related to net operating loss carryforwards. We have recorded a valuation
allowance of $12.7 million at June 30, 2001. We continue to review the adequacy
of our valuation allowance and have determined that based on historical results
and forecasted future earnings it was more likely than not that a portion of our
net operating loss carryforward would be utilized. We will continue to evaluate
the remaining valuation allowance and will recognize tax benefits as factors
indicate that it is more likely than not that additional future tax benefits
will be realized.
<TABLE>
<CAPTION>
                                            One Month Ended                              One Month Ended
                           Fiscal 1999       June 30, 1999            Fiscal 2000         June 30, 2000        Fiscal 2001
                           -----------       -------------            -----------         -------------        -----------
<S>                         <C>                 <C>                    <C>                   <C>                <C>
Income tax benefit          $1,986,409          $     --               $1,042,375          $   63,456           $  436,544
</TABLE>


NET INCOME (LOSS). Net income was $3.9 million in fiscal 1999 and $3.1 million
in fiscal 2000 compared to a net loss of $6.5 million in fiscal 2001. Included
in net income for fiscal 2000 and 1999 are $2.0 million and $0.7 million of tax
benefits recognized as a result of the reduction of a portion of our valuation
allowance account. Dividends on preferred stock have accumulated but have not
been declared and are not yet payable. However, we treat the dividends as
declared and payable for the purpose of calculating net income (loss) applicable
to common shareholders. After the effect of preferred dividends of $2.0 million
in fiscal 2001 and 2000 and $1.8 million in 1999, the net income (loss)
applicable to common shareholders was $2.1 million, or $0.06 per basic and
diluted common share, in fiscal 1999; and $1.1 million, or $.03 per basic and
diluted common share, in fiscal 2000; compared to a net loss applicable to
common stockholders of $(8.5) million, or $(0.24) per basic and diluted common
share in fiscal 2001. Net loss for the one month ended June 30, 2000 was $(1.5)
million compared to $(1.4) million for the one month ended June 30, 1999.
<TABLE>
<CAPTION>
                                            One Month Ended                              One Month Ended
                           Fiscal 1999       June 30, 1999            Fiscal 2000         June 30, 2000        Fiscal 2001
                           -----------       -------------            -----------         -------------        -----------
<S>                         <C>                 <C>                    <C>                   <C>                <C>
Net income (loss)           $3,875,680       $(1,195,186)              $3,072,195         $(1,314,617)         $(6,488,523)
  Dividends on
   preferred stock          (1,799,999)         (166,667)              (2,000,000)           (166,667)          (2,000,000)
Net income (loss),
  applicable to
   common shareholders      $2,075,681       $(1,361,853)              $1,072,195           $(1,481,284)       $(8,488,523)
</TABLE>


                                       9
<PAGE>


INVESTMENTS IN RECEIVABLES

Our business is highly dependent on the amount of non-performing consumer debt
we acquire, the cost to acquire these accounts, and the cash flows we generate
from these accounts through the conversion to our credit card or through
collection efforts. We refer to the non-performing consumer debt accounts
acquired as unconverted receivables from the time of acquisition to the date we
convert them to a credit card. At time of conversion, we begin referring to the
agreed settlement amount as a credit card receivable. The marketing cycle for
and useful life of a new credit card account extends over several years.
Therefore, we measure our operating results on both a traditional fiscal period
basis and on a "vintage basis." When analyzing our performance on a vintage
basis, we track each acquired portfolio over the entire period we own the
accounts. We store statistics for each portfolio of accounts in our data
warehouse and use these statistics to develop our portfolio acquisition models,
marketing models, account servicing models, and accounting methodology. Since
1996, we have acquired approximately $6.5 billion in non-performing consumer
debt through approximately 115 separate portfolio acquisitions.

The charts below summarize the performance of the portfolios we acquired in each
of the past four fiscal periods on a vintage basis analysis, that is, from the
date of acquisition of the portfolio through June 30, 2001. For fiscal 2001, the
charts include portfolios of receivables owned by The Credit Store ("CDS") and
by Credit Store Services, Inc. ("CSSI") an unconsolidated qualified special
purpose entity established in July 2000. We analyze our performance on a
"managed portfolio" basis, as if the portfolios acquired through CSSI were still
on our balance sheet, because the performance of these portfolios will affect
the future cash flows we receive from CSSI.
<TABLE>
<CAPTION>

                                     Vintage Basis Analysis of Non-Performing Debt Acquired

                                                                                           Unconverted
                                       Unconverted                                         Receivables   Unconverted
                                       Receivables    Total      Unconverted      Net        Settled     Receivables
                          Purchased      Acquired  Unconverted   Receivables   Unconverted   through     Resold into    Remaining
                         Unconverted     through   Receivables    Returned     Receivables  Credit Card   Secondary     Uncoverted
Fiscal Year Ended        Receivables      CFC's      Acquired     to Seller*     Acquired     or Cash       Market      Receivables
                        -------------  ----------- -------------  -----------  -------------  ----------   ----------  -------------
<S>                     <C>           <C>          <C>           <C>           <C>           <C>         <C>           <C>
CDS - June 30, 2001     $ 358,429,591 $419,567,849 $ 777,997,440 $382,547,335  $ 395,450,105 $35,152,390 $ 14,805,403  $ 345,492,312
CSSI - June 30, 2001      785,269,895            0   785,269,895   16,124,794    769,145,101  32,077,040            0    737,068,061
                        -------------  ----------- -------------  -----------  -------------  ----------   ----------  -------------
Total - June 30, 2001   1,143,699,486  419,567,849 1,563,267,335  398,672,129  1,164,595,206  67,229,430   14,805,403  1,082,560,373

 May 31, 2000           1,490,243,243  328,797,101 1,819,040,344  390,226,996  1,428,813,348  73,987,019  291,562,195  1,063,264,134
 May 31, 1999             956,043,213            0   956,043,213   21,047,575    934,995,638  60,493,888  685,813,875    188,687,875
 May 31, 1998             899,367,399            0   899,367,399   25,551,327    873,816,072 130,866,306  513,411,743    229,538,023
</TABLE>

     *Returned to seller includes non-qualifying accounts and accounts returned
at termination of CFC contracts.

We have developed new methods to acquire portfolios over the past two fiscal
years which make better use of our available capital. We invested $8.3 million
in fiscal 1999, $14.3 million in fiscal 2000, and $4.4 million in fiscal 2001 to
acquire portfolios. Additionally in fiscal 2001, we invested $0.5 million and
The Varde Fund IV-A, L.P. invested $8.5 million in CSSI to allow CSSI to
purchase non-performing consumer debt portfolios from third parties through us.
The significant decline in amounts invested to acquire portfolios in fiscal 2001
is due to the success of our CFC program and the use of CSSI as a portfolio
acquisition vehicle. While our goal is to continue acquiring a significant
portion of our portfolios in this manner, we cannot guaranty that sellers will
continue to find CFCs an attractive alternative to traditional cash sales or
that investment capital for vehicles such as CSSI will continue to be available.
See "Management Discussion and Analysis - Liquidity and Capital Resources."



                                       10
<PAGE>



The chart below summarizes our history of converting non-performing accounts we
acquire to our credit card product. This chart is also on a vintage basis, that
is, from the date of acquisition through June 30, 2001:
<TABLE>
<CAPTION>
                              Vintage Basis Analysis of Settled Balances Transferred to Credit Cards

                                                                   New Charges,
                               Amounts      Closed                   Interest    Payments                Credit Card
                            Transferred to  Credit         Net       and Fees   Received on Credit Card  Receivables   Remaining
                             Credit Card     Card        Amounts     on Credit  Credit Card  Reivables     Sold or    Credit Card
Fiscal Year Ended              Accounts*   Accounts**  Transferred      Cards   Receivables Charged Off  Securitized  Receivables
------------------            ----------- -----------  -----------   ----------  ----------   ----------    ---------  -----------
<S>                           <C>         <C>          <C>           <C>         <C>          <C>           <C>        <C>
CDS - June 30, 2001           $33,757,100 $11,127,818  $22,629,282   $5,679,093  $5,693,975   $4,359,604    $ 786,186  $18,254,796

CSSI - June 30, 2001           28,861,770   3,921,500   24,940,270    1,901,310   2,400,843      236,904            -   24,203,833
                              ----------- -----------  -----------   ----------  ----------   ----------    ---------  -----------
Total - June 30, 2001          62,618,870  15,049,318   47,569,552    7,580,403   8,094,818    4,596,508      786,186   42,458,629


 May 31, 2000                  69,110,157  20,491,610   48,618,547   23,071,495  23,711,465   17,903,287    3,714,433   29,822,904

 May 31, 1999                  50,256,711  11,313,794   38,942,917   28,439,186  30,619,128   19,207,402   11,569,953    8,969,207

May 31, 1998                   85,093,935  14,624,423   70,469,512   44,854,159  46,908,823   45,523,830   19,789,327    5,477,817
</TABLE>

     * Amounts represent balances agreed to by customer and transferred to new
credit card, and includes original debt plus imputed interest from original
default date net of agreed discount.
     ** Accounts on which the first required payment was never made and accounts
closed at the request of customers before any significant activity occurred.


                            Vintage Basis Analysis of
              Receivables Compared to Balance Sheet Amount Recorded


                                   Unconverted       Credit Card   Balance Sheet
                                   Receivables       Receivables       Amount
                                  -------------       ----------     ----------
Fiscal Year Ended
CDS - June 30, 2001                $345,492,312     $ 18,254,796    $ 5,711,185
CSSI - June 30, 2001                737,068,061       24,203,833     11,025,842*

Total - June 30, 2001             1,082,560,373       42,458,629     16,737,026
                                  -------------       ----------     ----------

May 31, 2000                      1,063,264,134       29,822,904     14,745,511
May 31, 1999                        188,687,875        8,969,207      5,436,477
May 31, 1998                        229,538,023        5,477,817      4,158,254

     * Represents amount on balance sheets of CSSI which is not consolidated on
our balance sheet.

The above chart presents, on a vintage basis, the remaining inventory of
unconverted receivables and the outstanding balance of performing credit card
receivables compared to the amounts actually recorded on our balance sheet. Upon
settlement of the debt, a credit card is issued to the customer with the opening
balance and credit line equal to the settlement amount. From the time a
settlement has been reached with the customer, until after the customer begins
to make principal payments on the credit card receivable, no incremental asset
is recorded except for the amortization of receivable portfolios discount. After
making principal payments on the settlement amount, the customer may use the
credit card for new purchases and cash advances up to its available credit
limit, which may be increased from time to time based on their payment history.
The customers' purchasing activities are recorded on our balance sheet net of
customer payments.



                                       11
<PAGE>




        Vintage Basis Analysis of Unconverted Receivables Settled for Cash

                                    Original
                                   Unconverted                          Cash
                                   Receivables       Cash            Collection
                                    Acquired      Collected          Percentage
                                   ----------     -----------        ----------
Fiscal Year Ended
CDS - June 30, 2001                $2,206,614     $ 1,062,863           48.2%
CSSI -June 30, 2001                 3,527,630       1,014,435           28.8%
                                   ----------     -----------           ----
Total  -June 30, 2001               5,734,244       2,077,298           36.2%

May 31, 2000                        7,167,545       3,870,063           54.0%
May 31, 1999                        4,460,116       3,666,440           82.2%
May 31, 1998                       10,813,555       6,208,659           57.4%

The chart above summarizes, on a vintage basis, our experience with collections
on accounts settled for cash and/or installment payments. The cash collected
represents lump sum settlements and periodic payments received from customers on
an installment basis. As the portfolios age, the overall collection percentage
will tend to increase as additional installment payments are received from the
debtor. We do not record the amount of installment arrangements as an asset on
our balance sheet.

Credit Card Receivable Quality

Once an acquired non-performing receivable is settled and the settlement amount
is transferred to a credit card, we employ traditional credit card measurements
to track delinquencies and charge-offs in our portfolio of performing credit
cards. We experience the majority of defaults and delinquencies during the first
few months after the settlement amount is transferred to a new credit card. In
general, if a customer does not make the first required payment on an account,
we close the credit card account and return the original purchased receivable
amount to unconverted receivables. We follow the same policy if the customer
closes the account voluntarily before making the first required payment. As
previously noted, the initial amount transferred to a credit card is not
recorded in our financial statements. Therefore any account restored to an
unconverted status has no impact in our financial statements. We consider these
returns to unconverted status in the determination of our effective interest
rate for each portfolio.

The delinquency chart below includes all our owned and managed credit card
receivables but does not include receivables in accounts that have not yet made
a first payment. Because these accounts are not yet performing and may be
closed, including them would distort the reporting of actual delinquencies on
our performing portfolio of accounts.
<TABLE>
<CAPTION>
                                  Delinquencies as a Percentage of Owned and Managed Credit Card Receivables
                                                          For the Three Months Ended
                 May 31,      Aug. 31,     Nov. 30,     Feb. 29,     May 31,    Sept. 30,     Dec. 31,     Mar. 31,      June 30,
                  1999         1999         1999         2000         2000         2000         2000         2001          2001
               -----------  -----------  -----------  -----------  -----------  -----------  ------------ ------------  ------------
<S>            <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>           <C>
Owned
Receivables
Amount         $58,925,411  $63,532,090  $63,899,508  $72,059,180  $72,130,353  $82,932,303  $ 80,674,251 $ 72,775,407  $ 54,936,629

Managed
Receivables
Amount         $27,616,423  $22,716,512  $21,906,243  $20,890,662  $18,252,815  $16,919,113  $ 19,401,550 $ 31,671,150  $ 49,843,613

Total
Receivables
Amount         $86,541,834  $86,248,602  $85,805,751  $92,949,842  $90,383,168  $99,851,416  $100,075,801 $104,446,557  $104,780,242
               -----------  -----------  -----------  -----------  -----------  -----------  ------------ ------------  ------------

                                                         (percent to total)
Loans
Delinquent:
30 to 59 days        10.9%        9.6%          9.3%         8.2%         9.6%        11.6%         13.5%        10.1%         11.4%
60 to 89 days         5.0%        5.5%          4.4%         3.6%         4.7%         6.6%          6.0%         4.6%          6.3%
90 to 119 days        3.3%        4.0%          3.4%         3.0%         3.2%         4.7%          4.8%         4.2%          5.0%

Total 60 to
119 days              8.2%        9.4%          7.9%         6.6%         7.9%        11.2%         10.9%         8.8%         11.3%
</TABLE>


                                       12
<PAGE>

The trend in delinquent accounts correlates to the age of accounts owned and
managed and the timing of sales of credit card receivables. Delinquency during
the quarter ended September 30, 2000, increased due to the transfer of the
servicing of approximately $20.0 million credit card receivables to the third
party who purchased them in May 2000. The credit cards transferred were some of
our most seasoned, current accounts, which had the effect of increasing the
delinquency percent of the remaining portfolio. As we sell receivables to other
credit card companies and transfer the servicing, our delinquencies tend to
increase, since we are typically selling more seasoned receivables. Also, in
periods of receivable growth, our delinquencies increase, which is contrary to a
typical credit card portfolio, because the majority of our defaults occur within
the first six months of a customer receiving their new credit card. The increase
in delinquencies during fiscal 2001 reflects a 32% increase in the volume of new
credit cards originated on an owned and managed basis over the previous fiscal
year from $66.9 million in fiscal 2000 to $88.3 million in fiscal 2001. There is
also a seasonal factor in that our delinquencies typically decline during the
first calendar quarter when our cardholders tend to repay card balances at a
faster rate to pay for purchases made during the holiday season.

Under our program, when a new credit card is issued to the consumer, the opening
balance and credit line equal the agreed settlement amount of the debt
obligation we purchased.

However, for financial statement purposes, we record as our investment in
receivables only:

     o    the original cost of the receivables portfolio;

     o    amortization of receivables portfolio discount;

     o    amounts funded as a result of cash advances and new cardholder
          purchases made after the cardholder makes the first payment on the
          credit card account;

     o    the accrued interest on these cash advances and new purchases; and

     o    the accrued fees on the account.

We do not record any credit card asset until after the cardholder makes payments
and begins to make new charges on the account. As a result, historically, the
amount owed by our cardholders exceeds the amount of receivables recorded on our
balance sheet as summarized in the following chart.
<TABLE>
<CAPTION>
             Actual Cardholder Balances Compared to Credit Card Receivables Recorded on Balance Sheet

                                                                  As of May 31                     As of June 30,
                                                                  ------------                     --------------
                                                      1998            1999           2000               2001
                                                      ----            ----           ----               ----
<S>                                                <C>            <C>             <C>               <C>
Owned credit card receivables                      $74,096,668    $55,184,540     $77,832,562       $66,184,418
Unused credit                                      $ 6,093,820    $ 4,296,364     $ 7,837,918       $ 9,355,862
Utilization rate                                       92%            93%             91%               86%
Amounts funded, interest and fees                  $16,824,782    $21,879,209     $27,386,165       $28,172,826
Amounts funded, interest and fees  as a
   percentage of owned credit card receivables         23%            40%             35%               43%
</TABLE>



                                       13
<PAGE>



We reserve for credit card losses on our balance sheet and charge against the
reserve based on the amounts funded as a result of cash advances and new
cardholder purchases made after the cardholder makes the first payment on the
credit card account, the accrued interest on these cash advances and new
purchases, and the accrued fees on the account. The following table presents our
charge-offs for the periods indicated and our provision for losses on our owned
credit card receivables:
<TABLE>
<CAPTION>


   Charge Offs and Provision for Losses on Average Investment in Receivable Portfolios Recorded on Balance Sheet

                                                                  As of May 31                    As of June 30
                                                                  ------------                    -------------
                                                      1998            1999           2000             2001
                                                      ----            ----           ----             ----
<S>                                                <C>            <C>             <C>             <C>
Average Investment in Receivable Portfolios        $10,043,983    $19,906,367     $34,476,497     $  46,466,649
Charge-offs*                                       $ 4,721,858     $5,448,783     $ 6,051,670     $   9,042,996
Charge-offs  as a percentage  of average  credit      47.0%          27.4%           17.6%                19.5%
card receivables on balance sheet
Provision for credit card losses                   $ 6,483,737    $ 4,607,081     $ 5,680,975     $   9,305,969
Provision as a percentage of charge-offs             137.3%          84.6%           93.9%               102.9%
</TABLE>

     * Does not give effect to any amounts recovered after the charge off.


                         LIQUIDITY AND CAPITAL RESOURCES

We seek to maintain an adequate level of liquidity through active management of
assets and liabilities, through sales or securitizations of credit card
receivables, and through debt and equity financing. Because the characteristics
of our assets and liabilities change, liquidity management is a dynamic process
affected significantly by the maturity of our assets and the seasonality of the
credit card business.

At June 30, 2001, we had $3.1 million of cash and cash equivalents and
restricted cash, compared to $2.4 million at May 31, 2000 and $4.2 million at
May 31, 1999. We maintain restricted cash reserves at two banks to facilitate
the funding of new charges and advances on our customer's credit cards. These
restricted balances were $1.3 million at June 30, 2001, and $1.0 million at May
31, 2000, and $0.8 million at May 31, 1999. We rely on cash flow from our
receivables portfolio, receivable sales and securitizations, and credit lines to
operate our business.

We maintain a senior secured revolving credit line with Coast Business Credit
("Coast"), a division of Southern Pacific Bank. The maximum amount available
under the credit line was $13.0 million at July 2, 2001. The credit line is
secured by substantially all of our assets. Borrowings under the credit line are
based on a formula, which is dependent primarily on the performance and maturity
of our credit card receivables. The credit facility currently has an expiration
date of, and the outstanding balance matures on, July 31, 2002. As of October
31, 2001, the maximum amount available under the credit line will be reduced to
the lesser of $11.5 million or $13.0 million minus 60% of net cash proceeds
derived by us from sales or securitizations of credit card portfolios between
September 28, 2001, and October 31, 2001 and thereafter will be further reduced
by 60% of the net cash proceeds derived by us from the sales or securitization
of credit card portfolios concluded after October 31, 2001. There was $13.4
million outstanding under the credit line at June 30, 2001 and May 31, 2000.

We have also received secured financing from a related party, J.L.B. of Nevada.
The notes are payable on demand but are subordinated to the senior secured
revolving credit line. The holder of the notes cannot demand repayment prior to
repayment of the senior secured revolving credit. The remaining principal amount
outstanding on these notes totaled $17.3 million at June 30, 2001 and May 31,
2000. Accrued interest under the facility totaled $2.7 million at June 30, 2001.
No payments of interest are required until at least May 4, 2002.


                                       14
<PAGE>

On September 20, 1999, we entered into a repurchase agreement with Plains
Commerce Bank (fka Bank of Hoven). Under the agreement, the bank purchased
credit card receivables from us. The initial agreement had a purchase price of
$3.0 million which was increased to $6.0 million in March 2000. On November 30,
2000, we entered into a new repurchase agreement with the bank, replacing the
original repurchase agreement. The new repurchase agreement is for $8.0 million
and has an expiration date of January 4, 2002. For accounting purposes, the
repurchase agreement is treated as a financing transaction.

A significant source of liquidity for us has been the sale and securitization of
credit card receivables. We intend to continue to securitize receivables in the
capital markets and sell receivables to unaffiliated credit card banks in the
ordinary course of business. During the fiscal year ended May 31, 2000, we sold
our retained interest in three qualified special purpose entities to the senior
beneficial interest holder for approximately $8.6 million in cash, realizing a
pretax gain of approximately $6.5 million. During the fiscal year ended May 31,
1999, we sold approximately $7.0 million in face amount of receivables to an
unaffiliated bank for $5.0 million and received cash of approximately $13.0
million from three securitizations of credit card receivables totaling $20.4
million.

In October 1999, through a bankruptcy remote special purpose entity, we
established a $17.5 million secured revolving credit line with General Electric
Capital Corporation to finance the acquisition of non-performing consumer debt
portfolios, which credit line expires in August 2002. There was $1.7 million and
$1.8 million outstanding under the credit line at June 30, 2001 and May 31,
2000, with $0.30 million available under the borrowing base formula for
additional borrowing at June 30, 2001. The transfer of receivables to this
special purpose entity by us does not qualify for sale treatment under SFAS No.
125 or No. 140. The special purpose entity is consolidated in our financial
results.

During the fiscal year ended May 31, 2000, we established a new wholly-owned
qualified special purpose entity, TCS Funding IV, Inc. for the purpose of
purchasing performing credit card receivables from us. TCS Funding IV, Inc.
entered into a $40.0 million credit facility with Miller & Schroeder Investments
Corporation to finance the purchase of credit card receivables. The initial
$12.1 million sale of credit card receivables to the qualified special purpose
entity included receivables with a principal balance of approximately $14.2
million. TCS Funding IV, Inc. provided $10.0 million for the purchase and the
remaining $2.1 million was recorded by us as retained interest. We recognized a
pretax gain of approximately $3.8 million. Future borrowings under the facility
are subject to the lender's discretion and a number of other conditions.

The TCS Funding IV, Inc. credit facility requires payments of interest only
until December 31, 2001 and allows for multiple advances during this period up
to $40.0 million. Borrowings in excess of $10.0 million are governed by a
borrowing base and are contingent upon specified conditions, including the
senior beneficial interests receiving a minimum BBB- rating from a nationally
recognized rating agency. We do not anticipate drawing additional funds from
this credit facility prior to December 31, 2001. The credit facility advances
70% of the receivables balance, of which 5% must be deposited into a reserve
account. The terms of the credit facility require that all credit card
receivables purchased by TCS Funding IV, Inc. must be current with a minimum of
eight payments made on each account and must meet other specified eligibility
requirements.

Until December 1, 2001, after new charges are funded and fees and interest are
paid, excess cash collections can be used by the qualified special purpose
entity to purchase additional accounts from us or pay down the senior beneficial
interest. During fiscal 2001, TCS Funding IV, Inc. used approximately $2.4
million of its excess cash collections to purchase credit card receivables
aggregating $3.6 million in principal balance from us. We recognized a pre-tax
gain of approximately $0.4 million on the sale of these receivables and had a
retained interest of approximately $4.3 million at June 30, 2001.

After December 1, 2001, the TCS Funding IV Inc. credit facility requires that
all cash collections received relating to the senior debt interest in the
receivables be used to repay principal, after payment-related servicing fees and
interest are paid. All new charges on the sold accounts are either sold to the
special purpose entity or contributed in exchange for a retained interest until
such time as the senior debt interest is paid down. Accordingly, if we do not
refinance the receivables, extend the revolving period, or sell the receivables
in a portfolio sale, our funding requirements for new receivables will increase.
Early repayment of the credit facility can be triggered if the annualized net
loss rate exceeds 21% over a consecutive three month period or if the monthly
credit card payments are less than 5.75% of the previous month end receivables
balance over a consecutive three month period. While the senior debt interest is
in place, there are restrictions on our ability to pay dividends and to pay
interest on or the principal of the notes held by our controlling stockholder.


                                       15
<PAGE>

During July 2000, we established Credit Store Services, Inc ("CSSI"), a
wholly-owned qualified special purpose entity. During October 2000, CSSI entered
into a financing relationship with The Varde Fund IV-A, L.P. ("Varde") involving
CSSI's purchase of non-performing consumer debt portfolios from us. We sell the
non-performing debt portfolios to CSSI on the same date and terms that we
purchase them from third parties at a price equal to our book value, which is
the acquisition price of the portfolio. CSSI entered into a $25.0 million credit
facility with Varde to finance a portion of the purchase price of these
portfolios. Under the facility, Varde finances 95% of the acquisition price of
the non-performing consumer debt portfolios and we finance the remaining 5% of
the acquisition price. Each loan from Varde to CSSI is evidenced by a note, the
principal and interest of which are due twenty-four months after the date of the
note. CSSI pays us all applicable servicing fees in connection with the acquired
portfolios, which fees totaled $1.91 million during fiscal 2001. In addition,
CSSI pays interest on the loans advanced by Varde and by us. Varde may receive
additional cash returns based on the performance of the portfolios. The
remainder of the cash flows are shared equally by Varde and us. As of June 30,
2001, we recorded a retained interest of approximately $1.59 million. Future
borrowings under the facility are subject to Varde's discretion and a number of
other conditions.

During fiscal 2001, we established a new wholly-owned qualified special purpose
entity, TCS Funding V, Inc. for the purpose of purchasing performing credit card
receivables from us. TCS Funding V, Inc. entered into a $4.0 million credit
facility with Miller & Schroeder Investments Corporation to finance the purchase
of credit card receivables. The initial $4.86 million sale of credit card
receivables to TCS Funding V, Inc. included receivables with a principal balance
of approximately $5.7 million. We recorded $0.86 million as a retained interest.
We recorded $46,380 in servicing fees from TCS Funding V for the fiscal year
ended June 30, 2001 and had a retained interest of $1.3 million at June 30,
2001.

The TCS Funding V, Inc. credit facility advanced 70% of the principal credit
card receivables balance, of which 5% was deposited into a reserve account. The
terms of the credit facility require that all credit card receivables purchased
by TCS V must be current with a minimum of eight payments made on each account
and must meet other specified eligibility requirements.

Until May 1, 2002, after new charges are funded and fees and interest are paid,
excess cash collections are required to be used by TCS Funding V to repay the
lender's beneficial interest. After May 1, 2002, all cash collections relating
to the senior debt interest in the receivables are required to be used to repay
principal, after payment-related servicing fees and interest are paid, and all
new charges on the sold accounts are required to be purchased by us in exchange
for a residual interest until such time as the senior debt interest is paid
down. Accordingly, if we do not refinance the receivables, extend the revolving
period, or sell the receivables in a portfolio sale, our funding requirements
for new receivables will increase. While the senior debt interest is in place,
there are restrictions on our ability to pay dividends and to pay interest on or
the principal of the notes held by our controlling stockholder.

We typically finance our capital expenditures through equipment leases. We
invested $2.5 million in property and equipment during fiscal 2001 compared to
$0.9 million in fiscal 2000 and $1.1 million in fiscal 1999. During fiscal year
2001, we invested in enhanced system hardware to further accommodate our growth
and developed additional proprietary software for use in our business. We plan
to make continued investments in technology, the amount of which will depend on
the amount of lease financing available for such investments.

During June, 2001, we also sold a portfolio of credit card receivables for
approximately $2.7 million to an unrelated financial institution without
recourse.

Subsequent to year end, in September, we sold a portfolio of credit cards for
approximately $3.5 million to an unrelated financial institution without
recourse.

We are currently exploring alternate means of financing our operations during
fiscal 2002, including replacing our Coast credit facility. We are also
currently in discussions with two financial institutions to sell, on a quarterly
basis during calendar year 2002, up to $20 million of performing credit card
receivables with six or more consecutive payments and a minimum of $20 million
of performing credit card receivables having eight or more consecutive payments.
Proceeds from these sales would be adequate to meet our funding needs through
the next fiscal year. We cannot guaranty that these sales will ultimately take



                                       16
<PAGE>

place or if the timing of the sales will allow us to meet our working capital
needs as they arise. However, management believes that cash on hand together
with the proceeds of these or other transactions it expects to consummate will
be sufficient to fund our operations during fiscal 2002.

While we have not seen a significant impact on credit quality or credit card
repayment rates as a result of the current economic climate or the September
11th terrorist attacks in New York City and Washington, D.C., we cannot guaranty
that our customer base will continue to perform at the same levels of
delinquencies and defaults as in the past or that the market for sales and
securitizations of our credit card receivables will not be negatively affected.

We can give no assurance that amounts available under our credit facility,
portfolio sales, securitizations, cash flow from future operations and cash on
hand will be sufficient to cover our portfolio acquisitions and our continuing
operations. If we were to consummate any strategic transactions or undertake any
other projects requiring significant capital resources, we would be required to
seek additional financing. If circumstances were to require us to incur
additional indebtedness, we can give no assurance that its terms would be
favorable to us.

INFLATION

We believe that inflation has not had a material impact on our results of
operations during the past three fiscal years.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and the report thereon of Grant Thornton
LLP, independent certified public accountants, dated August 22, 2001, except for
Note G, as to which date is September 28, 2001, and Note B, as to which the date
is February 14, 2002, are filed as part of this amended Form 10-K. See Item 14.



                                       17
<PAGE>

ITEM 14. FINANCIAL STATEMENTS AND EXHIBITS

(a)       Index to Consolidated Financial Statements (restated)

          The Consolidated Financial Statements required by this item are
          submitted in a separate section beginning on page F-1 of this
          registration statement

                                                                           PAGE

          Report of Independent Certified Public Accountants                F-2

          Consolidated Balance Sheets                                       F-3

          Consolidated Statements of Operations                             F-4

          Consolidated Statements of Stockholders' Equity                   F-5

          Consolidated Statements of Cash Flows                             F-7

          Notes to Consolidated Financial Statements                        F-9


(b)       Index to Exhibits
<TABLE>
<CAPTION>

             EXHIBIT
             NUMBER                      DESCRIPTION OF DOCUMENT
             ------                      -----------------------
<S>             <C>          <C>
                3.1 (1)      Amended and Restated Certificate of Incorporation

                3.2 (4)      Amended and Restated By-Laws

                4.1 (1)      Specimen certificate representing shares of Common Stock

                4.2 (6)      Agreement, dated May 4, 2001, between the Company and J.L.B. of Nevada, Inc.

                4.3 (6)      Agreement, dated May 4, 2001, between the Company and J.L.B. of Nevada, Inc.

               10.1 (1)      Amended and Restated Lease  Agreement dated December 12, 1996 between Service One
                             International Corporation and Donald A. Dunham, Jr.

               10.2 (1)      Amendment  No. One to the Amended and  Restated  Lease  Agreement  dated June 11,
                             1997 between Service One International Corporation and Donald A. Dunham, Jr.

               10.3 (1)      Amendment  No. Two to the Amended and  Restated  Lease  Agreement  dated July 31,
                             1997 between Service One International Corporation and Donald A. Dunham, Jr.

               10.4 (1)      Lease  Agreement  dated  February  28, 1997  between  Service  One  International
                             Corporation and Eagle Properties, L.L.C.

               10.5 (1)      Addendum  to  Lease  Agreement  dated  November  18,  1997  between  Service  One
                             International Corporation and Eagle Properties, L.L.C.

               10.6 (1)      Mutual  Business  Development  Agreement  dated as of October  8,  1996,  between
                             Service One International Corporation and the O. Pappalimberis Trust

               10.7 (1)      Amendment  dated as of  December  16,  1997 to the  Mutual  Business  Development
                             Agreement  dated as of October 8, 1996,  such  amendment  among O.  Pappalimberis
                             Trust, Taxter One LLC, Service One International  Corporation,  Eikos Management,
                             LLC and Thesseus International Asset Fund

                                                                18
<PAGE>

               10.8 (1)      Amendment dated September 1, 1998 to the Mutual  Business  Development  Agreement
                             dated  as of  October  8,  1996,  as  amended,  between  the  Company  and  Eikos
                             Management LLC

               10.9 (1)      Mutual  Business  Development  Agreement  dated as of October  8,  1996,  between
                             Service One International Corporation and Renaissance Trust I

               10.10 (1)     Strategic  Modeling  Agreement  dated  March 18,  1999,  between  the Company and
                             Business Transactions Express, Inc.

               10.10.1 (7)   Amendment to the Strategic  Modeling  Agreement dated March 16, 2001, between the
                             Company and Business Transactions Express, Inc.

               10.10.2 (7)   Second Amendment to the Strategic Modeling Agreement dated May 29, 2001,
                             between the Company and Business Transactions Express, Inc.

               10.10.3 (7)   Third Amendment to the Strategic Modeling Agreement dated August 16, 2001,
                             between the Company and Business Transactions Express, Inc.

               10.10.4 (7)   Fourth Amendment to the Strategic Modeling Agreement dated September 13, 2001,
                             between the Company and Business Transactions Express, Inc.

               10.10.5 (7)   Fifth  Amendment to the  Strategic  Modeling  Agreement  dated  October 12, 2001,
                             between the Company and Business Transactions Express, Inc.

               10.11 (1)     Warrant to purchase Common Stock of the Company issued to J.L.B. of Nevada,  Inc.
                             on June 22, 1999

               10.12 (1)     Loan and Security Agreement,  dated as of April 30, 1998, between the Company and
                             Coast Business Credit, a division of Southern Pacific Bank

               10.13 (1)     First Amendment to Loan and Security  Agreement,  dated as of September 30, 1998,
                             between the Company and Coast  Business  Credit,  a division of Southern  Pacific
                             Bank

               10.14 (1)     Second  Amendment to Loan and Security  Agreement,  dated as of December 1, 1998,
                             between the Company and Coast  Business  Credit,  a division of Southern  Pacific
                             Bank

               10.15 (1)     Amendment Number Two to Loan and Security Agreement, dated as of April 27, 1999,
                             between the Company and Coast Business Credit, a division of
                             Southern Pacific Bank

               10.16 (1)     Fourth  Amendment  to Loan and  Security  Agreement,  dated  as of May 27,  1999,
                             between the Company and Coast  Business  Credit,  a division of Southern  Pacific
                             Bank

               10.17 (1)     Amendment Number Five to Loan and Security Agreement,  dated as of June 25, 1999,
                             between the Company and Coast  Business  Credit,  a division of Southern  Pacific
                             Bank

               10.18.1 (1)   Amendment Number Six to Loan and Security  Agreement Dated as of December 6, 1999
                             between the Company and Coast  Business  Credit,  a division of Southern  Pacific
                             Bank

               10.18.2 (6)   Seventh Amendment to Loan and Security Agreement, dated as of May 31, 2000,
                             between the Company and Coast Business Credit, a division of
                             Southern Pacific Bank

                                                                 19
<PAGE>

               10.18.3 (6)   Eighth Amendment to Loan and Security Agreement, dated as of October 31, 2000,
                             between the Company and Coast Business Credit, a division
                             of Southern Pacific Bank

               10.18.4 (4)   Amendment Number Nine to Loan and Security Agreement, dated as of April 16, 2001,
                             between the Company and Coast Business Credit, a division of
                             Southern Pacific Bank

               10.18.5 (6)   Tenth Amendment to Loan and Security Agreement dated as of May 1, 2001
                             between the Company and Coast Business Credit, a division of Southern
                             Pacific Bank

               10.18.6 (7)   Eleventh Amendment to Loan and Security Agreement dated as of September 28, 2001,
                             between the Company and Coast Business Credit, a division of Southern
                             Pacific Bank

               10.19 (1)     Security  Agreement dated as of August 1, 1997,  between J.L.B. of Nevada,  Inc.,
                             Credit Store Mortgage,  Inc., New Beginnings Corp.,  Consumer Debt  Acquisitions,
                             Inc.,  Sleepy Hollow  Associates,  Inc.,  Service One Holdings Inc.,  Service One
                             International   Corporation,   American  Credit  Alliance,   Inc.,   Service  One
                             Receivables  Acquisition   Corporation,   the  Company,  Service  One  Commercial
                             Corporation and Soiland Company

               10.20 (1)     First  Amendment  to Security  Agreement,  dated as of October  23, 1997  between
                             J.L.B.  of Nevada,  Inc.,  the  Company  and Credit  Store  Mortgage,  Inc.,  New
                             Beginnings Corp.,  Consumer Debt  Acquisitions,  Inc., Sleepy Hollow  Associates,
                             Inc., Service One Holdings, Inc., Service One International Corporation,  Service
                             One  Receivables  Acquisition  Corporation,  the Company,  Service One Commercial
                             Corporation and Soiland Company

               10.21 (1)     Second  Amendment  to Security  Agreement,  dated as of November 21, 1997 between
                             J.L.B. of Nevada, Inc., the Company, Sleepy Hollow Associates,  Inc., Service One
                             International  Corporation,  American  Credit  Alliance,  Inc.  and  Service  One
                             Receivables Acquisition Corporation

               10.22 (1)     Credit  Agreement  dated as of October 15, 1999 among Credit Store Capital Corp.,
                             the  Company,  the  Lenders  Signatory  thereto  from time to time,  and  General
                             Electric Capital Corporation

               10.23 (2)     Amended 1997 Stock Option Plan of the Company

               10.24 (1)     Employment Agreement dated March 27, 1997, between the Company and Martin Burke

               10.25 (1)     Letter from Martin Burke dated March 27, 1997,  regarding  credit card  repayment
                             terms

               10.26 (1)     Employment Agreement dated April 1, 1997, between the Company and Kevin Riordan

               10.27 (1)     Employment  Agreement  dated June 17,  1997,  between  the  Company  and  Michael
                             Philippe

               10.28 (1)     Amendment to Employment  Agreement between the Company and Michael Philippe dated
                             December 15, 1999

               10.29 (1)     Employment Agreement dated August 1, 1997, between the Company and Richard Angel

               10.30 (1)     Amendment to  Employment  Agreement  between the Company and Richard  Angel dated
                             December 15, 1999

                                                                20
<PAGE>

               10.31 (1)     Employment  Agreement  dated  October 15,  1997,  between the Company and Cynthia
                             Hassoun

               10.32 (1)     Bankcard  Marketing  Agreement  between  the  Company  and  Bank of  Hoven  dated
                             February 9, 1999

               10.33 (1)     Purchase Agreement between Bank of Hoven and the Company dated February 9, 1999

               10.34 (1)     Bankcard  Marketing  Agreement between Service One International  Corporation and
                             First National Bank in Brookings dated October 2, 1997

               10.35 (1)     Purchase  Agreement  between  First  National  Bank in Brookings  and Service One
                             International  Corporation doing business as TCS Services,  Inc. dated October 2,
                             1997

               10.35.1 (7)   Second  Amendment  to the  Purchase  Agreement  between  First  National  Bank in
                             Brookings and The Credit Store, Inc., dated September 21, 2001

               10.36 (1)     Amendment to Purchase  Agreement  by First  National  Bank in  Brookings  and the
                             Company dated August 31, 1998

               10.37 (1)     Letter Agreement Regarding Bankcard Marketing Agreement and Purchasing  Agreement
                             between the Company and First National Bank in Brookings dated August 17, 1999

               10.38 (1)     Agreement  Regarding  Transfer of Accounts between the Company and First National
                             Bank in Brookings dated December 14, 1998

               10.39 (1)     Subordinated  Grid  Promissory  Note of the Company in favor of J.L.B. of Nevada,
                             Inc. dated August 1, 1997 in the amount of $20,000,000

               10.40 (1)     Subordinated  Grid  Promissory  Note of the Company in favor of J.L.B. of Nevada,
                             Inc. dated October 23, 1997 in the amount of $5,000,000

               10.41 (1)     Subordinated  Grid  Promissory  Note of the Company in favor of J.L.B. of Nevada,
                             Inc. dated November 21, 1997 in the amount of $5,000,000

               10.42 (4)     Receivables  Purchase  Agreement,  dated as of May 31,  2000,  by and between The
                             Credit Store, Inc. and TCS Funding IV, Inc.

              10.43.1 (4)    Master Credit and Security Agreement,  dated as of May 31, 2000, by and among TCS
                             Funding IV, Inc.,  The Credit  Store,  Inc.,  and Miller & Schroeder  Investments
                             Corporation.

             10.43.2 (6)     Credit and Security Agreement,  dated as of May 1, 2001, by and among TCS Funding
                             V, Inc., The Credit Store, Inc., and Miller & Schroeder Investments Corporation.

             10.43.3 (6)     Receivables  Purchase  Agreement  dated May 1, 2001,  by and  between  The Credit
                             Store, Inc. and TCS Funding V, Inc.

                                                               21
<PAGE>

               10.44 (4)     Account  Purchase  Agreement,  dated as of  October  31,  2000,  by and among The
                             Credit Store, Inc. and Credit Services, Inc.

               10.45 (4)     Converted  Accounts/Receivables Sale Agreement,  dated as of October 31, 2000, by
                             and among Credit Store Services, Inc. and The Credit Store, Inc.

               10.46 (4)     Master Loan and Servicing Agreement,  dated October 31, 2000, by and among Credit
                             Store Services, Inc., The Credit Store, Inc., and The Varde Fund IV-A.

               10.47 (4)     Repurchase  Agreement,  dated November 22, 2000, by and between Bank of Hoven and
                             The Credit Store, Inc.

               10.47.1 (6)   Amendment dated February 27, 2001 to the Repurchase Agreement dated November 22, 2000,
                             by and between Bank of Hoven and The Credit Store,
                             Inc.

               10.47.2 (6)   Amendment dated May 31, 2001 to the Repurchase Agreement dated November 22, 2000,
                             by and between Bank of Hoven and The Credit Store, Inc.

               10.48 (5)     Separation  Agreement  and  Release by and  between The Credit  Store,  Inc.  and
                             Martin Burke dated December 11, 2000.

               10.49 (5)     Secured  Promissory Note of American Credit Alliance,  Inc. in favor of J.L.B. of
                             Nevada, Inc. dated August 16, 1996 in the amount of $880,000.

               10.50 (6)     Amendment to Subordinated Grid Promissory  Notes,  dated May 4, 2001, made by The
                             Credit  Store,  Inc.,  to the  order of J.L.B.  Nevada,  Inc.  in the  respective
                             original  principal  amounts of  $20,000,000,  $5,000,000  and  $5,000,000  dated
                             respectively  August 1, 1997,  October 23, 1997 and November 21, 1997 and Secured
                             Promissory  Note made by American Credit  Alliance,  Inc., to the order of J.L.B.
                             of Nevada,  Inc. in the original  principal  amount of $880,000  dated August 16,
                             1996.

                  23.1       Consent of Grant Thornton LLP
</TABLE>

------------

(1)  Filed with the Securities and Exchange Commission as an exhibit to the
     issuer's registration statement on Form 10 filed February 24, 2000 (File
     No. 000-28709) and incorporated herein by reference.

(2)  Filed with the Securities and Exchange Commission as an exhibit to the
     issuer's registration statement on Form S-8 filed July 26, 2000 (File No.
     333-42278) and incorporated herein by reference.

(3)  Intentionally deleted.

(4)  Filed with the Securities and Exchange Commission as an exhibit to the
     issuer's quarterly report on Form 10-Q for the period ended November 30,
     2000 (File No. 001-16083) and incorporated herein by reference.

(5)  Filed with the Securities and Exchange Commission as an exhibit to the
     issuer's registration statement on Form S-1 filed March 2, 2001 (File No.
     333-56456) and incorporated herein by reference.

(6)  Filed with the Securities and Exchange Commission as an exhibit to the
     issuer's registration statement on Form S-1/A filed June 19, 2001 (File No.
     333-56456) and incorporated herein by reference.

(7)  Filed with the Securities and Exchange Commission as an exhibit on Form
     10-K for the year ended June 30, 2001 (File No. 001-16083) and
     incorporated herein by reference.

**   Denotes confidential information that has been omitted from the exhibit and
     filed separately, accompanied by a confidential treatment request, with the
     Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
     Exchange Act of 1934, as amended.



                                       22
<PAGE>



                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                               THE CREDIT STORE, INC.
Dated:  March 5, 2002
                                               By  /s/ Kevin T. Riordan
                                                   -------------------------
                                                       Kevin T. Riordan
                                                       President



                                       23
<PAGE>

             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

                                                                           PAGE

          Report of Independent Certified Public Accountants                F-2

          Consolidated Balance Sheets                                       F-3

          Consolidated Statements of Operations                             F-4

          Consolidated Statements of Stockholders' Equity                   F-5

          Consolidated Statements of Cash Flows                             F-7

          Notes to Consolidated Financial Statements                        F-9




                                      F-1
<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
The Credit Store, Inc.

We have audited the accompanying consolidated balance sheets of The Credit
Store, Inc. (a Delaware corporation) and subsidiaries as of June 30, 2001 and
May 31, 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years ended June 30,
2001, May 31, 2000 and 1999, and the one-month ended June 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Credit Store,
Inc. and subsidiaries as of June 30, 2001 and May 31, 2000 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years ended June 30, 2001, May 31, 2000 and 1999, and the one-month ended
June 30, 2000, in conformity with accounting principles generally accepted in
the United States of America.

As discussed in Note B, the accompanying consolidated financial statement for
the year ended June 30, 2001, have been restated. As discussed in Note C to the
financial statements, the Company changed its method of revenue recognition
related to investment in receivable portfolios as of June 1, 2000.



/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
August 22, 2001 (except for Note G, as
   to which the date is September 28, 2001,
   and Note B as to which the date is
   February 14, 2002)



                                      F-2
<PAGE>

                             The Credit Store, Inc.

                           CONSOLIDATED BALANCE SHEETS

                         June 30, 2001 and May 31, 2000
<TABLE>
<CAPTION>
                                                                            June 30,             May 31,
                ASSETS                                                        2001                2000
                                                                          ------------        ------------
<S>                                                                       <C>                 <C>
                                                                            Restated
                                                                            --------
Cash and cash equivalents                                                 $  1,853,454        $  1,423,248
Restricted cash                                                              1,250,000           1,025,631
Accounts and notes receivable, net                                           5,392,845           2,765,882
Prepaid expenses                                                             1,073,283           1,341,516
Amounts due from special purpose entities                                      617,737           9,332,890
Investments in receivable portfolios, net                                   32,948,042          33,892,290
Investment in unconsolidated affiliate                                       1,000,750           1,279,888
Retained interest in securitized credit card receivables                     7,249,204           2,142,846
Property and equipment, net                                                  5,512,853           4,790,060
Goodwill, net                                                                2,123,558           2,347,999
Deferred tax asset                                                           2,700,000           2,700,000
Other assets                                                                   985,931           1,345,942
                                                                          ------------        ------------

                                                                          $ 62,707,657        $ 64,388,192
                                                                          ============        ============

                LIABILITIES AND STOCKHOLDERS'
                   EQUITY

LIABILITIES
   Accounts payable and accrued expenses                                  $  7,537,895        $  4,499,142
   Notes payable                                                            23,186,134          23,609,326
   Capitalized lease obligations                                             4,247,093           2,766,228
   Subordinated notes and accrued interest payable -
      related party                                                         19,970,834          19,139,028
                                                                          ------------        ------------

                Total liabilities                                           54,941,956          50,013,724
                                                                          ------------        ------------

COMMITMENTS AND CONTINGENCIES                                                       --                  --
                                                                          ------------        ------------

STOCKHOLDERS' EQUITY
   Series A, B, C, D and E Preferred Stock                                  27,000,000          27,000,000
   Common stock, $.001 par value; 65,000,000 shares
      authorized at June 30, 2001 and May 31, 2000;
      34,851,465 shares issued and outstanding at
      June 30, 2001 and 34,761,965 shares issued and
      outstanding at May 31, 2001                                               34,851              34,762
   Additional paid-in capital                                               23,972,421          23,743,260
   Unrealized gain from retained interest in securitized
      credit card receivables, net of tax                                    1,603,350             638,227
   Accumulated deficit                                                     (44,844,921)        (37,041,781)
                                                                          ------------        ------------

                Total stockholders' equity                                   7,765,701          14,374,468
                                                                          ------------        ------------

                Total liabilities and stockholders' equity                $ 62,707,657        $ 64,388,192
                                                                          ============        ============
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>

                             The Credit Store, Inc.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

            For the years ended June 30, 2001, May 31, 2000 and 1999
                     and the one-month ended June 30, 2000
<TABLE>
<CAPTION>

                                                                  Year ended      One-month ended         Year ended May 31
                                                                   June 30,          June 30,        ------------------------------
                                                                     2001              2000              2000              1999
                                                                 ------------      ------------      ------------      ------------
                                                                   Restated
                                                                   --------
<S>                                                              <C>               <C>               <C>               <C>
Revenue
   Income from investment in receivable portfolios               $ 38,714,160      $  3,312,545      $ 30,435,832      $ 28,483,745
   Securitization income and asset sales                            3,304,331            44,488        13,266,241        12,114,703
   Servicing fees and other income                                  5,034,187           237,176         2,684,554         1,564,356
                                                                 ------------      ------------      ------------      ------------
                Total revenue                                      47,052,678         3,594,209        46,386,627        42,162,804
   Provision for losses                                             9,305,969         1,238,291         5,680,975         4,607,081
                                                                 ------------      ------------      ------------      ------------
                Net revenue                                        37,746,709         2,355,918        40,705,652        37,555,723
Expenses
   Salaries and employee benefits                                  14,334,712         1,130,262        13,502,074        12,484,582
   Professional fees                                                3,048,027           353,592         2,604,992         2,701,016
   Third-party services                                             3,850,903           338,482         3,972,785         4,468,992
   Depreciation and amortization                                    1,990,390           166,133         2,494,489         2,614,216
   Marketing and customer communications                            5,016,901           375,528         3,391,962         2,683,270
   Occupancy and equipment expense                                  2,032,742           143,982         1,727,884         1,614,513
   Royalty expense                                                  1,067,363           211,069         1,733,412         1,541,944
   Financing fees                                                   1,231,161           277,661         1,092,286           211,864
   Nonrecurring events
     Provision for contract settlement -
       related party                                                2,000,000                --                --                --
     Provision for losses                                           1,250,000                --                --                --
     Provision for losses - related party                             537,061                --                --                --
   Other                                                            2,567,078           261,259         3,173,999         3,316,564
                                                                 ------------      ------------      ------------      ------------
                Total expenses                                     38,926,338         3,257,968        33,693,883        31,636,961
                                                                 ------------      ------------      ------------      ------------

                Operating income (loss)                            (1,179,629)         (902,050)        7,011,769         5,918,762

Interest expense                                                    3,655,415           304,241         2,867,999         1,590,219
Interest expense - related party                                    2,090,023           171,782         2,113,950         2,439,272
                                                                 ------------      ------------      ------------      ------------

                Income (loss) before income taxes                  (6,925,067)       (1,378,073)        2,029,820         1,889,271

Income tax benefit                                                    436,544            63,456         1,042,375         1,986,409
                                                                 ------------      ------------      ------------      ------------
                Net income (loss)                                  (6,488,523)       (1,314,617)        3,072,195         3,875,680
Dividends on preferred stock                                       (2,000,000)         (166,667)       (2,000,000)       (1,799,999)
                                                                 ------------      ------------      ------------      ------------
Net income (loss), applicable to common stockholders
                                                                 $ (8,488,523)     $ (1,481,284)     $  1,072,195      $  2,075,681
                                                                 ============      ============      ============      ============
Net income (loss) per share - basic and diluted                  $      (0.24)     $      (0.04)     $       0.03      $       0.06

Weighted-average common shares outstanding
   Basic                                                           34,799,135        34,761,965        34,761,965        34,761,965
                                                                 ============      ============      ============      ============
   Diluted                                                         34,799,135        34,761,965        36,924,208        35,091,550
                                                                 ============      ============      ============      ============
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>

                          The Credit Store, Inc.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

            For the years ended June 30, 2001, May 31, 2000 and 1999
                      and the one-month ended June 30, 2000
<TABLE>
<CAPTION>

                                                        Common Stock
                                                   ------------------------    Series A       Series B      Series C       Series D
                                                     Shares        Amount      Preferred      Preferred     Preferred     Preferred
                                                   -----------   -----------   -----------   -----------   -----------   -----------
<S>                                                 <C>          <C>           <C>           <C>           <C>           <C>
Balance at May 31, 1998                             34,761,965   $    34,762   $ 1,200,000   $   800,000   $ 5,000,000   $10,000,000
Net income                                                  --            --            --            --            --            --
   Unrealized gain and accretion  on
     retained interest in
     securitization, net of tax                             --            --            --            --            --            --
         Comprehensive income                               --            --            --            --            --            --
   Issuance of Series E  Preferred Stock
     in exchange for $10 million
     subordinated note                                      --            --            --            --            --            --
   Issuance of warrants in lieu of
     payment  of accrued interest on
     subordinated debt                                      --            --            --            --            --            --
                                                   -----------   -----------   -----------   -----------   -----------   -----------
Balance at May 31, 1999                             34,761,965        34,762     1,200,000       800,000     5,000,000    10,000,000
   Net income                                               --            --            --            --            --            --
   Unrealized gain and  accretion  on
     retained  interest in
     securitization, net of tax                             --            --            --            --            --            --
   Sale of retained interest in
     securitized receivables, net of tax                    --            --            --            --            --            --
         Comprehensive income                               --            --            --            --            --            --
   Issuance of warrants and stock
     options in lieu of payment for
     services and assets                                    --            --            --            --            --            --
                                                   -----------   -----------   -----------   -----------   -----------   -----------
Balance at May 31, 2000                             34,761,965        34,762     1,200,000       800,000     5,000,000    10,000,000
   Net loss                                                 --            --            --            --            --            --
   Unrealized (loss) and accretion  on
     retained interest in
     securitization, net of tax                             --            --            --            --            --            --
         Comprehensive income                               --            --            --            --            --            --
                                                   -----------   -----------   -----------   -----------   -----------   -----------
Balance at June 30, 2000                            34,761,965        34,762     1,200,000       800,000     5,000,000    10,000,000
   Net loss                                                 --            --            --            --            --            --
   Unrealized gain and accretion on
     retained interest in
     securitization, net of tax                             --            --            --            --            --            --
         Comprehensive loss                                 --            --            --            --            --            --
   Stock options exercised                              89,500            89            --            --            --            --
   Issuance of stock options in lieu of
     payment for services                                   --            --            --            --            --            --
                                                   -----------   -----------   -----------   -----------   -----------   -----------
Balance at June 30, 2001 (restated)                 34,851,465   $    34,851   $ 1,200,000   $   800,000   $ 5,000,000   $10,000,000
                                                   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>


The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>

                             The Credit Store, Inc.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED

            For the years ended June 30, 2001, May 31, 2000 and 1999
                      and the one-month ended June 30, 2000
<TABLE>
<CAPTION>

                                                                        Additional                      Other            Total
                                                          Series E        paid-in      Accumulated   comprehensive    stockholders'
                                                          Preferred       capital        deficit         income           equity
                                                         ------------   ------------   ------------    ------------    ------------
<S>                                                      <C>            <C>            <C>             <C>             <C>
Balance at May 31, 1998                                  $         --   $ 19,311,782   $(43,989,656)   $         --    $ (7,643,112)
                                                         ------------   ------------   ------------    ------------    ------------
   Net income                                                      --             --      3,875,680              --       3,875,680
   Unrealized gain and accretion on
     retained interest in securitization,                          --             --             --       2,497,148       2,497,148
                                                                                                                       ------------
     net of tax
         Comprehensive income                                      --             --             --              --       6,372,828
   Issuance of Series E  Preferred  Stock in
     exchange  for $10 million  subordinated
     note                                                  10,000,000             --             --              --      10,000,000
   Issuance of warrants in lieu of payment
     of  accrued  interest  on  subordinated                       --      3,358,929             --              --       3,358,929
                                                         ------------   ------------   ------------    ------------    ------------
     debt
Balance at May 31, 1999                                    10,000,000     22,670,711    (40,113,976)      2,497,148      12,088,645
   Net income                                                      --             --      3,072,195              --       3,072,195
   Unrealized gain and accretion on
     retained  interest  in  securitization,                       --             --             --       2,062,292       2,062,292
     net of tax
   Sale of retained interest in securitized
     receivables, net of tax                                       --             --             --      (3,921,213)     (3,921,213)
                                                                                                                       ------------
         Comprehensive income                                      --             --             --              --       1,213,274
   Issuance of warrants and stock options
     in lieu of payment for services and                           --      1,072,549             --              --       1,072,549
                                                         ------------   ------------   ------------    ------------    ------------
     assets
Balance at May 31, 2000                                    10,000,000     23,743,260    (37,041,781)        638,227      14,374,468
   Net loss                                                        --             --     (1,314,617)             --      (1,314,617)
   Unrealized gain and accretion on
     retained interest in securitization,                          --             --             --         123,180         123,180
                                                                                                                       ------------
     net of tax
         Comprehensive income                                      --             --             --              --      (1,191,437)
                                                         ------------   ------------   ------------    ------------    ------------
Balance at June 30, 2000                                   10,000,000     23,743,260    (38,356,398)        761,407      13,183,031
   Net loss                                                        --             --     (6,488,523)             --      (6,488,523)
   Unrealized gain and accretion on
     retained interest in securitization,                          --             --             --         841,943         841,943
                                                                                                                       ------------
     net of tax
         Comprehensive loss                                        --             --             --              --      (5,646,580)
   Stock options exercised                                         --        210,261             --              --         210,350
   Issuance of stock options in lieu of
     payment for services                                          --         18,900             --              --          18,900
                                                         ------------   ------------   ------------    ------------    ------------
Balance at June 30, 2001 (restated)                      $ 10,000,000   $ 23,972,421   $(44,844,921)   $  1,603,350    $  7,765,701
                                                         ============   ============   ============    ============    ============
</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-6
<PAGE>

                             The Credit Store, Inc.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

            For the years ended June 30, 2001, May 31, 2000 and 1999
                      and the one-month ended June 30, 2000

<TABLE>
<CAPTION>
                                                                       Year ended    One-month ended
                                                                         June 30,        June 30,           Years ended May 31,
                                                                           2001            2000            2000            1999
                                                                       ------------    ------------    ------------    ------------
                                                                         Restated
                                                                         --------
<S>                                                                    <C>             <C>             <C>             <C>
Cash flows from operating activities:
   Net income (loss)                                                   $ (6,488,523)   $ (1,314,617)   $  3,072,195    $  3,875,680
   Adjustments to reconcile net income (loss) to net cash
     provided (used) in operating activities
       Provision for credit card losses                                   9,305,969       1,238,291       5,680,975       4,607,081
       Amortization of receivable portfolios discount                   (20,551,081)     (1,304,350)     (1,344,418)             --
       Amortization of retained interest in securitized
         credit cards                                                    (1,802,451)        (44,488)             --              --
       Provision for losses on accounts and notes receivable              1,791,567              --         100,000         768,860
       Depreciation and amortization                                      1,990,390         166,133       2,494,489       2,614,216
       Deferred tax benefit                                                (436,544)        (63,456)     (1,042,375)     (1,986,409)
       Gain on sale of interest in affiliates                                    --              --      (5,260,358)             --
       (Gain) loss from unconsolidated affiliates                           (37,290)         (6,733)        332,760        (325,183)
       Gain on sale of credit card receivable portfolios                 (1,526,504)             --      (5,771,007)    (11,851,080)
       Services received for stock options granted                           18,900              --          38,500              --
       Changes in operating assets and liabilities:
         Restricted cash                                                   (146,787)        (77,582)       (275,631)        250,000
         Accounts and notes receivable                                   (3,976,334)         87,606      (1,715,675)     (1,426,401)
         Receivable from special purpose entities                         4,673,377       4,041,776      (8,102,190)     (1,230,700)
         Prepaid expenses                                                   122,188         147,909        (723,318)       (173,362)
         Accrued interest on funds advanced on credit cards                (440,393)         43,519        (511,096)         82,488
         Accrued fees                                                    (1,162,586)          4,609      (1,197,790)        291,161
         Other assets                                                       360,436          (2,331)        407,121        (177,085)
         Unearned fees                                                      (12,868)         (4,308)        264,855         184,551
         Accounts payable and accrued expenses                            2,876,976         136,777         185,733        (193,277)
         Accrued interest payable on subordinated notes                     660,023         171,783         242,433       2,439,273
                                                                       ------------    ------------    ------------    ------------
                Net cash provided (used) in operating
                    activities                                          (14,781,535)      3,220,538     (13,124,797)     (2,250,187)
Cash flows from investing activities:
   Collection of consumer debt and funds advanced                        38,167,265       2,150,036      25,761,161      24,583,838
   Retained interest in securitized credit card receivables              (1,794,295)             --      (1,840,282)     (1,346,815)
   Proceeds from sale of credit card receivable portfolios                9,257,092              --      12,244,229      17,129,109
   Funds advanced on credit cards                                       (27,997,798)     (2,298,314)    (30,849,101)    (29,460,286)
   Purchase of non-performing consumer debt portfolios                   (4,430,995)             --     (13,811,499)     (8,622,478)
   Proceeds from sale of beneficial interest in affiliates                       --              --       8,643,233              --
   Purchase of performing consumer debt portfolios                               --              --      (4,082,114)             --
   Development of proprietary software                                     (453,047)        (61,141)       (207,587)       (460,497)
   Purchase of property and equipment                                    (2,086,373)        (52,411)       (737,172)       (682,539)
                                                                       ------------    ------------    ------------    ------------

                Net cash provided (used) in investing
                  activities                                             10,661,849        (261,830)     (4,879,132)      1,140,332
                                                                       ------------    ------------    ------------    ------------
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-7
<PAGE>

                             The Credit Store, Inc.

                CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED

            For the years ended June 30, 2001, May 31, 2000 and 1999
                      and the one-month ended June 30, 2000
<TABLE>
<CAPTION>

                                                                       Year ended    One-month ended
                                                                         June 30,        June 30,           Years ended May 31,
                                                                           2001            2000           2000            1999
                                                                       ------------    ------------    ------------    ------------
                                                                         Restated
                                                                       ------------
<S>                                                                    <C>             <C>             <C>             <C>
Cash flows from financing activities:
   Proceeds from debt                                                  $  4,129,628    $    251,255    $ 19,128,881    $    576,643
   Payments on debt                                                      (2,561,301)     (2,242,774)     (1,956,321)     (2,032,989)
   Borrowings from capital leases                                         3,426,266              --         896,018         559,713
   Payments on capital lease obligations                                 (1,791,594)       (153,807)     (2,175,331)     (1,664,653)
   Partner distributions from unconsolidated affiliates                     323,161              --              --              --
   Proceeds from issuance of stock                                          210,350              --              --              --
                                                                       ------------    ------------    ------------    ------------

                Net cash provided (used) in financing
                  activities                                              3,736,510      (2,145,326)     15,893,247      (2,561,286)
                                                                       ------------    ------------    ------------    ------------

                NET INCREASE (DECREASE) IN CASH AND CASH
                  EQUIVALENTS                                              (383,176)        813,382      (2,110,682)     (3,671,141)

Cash and cash equivalents at beginning of period                          2,236,630       1,423,248       3,533,930       7,205,071
                                                                       ------------    ------------    ------------    ------------

Cash and cash equivalents at end of period                             $  1,853,454    $  2,236,630    $  1,423,248    $  3,533,930
                                                                       ============    ============    ============    ============


Supplemental disclosures of cash flow information:
     Cash paid during the year for:
       Interest                                                        $  4,825,707    $    265,007    $  4,178,571    $  1,592,864
       Income taxes                                                              --              --              --              --

     Noncash investing activities:
         Conversion of cardholder account to note receivable                504,801              --              --              --
         Change in fair market value of retained interest in
           securitized credit cards, net of tax                             506,739       1,471,862       2,062,292       2,497,148

     Noncash financing activities:
         Series D and E preferred stock issued in exchange
           for subordinated note                                                 --              --              --      10,000,000
         Obligations assumed in lieu of payment of accrued
           interest on subordinated debt                                         --              --              --       1,641,071
         Issuance of warrants in lieu of payment of accrued
           interest on subordinated debt                                         --              --              --       3,358,929
         Issuance of warrants and stock options in lieu of
           payment for services and assets                                   18,900              --       1,072,549              --
</TABLE>


The accompanying notes are an integral part of these statements.

                                      F-8
<PAGE>

                             The Credit Store, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      June 30, 2001, May 31, 2000 and 1999
                                and June 30, 2000




NOTE A  -  ORGANIZATION

   The Credit Store (the "Company") is a technology and information based
   financial services company that provides credit card products to consumers
   who may otherwise fail to qualify for a traditional unsecured bank credit
   card. Unlike traditional credit card companies, the Company focuses on
   consumers who have previously defaulted on debt. The Company reaches these
   consumers by acquiring their defaulted debt. Through direct mail and
   telemarketing operations, these consumers are offered an opportunity to
   settle their debt, typically at a discount, transfer the agreed settlement
   amount to a newly issued unsecured MasterCard(R) or Visa(R) credit card, and
   establish a positive credit history on their newly issued card by making
   timely and consistent payments. The Company accepts lump sum settlements or
   installment payment plans from those consumers who do not accept the credit
   card offer.

   After the consumers have made six or more consecutive monthly payments on
   their outstanding credit card balance the Company considers the account
   seasoned and available to sell or securitize. Because the focus of the
   Company's business is to convert defaulted debt into seasoned credit cards,
   the Company periodically sells or securitizes portfolios of these seasoned
   accounts. The Company also periodically sells into the secondary market for
   non-performing consumer debt portfolios of accounts it acquired but was
   unable to convert.

   On May 24, 2001, the Company changed its fiscal year end to June 30, from May
   31. The Company believes that the twelve months ended June 30, 2001 provide a
   meaningful comparison to the twelve months ended May 31, 2000 and 1999. There
   are no factors, of which the Company is aware, seasonal or otherwise, that
   would impact the comparability of information or trends, if the results for
   the twelve months ended June 30, 2000 and 1999 were presented in lieu of
   results for the twelve months ended May 31, 2000 and 1999, except for the
   change in revenue recognition related to investments in receivables effective
   June 1, 2000.

NOTE B - FINANCIAL RESTATEMENT

   Subsequent to June 30, 2001, the Company discovered an error in its
   calculation of the fair market value of its retained interests in two
   securitization transactions, resulting in an oversatement of assets,
   unrealized gain from retained interests in securitized credit card
   receivables and the resulting income tax benefit at June 30, 2001, which
   resulted in an understatement of accumulated deficit. The adjustments result
   in a reduction of the June 30, 2001 fair market valuation of the retained
   interests of $4.1 million, a decrease in the unrealized gain from retained
   interests in securitized credit card receivables recorded within other
   comprehensive income net of income tax of $2.7 million, and a reduction in
   income tax benefit of $1.4 million. These adjustments increased accumulated
   deficit by $4.1 million. The reduction in income tax benefit is related to
   changes in the tax effect of the Company's unrealized gain from retained
   interests in securitized credit card receivables, and is offset by an equal
   amount of tax benefit which is recorded in other comprehensive income. These
   changes resulted in an increase in net loss per share of $(0.04) to $(0.24)
   for the fiscal year ended June 30, 2001. The adjustment did not impact
   operating earnings or cash flows for fiscal 2001 and had no impact on fiscal
   year 2000.

NOTE C  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Principles of Consolidation
   ---------------------------

   The Company has five subsidiaries, Credit Store Services, Inc., Credit Store
   Capital Corp., American Credit Alliance, TCS Funding IV, Inc. , and TCS
   Funding V, Inc. All of these subsidiaries are wholly owned by the Company;
   however, only Credit Store Capital Corp. and American Credit Alliance are
   consolidated in the financial statements. Credit Store Services, Inc., TCS
   Funding IV, Inc., and TCS Funding V, Inc. are qualifying special purpose
   entities ("QSPE's") that are not required to be consolidated.



                                      F-9
<PAGE>

NOTE C  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

   Credit Store Services, Inc. and Credit Store Capital Corp. acquire
   non-performing consumer receivables and contract with the Company to offer
   consumers a credit card or to accept settlements or payment plans. American
   Credit Alliance owns a 50% interest in Dakota Card Fund II, a limited
   liability company that contracts with the Company to service non-performing
   receivables and credit card receivables that it owns. TCS Funding IV, Inc.
   and TCS Funding V, Inc. were created in connection with securitizations for
   the purpose of purchasing performing credit card receivables from the
   Company. For consolidated entities, all significant inter-company
   transactions have been eliminated.

   Cash and Cash Equivalents
   -------------------------

   For purposes of the statement of cash flows, cash includes all cash and
   investments with original maturities of three months or less when purchased,
   except restricted cash. The Company's restricted cash is on deposit with two
   banks in order to facilitate funding of credit card loans. The Company
   maintains its cash in bank deposit accounts, which at times may exceed
   federally insured limits.

   Investment in Unconsolidated Affiliate
   --------------------------------------

   Investment in unconsolidated affiliate represents the Company's earnings in
   Dakota Card Fund II, LLC, an entity involved in substantially the same
   business as the Company and is recorded on the equity method of accounting.

   Securitization Accounting
   -------------------------

   Statement of Financial Accounting Standards No. 140 ("SFAS No. 140"),
   "Accounting for Transfers and Servicing of Financial Assets and
   Extinguishments of Liabilities," was issued in September 2000 and replaces,
   in its entirety, SFAS No. 125. The Company was required to adopt the
   provisions of SFAS No. 140 prospectively to transactions beginning after
   March 31, 2001. Although SFAS No. 140 has changed many of the rules regarding
   securitizations under SFAS No. 125, it continues to require an entity to
   recognize the financial and servicing assets it controls and the liabilities
   it has incurred and to derecognize financial assets when control has been
   surrendered. The proceeds of securitized financial assets are allocated to
   the assets sold, the servicing asset or liability and retained interest based
   on their relative fair values at the transfer date in determining the gain on
   the securitization transaction.

   SFAS No. 140 and No. 125 require an entity to recognize a servicing asset or
   servicing liability each time it undertakes an obligation to service
   financial assets that have been securitized and amortize it over the period
   of estimated net servicing income or loss. The Company received adequate
   compensation for the servicing of securitized credit card receivables and
   therefore no servicing asset or liability was recorded.

   Retained Interest in Securitized Credit Card Receivables
   --------------------------------------------------------

   The retained interest in securitized credit card receivables is treated as a
   debt security classified as available-for-sale in accordance with Statement
   of Financial Accounting Standards No. 115, "Accounting for Certain
   Investments in Debt and Equity Securities," and is carried at fair value. At
   the time of securitization, the retained interest is initially recorded at
   the basis allocated in accordance with SFAS No. 140. The original cost basis
   is adjusted monthly to fair value which is based on the discounted expected
   future net cash flows on a "cash out" basis. The cash out method projects
   cash collections to be received only after all amounts owed to investors have
   been paid. Adjustments to fair value (net of related income taxes) are
   recorded as a component of other comprehensive income.

   Income on the retained interest is accrued based on the effective interest
   rate applied to its original cost basis, adjusted for previously accrued
   interest and cash payments. The effective interest rate is the internal rate
   of return determined based on the timing and amounts of expected future net
   cash flows for the underlying pool of securitized credit card receivables.
   The Company adopted EITF 99-20, "Recognition of Interest Income and
   Impairment on Purchased and Retained Beneficial Interests in Securitized
   Financial Assets", during the fourth quarter of fiscal year 2001. The
   adoption of EITF 99-20 did not have a material impact on the consolidated
   financial statements.



                                      F-10
<PAGE>

NOTE C  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

   The retained interest in securitized credit card receivables is evaluated for
   impairment by management monthly based on current market and cash flow
   assumptions applied to the underlying receivables. Provisions for losses are
   charged to earnings when it is determined that the retained interest's
   original cost basis, adjusted for accrued interest and principal payments, is
   greater than the present value of expected future net cash flows. No such
   provision for losses was recorded during the fiscal years ended June 30,
   2001, May 31, 2000 and 1999, and the one-month ended June 30, 2000.

   Property and Equipment
   ----------------------

   Property and equipment are recorded at cost, less accumulated depreciation
   and amortization. Depreciation and amortization are determined using the
   straight-line method over the estimated useful lives of the assets or terms
   of the capital lease. Expenditures for maintenance and repairs are expensed
   when incurred.

   Goodwill
   --------

   Goodwill originating from the acquisition of companies is being amortized
   using the straight-line method over fifteen years. The Company evaluates the
   impairment of goodwill based on expectations of future non-discounted cash
   flows and operating income related to purchased businesses. As of June 30,
   2001 and May 31, 2000 accumulated amortization was $984,087 and $759,646.

   Revenue Recognition
   -------------------

   Effective June 1, 2000, the Company accounts for its investments in
   receivable portfolios on the accrual basis of accounting in accordance with
   the provisions of the AICPA's Practice Bulletin 6, "Amortization of Discounts
   on Certain Acquired Loans." Prior to June 1, 2000, the Company used the cost
   recovery method of accounting. Practice Bulletin 6 requires that the accrual
   basis of accounting be used at the time the amount and timing of projected
   portfolio cash flows can be reasonably estimated and collection is probable.
   The Company has established projection models from historical portfolio data
   that it believes provides appropriate information to reasonably estimate
   future cash flows.

   For both the cost recovery and accrued methods of accounting, static pools
   are established which include accounts having similar attributes, based on
   the specific seller and the timing of the acquisition. Once a static pool is
   established, the receivables are permanently assigned to the pool. The
   discount (i.e., the difference between the cost of each static pool and the
   related aggregate consumer receivable balances) is not recorded at the time
   of purchase because the Company expects to collect a relatively small
   percentage of each static pool's consumer receivable balances. The Company
   accounts for each static pool as a unit for the economic life of the pool for
   recognition of income from receivable portfolios, for collections applied to
   principal of receivable portfolios and for provision for loss or impairment.
   All direct mail and scrubbing costs are expensed as incurred.

   Under the accrual basis of accounting, amortization of receivable portfolios
   discount is accrued based on the effective interest rate determined for each
   pool applied to each pool's carrying value as of June 1, 2000, adjusted for
   previously accrued interest and cash payments, or its cost if purchased after
   June 1, 2000. The effective interest rate is the internal rate of return
   determined based on the timing and amounts of actual cash received since the
   date of adoption of accrual accounting or since the pool's purchase date, if
   purchased after June 1, 2000, and anticipated future cash flow projections
   for each pool.

   The Company monitors impairment of non-performing receivable portfolios based
   on the current market environment and the discounted projected future cash
   flow of each portfolio compared to the portfolio's carrying amount.
   Provisions for losses are charged to earnings when the Company has determined
   that the investment in a non-performing receivable portfolio is greater than
   the present value of expected future net cash flows. No such provision for
   losses was recorded in the year ended June 30, 2001, May 31, 2000 and 1999,
   or the one-month period ended June 30, 2000.

   The change to the accrual method resulted in an increase of $7.7 million and
   $1.2 million in income from credit card receivables for the year ended June
   30, 2001 and one-month period ended June 30, 2000, compared to the amount
   that would have been reported under the cost recovery method previously used,
   and an increase of $5.0 million and $0.4 million in the provision for losses
   on credit card receivables. Prior periods are not required to be restated.


                                      F-11
<PAGE>

NOTE C  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

   Prior to June 1, 2000, the portfolios of non-performing consumer debt were
   accounted for on a pool basis using the cost recovery method of accounting in
   accordance with Practice Bulletin No. 6, "Amortization of Discounts on
   Certain Acquired Loans." Under the cost recovery method of accounting, all
   cash receipts relating to individual portfolios of nonperforming consumer
   debt are applied first to recover the cost of the portfolios, prior to
   recognizing any revenue. Cash receipts in excess of cost of acquired
   portfolios are then recognized as revenue. The cost of the portfolio includes
   the purchase price paid to the seller plus costs directly related to the
   acquisition of the portfolio.

   Servicing revenues are fees related to originating, processing and managing
   credit cards for third parties. These revenues are recognized when the
   related services are provided.


   Fee income and interest on new advances is accrued on all credit card
   accounts including delinquent accounts, until the account is charged off. A
   credit card is contractually delinquent if the minimum payment is not
   received on the specified payment due date on the customer's statement.

   Allowance for Credit Card Losses
   --------------------------------

   The provision for credit card losses includes current period losses and an
   amount which, in the judgment of management, is necessary to maintain the
   allowance for possible credit card losses at a level that reflects known and
   inherent risks in the credit card portfolio. In evaluating the adequacy of
   the allowance for credit card losses, management considers several factors,
   including: historical trends of charge-off activity for each credit card
   portfolio as well as current economic conditions and the impact that such
   conditions might have on a borrowers' ability to repay. Significant changes
   in these factors could affect the adequacy of the allowance for credit card
   losses in the near term. Credit card accounts are generally charged-off when
   the credit card receivable becomes contractually 180 days past due, with the
   exception of bankrupt accounts, which are charged off immediately upon formal
   notification of bankruptcy, and accounts of deceased cardholders without a
   surviving, contractually liable individual, which are also charged off
   immediately upon notification.

   The following table summarizes information about the Company's allowance for
credit card losses.


                                                 For the year      For the year
                                                    ended              ended
                                                 June 30, 2001     May 31, 2000
                                                  -----------       -----------


    Balance at beginning of period                $ 3,593,909       $ 2,846,533
    Provision for credit card losses                9,305,969         5,680,975
    Credit card receivables charged-off            (9,042,996)       (6,051,670)
                                                  -----------       -----------

    Balance at end of period                      $ 3,856,882       $ 2,475,838
                                                  ===========       ===========

   Accounts and Notes Receivable
   -----------------------------

   Accounts and notes receivables represent amounts due to the Company mainly
   relating to sales of credit card receivables, a separation agreement with a
   former chief executive officer and other nonrelated party transactions.
   During the fourth quarter of fiscal 2001, the company recorded a reserve of
   $537,061 related to a note receivable from the former chief executive officer
   and $1,250,000 related to a note receivable from a third party. As of June
   30, 2001 and May 31, 2000, the accounts and notes receivable allowance for
   doubtful accounts was $2,366,584 and $584,029.


                                      F-12
<PAGE>


NOTE C  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

   Stock Based Compensation
   ------------------------

   The Company utilizes the intrinsic value method of accounting for its
   stock-based employee compensation plans. Stock based awards granted to
   non-employees are expensed over the time the services are rendered based upon
   the fair value of the award or services. Proforma information related to the
   fair value based method of accounting is contained in Note I.

   Deferred Income Taxes
   ---------------------

   Deferred income taxes reflect the net tax effects of temporary differences
   between the carrying amounts of assets and liabilities for financial
   reporting purposes and the amounts used for income tax purposes.

   Net Income (Loss) Per Share
   ---------------------------

   Basic net income (loss) per share is computed by dividing net income (loss)
   applicable to common stockholders by the weighted-average number of common
   shares outstanding during the period. Net income (loss) applicable to common
   stockholders is computed by deducting dividends on preferred stock from net
   income (loss). Diluted net income (loss) per share is based on the
   weighted-average number of common and common equivalent shares outstanding.
   The calculation takes into account the shares that may be issued upon
   exercise of stock options and warrants, reduced by the shares that may be
   repurchased with the funds received from the exercise, based on the average
   price during the period. In computing diluted net income (loss) per share,
   only potential common shares that are dilutive (those that reduce net income
   per share) are included. Exercise of stock options is not assumed if the
   result would be antidilutive, such as when a net loss is reported.

   Comprehensive Income
   --------------------

   Comprehensive income, as defined by SFAS No. 130, "Reporting Comprehensive
   Income," includes net income (loss) and items defined as other comprehensive
   income. SFAS No. 130 requires that items defined as other comprehensive
   income (loss), such as unrealized gains and losses on certain investments in
   debt securities, be separately classified in the financial statements. Such
   disclosures are included in the consolidated statements of stockholders'
   equity.

   Reclassifications
   -----------------

   Certain reclassifications have been made to prior period amounts to conform
   to the current period presentation.

   Use of Estimates
   ----------------

   In preparing financial statements in conformity with accounting principles
   generally accepted in the United States of America, management is required to
   make estimates and assumptions that affect the reported amounts of assets and
   liabilities, the disclosure of contingent assets and liabilities at the date
   of the financial statements, and the reported amounts of revenues and
   expenses during the reporting period. Actual results could differ from those
   estimates.

   Significant estimates have been made by management with respect to the timing
   and amount of collection of future cash flows from non-performing consumer
   debt and credit card receivables ("portfolios"). Among other things, the
   estimated future cash flows of the portfolios are used to recognize income
   from receivable portfolios, impairment in investment in non-performing
   consumer debt, provision for losses on credit card receivables and fair value
   of retained interest in securitized credit card receivables. On a monthly
   basis, management reviews the estimate of future collections, and it is
   reasonably possible that these estimates may change based on actual results
   and other factors. A change could be material to the consolidated financial
   statements.



                                      F-13
<PAGE>


NOTE C  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued


New Accounting Pronouncements
-----------------------------

   On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
   Statement of Financial Accounting Standards ("SFAS") 141, Business
   Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
   effective for all business combinations completed after June 30, 2001. SFAS
   142 is effective for fiscal years beginning after December 15, 2001; however,
   early application is permitted for companies with fiscal years beginning
   after March 15, 2001. Certain provisions of SFAS 142 apply to goodwill and
   other intangible assets acquired between July 1, 2001 and the effective date
   of SFAS 142. Major provisions of these Statements and their effective dates,
   assuming early application of SFAS 142 is not elected, for the Company are as
   follows:

      o  all business combinations initiated after June 30, 2001 must use the
         purchase method of accounting. The pooling of interest method of
         accounting is prohibited except for transactions initiated before July
         1, 2001.

      o  intangible assets acquired in a business combination must be recorded
         separately from goodwill if they arise from contractual or other legal
         rights or are separable from the acquired entity and can be sold,
         transferred, licensed, rented or exchanged, either individually or as
         part of a related contract, asset or liability.

      o  goodwill, as well as intangible assets with indefinite lives, acquired
         after June 30, 2001, will not be amortized. Effective for the Company's
         fiscal year beginning July 1, 2002, all previously recognized goodwill
         and intangible assets with indefinite lives will no longer be subject
         to amortization.

      o  effective for the Company's fiscal year beginning July 1, 2002,
         goodwill and intangible assets with indefinite lives will be tested for
         impairment annually and whenever there is an impairment indicator.

   The Company is currently reviewing early application of SFAS 142 as well as
   the affect of these FASB Statements on their financial statements.

NOTE D  -  INVESTMENTS IN RECEIVABLE PORTFOLIOS

   The Company acquires portfolios of non-performing consumer installment debt,
   credit card receivables, and automobile deficiency debt that have not been
   performing for several years from originating financial institutions. These
   debts are acquired at a substantial discount from the actual consumer
   outstanding balance. The Company's objective is to offer the consumer an
   opportunity to settle these debts, typically at a discount, and transfer the
   settled amount to a newly issued credit card. Debts that consumers do not
   settle may be sold by the Company to a third party.

   Upon settlement of the debt, a credit card is issued to the consumer with the
   opening balance and credit line equal to the settlement amount. From the time
   a settlement has been reached with the consumer, no incremental asset is
   recorded until after the consumer begins to make principal payments except
   for amortization of receivable portfolios discount and subsequent consumer
   funded activity. For financial statement purposes, the Company records
   amortization of receivable portfolios discount and funded credit card
   activity in investments in receivable portfolios. Amortization of receivable
   portfolios discount represents the present value of future cash flows from
   purchased non-performing consumer debt settled to the credit card account.
   Funded credit card activity reflects amounts funded by the Company for new
   purchases or advances, accrued interest on new purchases and advances, and
   accrued fees, less a provision for losses and unearned fees. After making
   principal payments on the settlement amount, the consumer may use the credit
   card for new purchases and cash advances up to their available credit limit,
   which may be increased from time to time based on their payment history.



                                      F-14
<PAGE>


NOTE D - INVESTMENTS IN RECEIVABLE PORTFOLIOS - Continued

   Investments in receivable portfolios consist of the following at:
<TABLE>
<CAPTION>
                                                                               June 30,                May 31,
                                                                                 2001                   2000
                                                                             -----------             -----------
<S>                                                                          <C>                     <C>
     Cost and amortization of receivable portfolios discount                 $ 9,281,048             $ 9,648,090
                                                                             -----------             -----------

     Principal funded on new advances and purchases                          $27,456,560             $26,536,055
     Accrued interest on principal funded                                        376,749                 420,383
     Accrued fees                                                                339,517                 429,727
                                                                             -----------             -----------

       Credit card receivables                                                28,172,826              27,386,165
                                                                             -----------             -----------

     Less
     Allowance for losses on credit card receivables                           3,856,882               2,475,838
     Unearned fees                                                               648,950                 666,127
                                                                             -----------             -----------

                                                                               4,505,832               3,141,965
                                                                             -----------             -----------

     Investments in receivable portfolios                                    $32,948,042             $33,892,290
                                                                             ===========             ===========

     Total credit card balances (1)                                          $66,184,418             $77,832,562
                                                                             ===========             ===========

     Available credit (2)                                                    $ 9,355,862             $ 7,837,918
                                                                             ===========             ===========
</TABLE>

      (1) Total credit card balances above represent the total amount owed to
         the Company by the cardholders through initial settlement, new charges,
         interest, fees and payments.

      (2) Available credit represents the amount that the Company would be
         obligated to fund if the credit cards were fully utilized by the
         cardholders.

NOTE E  -  SECURITIZATION AND GAIN ON SALES OF CREDIT CARD
           RECEIVABLE PORTFOLIOS

   During the fiscal year ended June 30, 2001, the Company established a new
   wholly-owned qualified special purpose entity, TCS Funding V, Inc. ("TCS V"),
   for the purpose of purchasing performing credit card receivables from the
   Company. TCS V entered into a $4.0 million credit facility with Miller &
   Schroeder Investments Corporation to finance the purchase of credit card
   receivables. The initial $4.9 million sale of credit card receivables to TCS
   V included receivables with a principal balance of approximately $5.7
   million. The remaining $0.9 million, was recorded as a retained interest.
   The TCS V credit facility advanced 70% of the principal credit card
   receivables balance, of which 5% was deposited into a reserve account. The
   terms of the credit facility require that all credit card receivables
   purchased by TCS V must be current with a minimum of eight payments made on
   each account and must meet specified other eligibility requirements.

   Until May 1, 2002, after new charges are funded and fees and interest are
   paid, excess cash collections received are required to be used by TCS V, the
   special purpose entity, to amortize the lender's beneficial interest. After
   May 1, 2002, all cash collections received relating to the senior debt
   interest in the receivables are required to be used to repay principal, after
   payment-related servicing fees and interest are paid. All new charges on the
   sold accounts are required to be purchased by the Company in exchange for a
   residual interest until such time as the senior debt interest is paid down.
   While the senior debt interest is in place, there are restrictions on the
   Company's ability to pay dividends and to pay interest on or the principal of
   the notes held by the controlling stockholder.




                                      F-15
<PAGE>


NOTE E  -  SECURITIZATION AND GAIN ON SALES OF CREDIT CARD RECEIVABLE
           PORTFOLIOS  -  Continued

   During October 2000, the Company established a new wholly-owned qualified
   special purpose entity, Credit Store Services, Inc. ("CSSI"), for the purpose
   of purchasing non-performing consumer debt portfolios from the Company. The
   Company contracts with CSSI to offer consumers credit cards under the
   Company's program or to accept settlements or payment plans. Non-performing
   consumer debt portfolios are sold to CSSI at a price equal to the Company's
   book value. CSSI entered into a $25.0 million credit facility with a lending
   institution to finance a portion of the purchase price of the acquired
   portfolios. The facility expires in October 2003. Through June 30, 2001, the
   Company sold approximately $785.0 million face value of consumer debt at a
   sales price of $9.0 million to CSSI and recorded a retained interest of $1.6
   million in these assets, through June 30, 2001. As of June 30, 2001, the
   outstanding balance under CSSI's credit facility was $6.3 million, with $18.7
   million available for future borrowings at the lender's discretion.

   During the year ended June 30, 2001, the Company also sold various receivable
   portfolios totaling $3.7 million for approximately $2.7 million to an
   unrelated party without recourse.

   During the year ended May 31, 2000, the Company established a new
   wholly-owned qualified special purpose entity (SPE), TCS Funding IV, Inc.
   ("TCS IV"), for the purpose of purchasing performing credit card receivables
   from the Company. TCS IV entered into a $40.0 million credit facility with a
   lending institution to finance the purchase of credit card receivables. The
   initial sale of credit card receivables to the SPE totaling approximately
   $12.1 million included receivables with a principal balance of approximately
   $14.2 million. TCS IV provided $10.0 million for the purchase and the
   remaining $2.1 million was recorded by the Company as retained interest. The
   transaction closed on May 31, 2000. The Company recognized a pre-tax gain of
   approximately $3.8 million. The unrealized gain of approximately $0.6
   million, included in the retained interest, was recorded net of tax as a
   separate component of stockholders' equity.

   At May 31, 2000, the Company recorded a receivable from TCS IV for $9.3
   million. This balance represented sales proceeds due to the Company. The
   receivable was guaranteed by the lending institution through an irrevocable
   commitment to fund. The receivable was collected subsequent to May 31, 2000.

   During the year ended May 31, 2000, the Company also sold a portfolio of
   receivables totaling approximately $1.4 million, with a carrying value of
   approximately $0.6 million, for approximately $1.1 million to an unrelated
   party without recourse.

   During the year ended May 31, 1999, the Company completed three
   securitizations of seasoned credit card receivables ("receivables") of
   approximately $20.4 million with three unconsolidated wholly-owned qualified
   special purpose entities ("SPE's"). All receivables sold in these
   transactions were current with a minimum of eight payments made on each
   account. The SPE's purchased the receivables from the Company for
   approximately $17.3 million of which approximately $13.0 million was funded
   with the sale of senior debt interests. The Company recognized a pre-tax gain
   of approximately $8.0 million and recorded a retained interest in securitized
   credit card receivables on an allocated basis in the amount of approximately
   $1.3 million.

   At May 31, 1999, the allocated basis amount was adjusted to a fair value of
   approximately $5.1 million, resulting in approximately $3.8 million of
   unrealized gain on the retained interest in securitized credit card
   receivables. The unrealized gain was recorded net of tax of approximately
   $1.3 million, resulting in approximately $2.5 million, as a component of
   comprehensive income. During November 1999, the Company sold its retained
   interest in the three SPE's to the lender for approximately $8.6 million,
   resulting in a pre-tax gain of approximately $6.5 million.

  During the year ended May 31, 1999, The Company also sold a portfolio of
  credit card receivables with a total credit card balance of approximately $7.0
  million and a carrying value of approximately $2.2 million for $5.0 million to
  an unrelated party without recourse.


                                      F-16
<PAGE>


NOTE E  -  SECURITIZATION AND GAIN ON SALES OF CREDIT CARD RECEIVABLE
           PORTFOLIOS  -  Continued

  The following summarizes the Company's securitization activity:
<TABLE>
<CAPTION>

                                                                              Year ended             Year ended
                                                                             June 30, 2001           May 31, 2000
                                                                             -------------           ------------

<S>                                                                             <C>                   <C>
      Proceeds from securitizations                                             $4,496,048            $10,461,551

      Servicing fees received                                                    2,886,273                508,503
</TABLE>

Retained Interests

   The Company's retained interests are carried at estimated fair market value
   with the changes in fair value included as other comprehensive income. The
   estimated fair market value is based on the present value of expected future
   net cash flows using management's estimates of key assumptions. The following
   summarizes the changes in the balance of the Company's retained interest for
   the year ended June 30, 2001:
<TABLE>
<CAPTION>
                                                                              Estimated
                                                                              unrealized               Fair
                                                               Cost              gains                 value
                                                              ------            -------               -------
<S>                  <C>                                     <C>                <C>                  <C>
     Balance at July 1, 2000                                 $1,220,325         $1,153,647           $ 2,373,972
     Retained interests in portfolios sold                    1,794,295                 --             1,794,295
     Interest accrued                                         1,802,451                 --             1,802,451
     Change in unrealized gain                                       --          1,278,486             1,278,486
                                                             ----------         ----------           -----------

     Balance at June 30, 2001 (restated)                     $4,817,071         $2,432,133            $7,249,204
                                                             ==========         ==========            ==========
</TABLE>

   As of June 30, 2001, the gross net unrealized gain has been offset by a
   deferred tax expense of approximately $0.8 million. The key economic
   assumptions used in measuring the fair value of retained interests at the
   time of and subsequent to a securitization are the expected net cash payment
   rate and the discount rate. The expected net cash rate is approximately 2.25%
   per month and varies by type of cards sold in each securitization. The net
   cash rate is the excess consumer payments over new credit card purchases and
   advances. The estimated net cash flows have been discounted at 23%.

   The following represents the sensitivity of the current fair value of
   retained interest in securitizations at June 30, 2001 to changes to key
   assumptions:
<TABLE>
<CAPTION>

<S>                                                                                           <C>
                 Expected net cash payment rate (monthly)                                     2.25%
                                      Impact  on fair  value of 5%  adverse change         $461,000
                                      Impact on fair  value of 10%  adverse change         $764,000

                 Discount rate                                                                  23%
                                      Impact  on fair  value of 5%  adverse change         $158,000
                                      Impact on fair  value of 10%  adverse change         $276,000
</TABLE>

   The above sensitivities are hypothetical and should be used with caution. As
   the amounts indicate, changes in fair value based on variations in
   assumptions generally cannot be extrapolated because the relationship of the
   change in assumption to the change in fair value may not be linear. Also, in
   this table, the effect of a variation in a particular assumption on the fair
   value of the retained interest is calculated without changing any other
   assumption. In reality, changes in one factor may result in changes in
   another, which might magnify or counteract the sensitivities.



                                      F-17
<PAGE>


NOTE E  -  SECURITIZATION AND GAIN ON SALES OF CREDIT CARD RECEIVABLE
           PORTFOLIOS  -  Continued

   The Company's managed credit card receivables consists of retained interest
   in credit card receivable securitizations and investor's share of
   securitizations sold to unrelated parties without recourse. The Company
   records its retained interest in credit card receivable securitizations on
   the balance sheet. The following table summarizes the balances included in
   the managed credit card receivable portfolios.
<TABLE>
<CAPTION>
                                                                        June 30, 2001
                                                                          Restated             May 31, 2000
                                                                        -------------          ------------
<S>                                                                        <C>                 <C>
     Retained  interest in credit card  receivable  portfolios
       securitized - (sellers interest)                                    $7,249,204          $  2,142,846

     Investor's    interests   in   credit   card   receivable
       portfolios  securitized  -  (not  included  on  balance
       sheet)                                                               9,636,810            12,153,228
                                                                          -----------           -----------

     Total managed credit card receivable portfolios                      $16,886,014           $14,296,074
                                                                          ===========           ===========
</TABLE>


NOTE F - PROPERTY AND EQUIPMENT

   Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                        Useful life                  June 30,              May 31,
                                                        (in years)                     2001                2000
                                                        ----------                    ------               -----
<S>                                                        <C>                     <C>                 <C>
     Computer equipment and software                       3 - 5                   $  7,374,305        $  7,289,750
     Office equipment                                      5 - 7                      1,768,762           2,280,037
     Furniture and fixtures                                5 - 7                      1,302,527           1,241,458
     Proprietary software                                    5                        1,182,271             668,084
     Leasehold improvements                           Life of leases
                                                                                        694,670             669,884
                                                                                   ------------        ------------
                                                                                     12,322,535          12,149,213
     Less accumulated depreciation and
       amortization                                                                  (6,940,108)         (7,489,579)
                                                                                   ------------        ------------
                                                                                      5,382,427           4,659,634
     Land                                                                               130,426             130,426
                                                                                   ------------        ------------

                                                                                   $  5,512,853        $  4,790,060
                                                                                    ===========         ===========
</TABLE>




                                      F-18
<PAGE>


NOTE G  -  NOTES PAYABLE

   Notes payable consist of the following at:
                                                   June 30,           May 31,
                                                     2001              2000
                                                    ------            ------

     Note payable - bank                         $13,380,867       $13,442,597
     Note payable - other                          9,805,267        10,166,729
                                                  ----------        ----------

                                                 $23,186,134       $23,609,326
                                                  ==========        ==========

   Note Payable  -  Bank
   ---------------------

   On April 30, 1998, the Company entered into a financing agreement with a
   bank. The revolving line of credit, may not exceed an established dollar
   amount or 50% of the Company's eligible receivables as defined by the
   agreement and is used for general working capital purposes. The originally
   established dollar amount, which was $5,000,000, was increased to $10,000,000
   on June 25, 1999, increased to $15,000,000 on December 6, 1999, and decreased
   to $13,000,000 on July 2, 2001. On September 28, 2001, this agreement was
   amended to change the maturity date from May 31, 2002 to July 31, 2002.
   Effective October 31, 2001, the maximum dollar amount available under the
   credit limit will be reduced to the lesser of $11,500,000 or an amount equal
   to $13,000,000 less sixty percent of net cash proceeds derived from sales or
   securitizations of credit card portfolios on or after September 28, 2001 and
   prior to October 31, 2001. After October 31, 2001, the maximum amount
   available under the credit limit will be further reduced by an amount equal
   to sixty percent of all net cash proceeds derived from sales or
   securitizations of credit card portfolios. The line is collateralized by
   substantially all of the Company's assets. The interest rate, which was
   originally at the prime rate plus 2.75% per annum, was reduced to prime rate
   plus 2.5% per annum on June 25, 1999. Interest expense for the three years
   ended June 30, 2001, May 31, 2000 and 1999, and the one-month ended June 30,
   2000 was $1,462,243, $1,501,047, $617,249, and $142,696.

   Note Payable  -  Other
   ----------------------

   The Company has uncollateralized installment notes issued in connection with
   purchases of non-performing consumer debt in addition to installment
   obligations assumed in connection with the closing of certain affiliated
   mortgage companies (see Note M). The notes have various maturity dates
   through May 2002, with interest rates ranging up to 23.7% per annum. The
   amount outstanding as of June 30, 2001 and May 31, 2000 was $145,644 and
   $2,292,920. Interest expense for the three years ended June 30, 2001, May 31,
   2000 and 1999, and the one-month ended June 30, 2000 was $118,302, $145,763,
   $65,353, and $13,086.

   On October 15, 1999, the Company, through a bankruptcy remote special purpose
   entity (SPE), entered into a revolving line of credit ("revolving line") with
   a financial institution. The revolving line, which may not exceed
   $17,500,000, is non-recourse to the Company and is secured by all assets of
   the SPE. The revolving line is used to acquire non-performing consumer debt
   portfolios. The Company services the portfolios subject to an agreement with
   the SPE and purchases all new credit card receivables for a pre-determined
   price. The SPE is not a qualified SPE for accounting purposes and is
   consolidated with the Company in the accompanying consolidated financial
   statements. Interest is charged at a floating daily rate and is equal to the
   reference rate plus 2.5% per annum. The agreement is in effect until August
   31, 2002. The amount outstanding as of June 30, 2001 and May 31, 2000 was
   $1,659,623 and $1,772,888. Interest expense for the years ended June 30, 2001
   and May 31, 2000, and the one-month ended June 30, 2000 was $239,369,
   $151,547, and $18,727.

   On September 20, 1999, the Company entered into a repurchase agreement with a
   bank. Under the agreement the bank purchased credit card receivables from the
   Company for $3,000,000 which had an initial repurchase date of December 20,
   1999. The original agreement was amended in March 2000 to increase the
   repurchase amount to $6,000,000. Interest was charged at a rate of 15% per
   annum. In November 2000, the Company entered into a new $8,000,000 repurchase
   agreement with the same bank and interest charged was reduced to 12% per
   annum. The agreement, as amended, has a repurchase date of January 4, 2002.
   The balance outstanding at June 30, 2001 and May 31, 2000 was $8,000,000 and
   $6,000,000. Interest expense for the years ended June 30, 2001, May 31, 2000,
   and the one-month ended June 30, 2000 was $884,083, $378,750, and $62,500.


                                      F-19
<PAGE>

   At June 30, 2001, future minimum principal payments for all notes payable
   were as follows:

                    Year                                              Amount
                    ----                                             --------

                    2002                                           $8,145,644
                    2003                                           15,040,490
                                                                   ----------

                                                                  $23,186,134

NOTE H  -  CAPITAL LEASE OBLIGATIONS

   The Company leases computer equipment and furniture and fixtures under
   long-term leases and has the option to purchase the equipment for a nominal
   cost at the termination of the lease. Assets under capital leases have been
   capitalized at a cost of $6,896,895 and $6,953,160, and have accumulated
   amortization of $3,998,825 and $5,023,793 at June 30, 2001 and May 31, 2000.

   Future minimum lease payments for capitalized leases are as follows at June
   30, 2001:

                Year                                                  Amount
                ----                                                 --------

                2002                                               $2,573,877
                2003                                                1,625,429
                2004                                                  988,402
                                                                     --------

                                                                    5,187,708

                Less amount representing interest                    (940,615)
                                                                    ---------

                                                                   $4,247,093

   Amortization expense for assets under capital leases for the three years
   ended June 30, 2001, May 31, 2000 and 1999, and the one-month ended June 30,
   2000 was $1,685,628, $1,377,479, $1,645,705 and $73,171.





                                      F-20
<PAGE>


NOTE I  -  STOCK OPTIONS

   The Board of Directors of the Company approved the Company's 1997 Stock
   Option Plan (the "Plan"). The Plan authorizes the grant of stock options
   covering 8,000,000 shares of the Company's common stock. In addition, the
   Board of Directors has granted stock options outside the Plan covering a
   total of 1,550,000 shares of Common Stock. The Board of Directors has the
   authority to determine the key employees, consultants, and directors who
   shall be granted options as well as the number of options granted and the
   nature of each grant. The options granted under the Plan may be either
   incentive stock options or nonqualified stock options.

   Transactions during each three years ended June 30, 2001, May 31, 2000 and
   1999, and the one-month ended June 30, 2000 are summarized as follows:

                                                Number of          Weighted
                                               shares under         average
                                                 option          exercise price
                                                --------         --------------

     Outstanding at June 1, 1998                 3,656,000             $2.93
        Granted                                    690,500              2.35
                                                  --------

     Outstanding at May 31, 1999                 4,346,500              2.84
        Granted                                    942,500              2.90
        Cancelled                                 (156,000)             2.08
                                                 ---------

     Outstanding at May 31, 2000                 5,133,000              2.88
        Granted                                      4,000              4.44
                                                 ---------

     Outstanding at June 30, 2000                5,137,000              2.88
        Granted                                  2,534,438              3.13
        Exercised                                  (89,500)             2.35
        Cancelled                                 (108,000)             3.00
                                                 ---------
     Outstanding at June 30, 2001                7,473,938              2.97
                                                 =========

   At June 30, 2001 options exercisable for 5,481,000 shares of common stock
   with a weighted average exercise price of $2.78 were outstanding.

   The following table summarizes information about stock options outstanding at
   June 30, 2001:
<TABLE>
<CAPTION>

                                                                       Options outstanding
                                                             --------------------------------------------
                                                                                 Weighted
                                                                                  average        Weighted
                      Range of                                                   remaining       average
                      exercise                                 Number              life          exercise
                       prices                                outstanding          (years)         price
                 ------------------                          -----------       -------------     --------
<S>                <C>                                         <C>                  <C>           <C>
                   $1.56 - $2.40                               4,733,238            2.80          $1.94
                   $2.50 - $3.69                                 782,700            3.03           2.95
                   $3.88 - $6.47                               1,958,000            2.41           5.45
                                                               ---------
                                                               7,473,938                           2.97
                                                               =========
</TABLE>



                                      F-21
<PAGE>


NOTE I  -  STOCK OPTIONS - continued
<TABLE>
<CAPTION>

                                                                   Options exercisable
                                                          --------------------------------
                                                                 Number              Weighted
                      Range of                               exercisable at           average
                      exercise                                 June 30,               exercise
                        prices                                   2001                  price
                  ----------------                        ------------------          --------
<S>                <C>                                            <C>                   <C>
                   $1.56 - $2.40                                  3,743,000             $2.03
                   $2.50 - $3.69                                    715,000              2.95
                   $3.88 - $6.47                                  1,023,000              5.42
                                                                  ---------
                                                                  5,481,000              2.78
                                                                  =========
</TABLE>

   The Company's pro forma net income (loss) applicable to common shareholders
   and basic and diluted net income (loss) per share would have been as follows
   had the fair value method been used for valuing stock options granted to
   employees:
<TABLE>
<CAPTION>
                                               Year ended         One-month ended          Years ended May 31,
                                               June 30,               June 30,         ---------------------------
                                                 2001                 2000                 2000                 1999
                                          ----------------        ---------------      -------------         -------
                                             Restated
                                             --------
<S>                                          <C>                     <C>                <C>                  <C>
     Net  income  (loss)  applicable  to
       common shareholders                   $(10,020,256)           $(1,525,504)       $(506,953)           $50,109
     Net income (loss) per share
       Basic and diluted                        $ (0.29)                  $(0.04)          $(0.01)              $0.00
</TABLE>

   The fair value of each option grant is estimated on the date of grant using
   the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
                                            Year ended          One-month ended            Years ended May 31,
                                            June 30,              June 30,        ----------------------------
                                              2001                 2000                 2000               1999
                                        ----------------      -----------------   -------------      ----------
<S>                                            <C>                    <C>                <C>                 <C>
   Fair value of options granted               $1.69                  $2.91              $2.12               $1.73

   Assumptions:
     Dividend yield                               $0                     $0                 $0                  $0
     Volatility                                  75%                    75%                90%                 90%
     Average term                      5 or 10 years          5 or 10 years      5 or 10 years       5 or 10 years
     Risk-free rate of return                  5.75%                  5.75%      6.05% - 6.47%       5.75% - 5.81%
</TABLE>


   On April 30, 1998, the Company granted warrants to purchase 650,247 shares of
   the Company's common stock for $2.50 per share to a bank with which it has a
   financing agreement. Warrants to purchase 278,677 shares were exercisable
   immediately, while the remaining 371,570 warrants were exercisable on June
   25, 1999, when the Company's line of credit increased to $10,000,000 (see
   Note G). The fair value of the warrants was $1.01 at the date of grant. For
   the years ended June 30, 2001 and May 31, 2000 and the one-month period ended
   June 30, 2000, $276,526, $357,182, and $23,044 of amortization was included
   in interest expense.

   On March 18, 1999, the Company granted a five-year warrant to a vendor to
   purchase up to 1,000,000 shares of the Company's common stock at $2.00 per
   share. As of June 30, 2001 and May 31, 2000, 500,000 shares were vested under
   this agreement. The fair value of warrants was $0.85 and $0.56 at the
   respective vesting dates. For the years ended June 30, 2001 and May 31, 2000
   and the one-month period ended June 30, 2000, expense was $129,860, $72,262,
   and $10,822.


                                      F-22
<PAGE>

NOTE J  -  INCOME TAXES

   Deferred income tax assets (liabilities) consist of the following at:
<TABLE>
<CAPTION>
                                                                                June 30,               May 31,
                                                                                  2001                  2000
                                                                                 ------                ------
<S>                                                                           <C>                   <C>
     Deferred tax assets
       Net operating loss carryforward                                        $ 15,664,041          $ 14,291,447
       Allowance for doubtful accounts                                           1,857,782             1,389,759
       Other reserves                                                            1,593,600                    --
                                                                              ------------          ------------
                  Total deferred tax assets                                     19,115,423            15,681,206
       Less valuation allowance                                               ( 12,650,528)          (10,327,461)
                                                                              ------------          ------------
                                                                                 6,464,895             5,353,745
     Deferred tax liabilities
       Gain on sales of portfolios                                                      -             (2,324,961)
       Unrealized gain on retained interest in securitization                     (828,784)             (328,784)
       Revenue recognition method difference                                    (2,936,111)                   --
                                                                              ------------          ------------
                  Total deferred tax liabilities                                (3,764,895)           (2,653,745)
                                                                              ------------          ------------

     Net deferred tax asset                                                    $ 2,700,000           $ 2,700,000
                                                                               ===========           ===========
</TABLE>


   The difference between the total income tax benefit and the income tax
   expense (benefit) computed using the applicable Federal income tax rate was
   as follows for the three years ended June 30, 2001, May 31, 2000 and 1999,
   and the one-month ended June 30, 2000:
<TABLE>
<CAPTION>
                                                     Year ended       One-month ended        Years ended May 31,
                                                       June 30,          June 30,          -----------------------
                                                         2001              2000              2000             1999
                                                        ------            ------            ------           -----
                                                       Restated
                                                       --------
<S>                                                  <C>                <C>             <C>              <C>
     Computed Federal income taxes at 34%            $(2,354,523)       $(468,545)      $   690,139      $   642,352

     Other                                                (1,153)              --           211,013         (295,708)

     (Increase)   decrease  of  deferred   tax
       asset valuation allowance                       1,919,132          404,999        (1,943,527)      (2,924,469)
                                                     -----------       ----------       -----------      -----------

     Income tax benefit                              $  (436,544)      $  (63,456)      $(1,042,375)     $(1,986,409)
                                                     ===========       ==========       ===========      ===========
</TABLE>


   At June 30, 2001, the Company has a net operating loss carryforward available
   to offset future taxable income of approximately $45,000,000, which will
   begin to expire in 2012. The benefit of the net operating loss carryforwards
   is dependent upon the tax laws in effect at the time the net operating loss
   carryforwards are to be utilized and the change of control rules.

   The Company continually reviews the adequacy of the valuation allowance and
   recognizes those benefits only as the Company's assessment indicates that it
   is more likely than not that future tax benefits will be realized. Based upon
   actual pretax income and projected future earnings, the Company has reduced
   the valuation allowance by $2,000,000 and $700,000 for the years ended May
   31, 2000 and 1999, respectively. The Company maintains a valuation allowance
   for the remaining amount of deferred tax assets created by net operating
   losses and the allowance for doubtful accounts.



                                      F-23
<PAGE>


NOTE K  -  EMPLOYEE BENEFIT PLANS

   In January 1998, the Company adopted a defined contribution 401(k)
   profit-sharing plan for its employees. All employees working at least 1,000
   hours per year are eligible to participate in the plan. Employees can
   contribute up to 15% of their salary up to $10,500, $10,000 and $9,500 for
   the calendar years 2000, 1999 and 1998. The plan requires the employer to
   match 100% of the first 3% of compensation contributed to the plan by the
   employees. Employer contributions vest at a rate of 20% per year. Additional
   employer contributions are allowable at the discretion of the Board of
   Directors. The Company expensed $211,702, $217,271, $173,479 and $18,183 for
   the years ended June 30, 2001, May 30, 2000 and 1999 and for the month ended
   June 30, 2000 relating to this plan.


NOTE L  -  MUTUAL BUSINESS DEVELOPMENT AGREEMENTS

   In October 1996, the Company's predecessor entered into two Mutual Business
   Development Agreements ("Development Agreements"), one with O. Pappalimberis
   Trust and one with Renaissance Trust I.

   The Development Agreements call for a royalty equal to 5% of any newly
   established receivable originated or acquired by the Company by way of a
   converted credit card account held which: (i) is delivered to a
   pre-securitization credit facility, (ii) becomes a qualifying receivable, or
   (iii) meets other specified account age and payment parameters. A qualifying
   receivable is defined as any converted account on which the cardholder has
   made three consecutive payments within certain time restrictions. In
   addition, the Development Agreements provide for royalties equal to 5% of all
   principal cash collections on specified accounts that are not converted to
   credit cards. The total royalty, if earned, payable under each of the two
   Development Agreements, after deductions and exclusions, will not exceed $25
   million.

   The Development Agreement with the O. Pappalimberis Trust was amended on
   September 1, 1998 to alter the amount and timing of payments, give the
   Company a buyout option, alternate royalty payment options and extend the
   term of the agreement to May 31, 2005. The Development Agreement with
   Renaissance Trust I expires October 7, 2002 and has not been amended.

   Both Development Agreements are currently in dispute. In February 2001 the
   Company discontinued payment of royalties under both Development Agreements.
   The Company is discussing the rights and obligations of the parties under the
   Development Agreement with the O. Pappalimberis Trust.

   On April 23, 2001, the Company was sued by Renaissance Trust I in the United
   States District Court for the Southern District of New York in an action
   titled Renaissance Trust I v. The Credit Store, Inc. The plaintiffs allege
   breach of the Mutual Business Development Agreement and conversion and seek
   enforcement of the contract, compensatory damages alleged to be in excess of
   $5 million, and punitive damages of $25 million. Renaissance Trust I owns
   4,000,000 shares of the Company's common stock and 400,000 shares of the
   Company's Series B Preferred Stock. On June 29, 2001, the Court dismissed the
   conversion claim and dismissed the demand for punitive damages.

   At June 30, 2001, the Company has estimated that it is probable that a
   settlement of at least $2,000,000 will be required to settle the contract
   disputes and terminate the agreements. This amount has been accrued during
   the fourth quarter of fiscal 2001.

   For the three years ended June 30, 2001, May 31, 2000 and 1999, and the
   one-month ended June 30, 2000, $1,067,363, $1,733,412, $1,541,944, and
   $211,069 of royalty expenses were incurred with $893,918, $740,487, $702,075,
   and $816,556 accrued at June 30, 2001, May 31, 2000 and 1999, and June 30,
   2000.



                                      F-24
<PAGE>


NOTE M  -  RELATED PARTY TRANSACTIONS

   At June 30, 2001 and May 31, 2000, the Company owed amounts under
   subordinated promissory notes to J.L.B. of Nevada, Inc. ("JLB"), an entity
   wholly owned by Jay L. Botchman ("Botchman"), majority shareholder and former
   director, totaling $16,444,940 payable on demand with interest at 12% per
   annum. Interest expense on these notes was $2,000,801, $2,006,283,
   $2,307,467, and $164,449 for the three years ended June 30, 2001, May 31,
   2000 and 1999, and the one-month ended June 30, 2000. Accrued interest
   related to subordinated promissory notes was approximately $2,200,000 and
   $1,500,000 at June 30, 2001 and May 31, 2000. The notes are collateralized by
   substantially all the Company's assets, but subordinated to the Company's
   revolving credit lines.

   On May 29, 1999, JLB, forgave $5,000,000 of interest on the subordinated
   promissory notes, in exchange for warrants to purchase 4,000,000 shares of
   the Company's common stock with an exercise price of $3.25 per share,
   expiring on June 30, 2004, and the Company's assumption of equipment and
   related lease obligations from a company affiliated with JLB in the amount of
   approximately $1,700,000. The fair value of the warrant was approximately
   $3,300,000.

   On February 27, 1998, the Company issued a subordinated promissory note to
   Botchman in the amount of $350,000 payable on demand with interest at 12% per
   annum. The note was paid during fiscal 2000. Interest expense for the years
   ended May 31, 2000 and 1999 was $18,200, and $42,583.

   The Company's former Chairman of the Board of Directors and Chief Executive
   Officer, Martin J. Burke, III ("Burke"), resigned effective September 21,
   2000. On this date, Burke had a personal credit card account with the Company
   with a balance due of approximately $500,000. Under the terms of Burke's
   separation and release agreement, the credit card balance and another $25,000
   for legal fees paid by the Company on Burke's behalf was combined into a note
   receivable, which matures on December 1, 2002, with interest at 8% per year
   payable monthly. The note receivable is secured by the severance payments
   made to Burke through

   March 26, 2002 and by Burke's stock options which have a $2.00 exercise price
   and terminate in December 2002. As of June 30, 2001, Burke's stock option
   exercise price is above market. During the year ended June 30, 2001, the
   Company received only the applied severance payments from Burke. Accordingly,
   the Company has provided a reserve for the entire principal and interest of
   $537,061 due from Burke as of June 30, 2001.

   The Company, through its wholly-owned subsidiary, American Credit Alliance,
   Inc., has an $880,000 note payable to JLB with an interest rate of 10% per
   annum. American Credit Alliance Inc. is the managing member and 50% owner of
   Dakota Card Fund II, LLC, an entity that owns performing credit card
   receivables. Interest expense for the years ended June 30, 2001, May 31, 2000
   and 1999, and the one-month ended June 30, 2000 was $89,222, $89,467, $89,222
   and $7,333. Accrued interest related to this note payable was approximately
   $424,000 and $327,000 at June 30, 2001 and May 31, 2000.

   The Series A and B Preferred Shares were issued at $1.00 per share (total of
   $2,000,000) on December 4, 1996 to a related party. During fiscal year 2001,
   400,000 shares of Series B Preferred Shares were transferred to a different
   related party. There was no change in the amount or number of outstanding
   Series B Preferred Shares. The Series A Preferred Stock, as a class, was
   granted 80% of the voting rights in the Company, but the percentage is
   subject to adjustment on certain issuances of capital stock. The Series B
   Preferred Stock has one vote per share. The shares of Series A and B
   Preferred Stock have a liquidation preference of $1.00 per share and will
   earn cumulative dividends at a rate of $0.05 per share per annum. At anytime
   after December 31, 2001 the Series A and B Preferred Stock will be redeemable
   at the option of the Company. The Series B Preferred Stock is convertible at
   the option of the holder into Series A Preferred Stock on a share-for-share
   basis.

   On December 31, 1996, the Company issued 5,000 shares of Series C Preferred
   Stock to a related party for $5,000,000. The shares of Series C Preferred
   Stock are non-voting and earn cumulative dividends at 6% of $1,000 per share
   per annum. The shares have a liquidation preference of $1,000 per share. The
   Series A and B Preferred Stock rank senior to the Series C with respect to
   dividend and liquidation rights.




                                      F-25
<PAGE>


NOTE M - RELATED PARTY TRANSACTIONS - continued

   On May 29, 1998, the Company issued 10,000 shares of Series D Preferred Stock
   to a related party in exchange for cancellation of a $10,000,000 Promissory
   Note dated August 1, 1997. The shares of Series D Preferred Stock are
   non-voting and earn a dividend of 8% of the stated value of $1,000 per share
   per annum payable annually on December 31. The shares have a liquidation
   preference of $1,000 per share. The Series D Preferred Stock ranks senior to
   the Series A, B and C with respect to dividend and liquidation rights. Each
   share of Series D Preferred Stock is convertible into 380 shares of common
   stock. The holders of the Series D Preferred Stock have piggyback
   registration rights with respect to the Common Stock issuable upon conversion
   of the shares of Series D Preferred Stock.

   On August 31, 1998, the Company issued 10,000 shares of Series E Preferred
   Stock to a related party in exchange for agreeing to cancel a $10,000,000
   subordinated promissory note. The shares of Series E Preferred Stock are
   non-voting and earn a dividend of 8% of the stated value of $1,000 per share
   per annum payable annually on December 31. The shares have a liquidation
   preference of $1,000 per share. The Series E Preferred Stock ranks senior to
   the Series A, B, C and D with respect to dividend and liquidation rights.
   Each share of Series E Preferred Stock is convertible into 285 shares of
   common stock. The holders of the Series E Preferred Stock have piggy back
   registration rights with respect to the common stock issuable upon conversion
   of the shares of Series E Preferred Stock.

   As of June 30, 2001 and May 31, 2000, accumulated preferred dividends
   undeclared and unpaid on preferred stock amounted to approximately $6,200,000
   and $4,100,000.

   On May 4, 2001, in consideration of JLB agreeing to amend the payment terms
   of several promissory notes, the Company extended the expiration date of the
   conversion feature of the Series D Preferred Stock until May 30, 2006 and the
   Series E Preferred Stock until August 30, 2006.

   During fiscal 2001, the Company appointed a new director who is counsel to a
   law firm that provides services to the Company. The Company recorded legal
   expense for services from this firm of approximately $543,000 in fiscal 2001.

NOTE N  -  COMMITMENTS AND CONTINGENCIES

   Operating Leases
   ----------------

   The Company leases certain properties, vehicles and equipment under
   non-cancelable operating leases. Total lease rentals charged to operations
   were approximately $1,154,000, $858,000, $766,000 and $73,000, for the years
   ended June 30, 2001, May 31, 2000 and 1999, and the one-month ended June 30,
   2000. Future minimum lease payments under the non-cancelable operating leases
   are as follows:

                Year ending June 30,                                  Amount
                --------------------                                 --------

                      2002                                         $  834,000
                      2003                                            691,000
                      2004                                            538,000
                      2005                                            285,000
                      2006                                            285,000
                      Thereafter                                    1,734,000
                                                                   ----------

                                                                   $4,367,000
                                                                   ==========
   Contingencies and Litigation
   ----------------------------

   The Company, in the ordinary course of business, receives notices of consumer
   complaints from regulatory agencies and is named as a defendant in legal
   actions filed by those who have been solicited to participate in its credit
   card programs. Currently pending against the Company are: (i) one class
   action on behalf of persons purportedly solicited by the Company to
   voluntarily repay debt that had been improperly reported as a bad debt on a
   credit-reporting bureau, alleging that the Company had violated other
   provisions of federal or state law, including violations of the Bankruptcy
   Code, the Fair Debt Collection Practices Act, and RICO; (ii) one action on
   behalf of plaintiffs seeking class status asserting claims under California




                                      F-26
<PAGE>

   state statutes seeking damages and injunctive relief barring the Company from
   offering its credit card program to debtors whose debt is out of statute
   and/or cannot be reported on a credit bureau as bad debts; and (iii) the
   contract dispute concerning the Business Development Agreement discussed in
   Note L. The Company is defending itself vigorously in these lawsuits. The
   Company does not believe that pending litigation and consumer complaints
   involving the Company will have a material adverse effect on the consolidated
   financial position and consolidated results of operations. However, a
   significant judgment against the Company in one or more of the lawsuits could
   subject the Company to a monetary judgment and/or require the Company to
   modify its methods of operation, either of which could have a material
   adverse effect on the Company's consolidated results of operations or
   consolidated financial condition.

NOTE O  -  FAIR VALUE OF FINANCIAL INSTRUMENTS

   The accompanying financial statements include various estimated fair value
   information as of June 30, 2001 and May 31, 2000. As required by SFAS No.
   107, "Disclosures About Fair Value of Financial Instruments," such
   information, which pertains to the Company's financial instruments, is based
   on the requirements set forth in the statement and does not purport to
   represent the aggregate net fair value of the Company. None of the Company's
   financial instruments are held for trading purposes.

   The following methods and assumptions were used to estimate the fair value of
   each class of financial instrument for which it is practicable to estimate
   fair value.

   Cash, Cash Equivalents and Restricted Cash
   ------------------------------------------

   The carrying amount approximates fair value.

   Accounts and Notes Receivables
   ------------------------------

   The carrying amount approximates fair value.

   Amounts Due from Special Purpose Entities
   -----------------------------------------

   The carrying amount approximates fair value.

   Investments in Receivable Portfolios
   ------------------------------------

   The fair value is estimated based on recent acquisitions of similar
   receivable portfolios and discounted expected future net cash flows. The
   discount rate is based on a rate of return, adjusted for specific risk
   factors that would be expected by an unrelated investor in a similar stream
   of cash flows.

   Retained Interest in Securitized Credit Card Receivables
   --------------------------------------------------------

   The carrying amount approximates fair value. Fair value is estimated by
   discounting expected future net cash flows using a discount rate based on
   specific factors. The expected future net cash flows are projected on a "cash
   out" basis to reflect the restriction of cash flows until the investors have
   been fully paid.

   Accounts Payable and Accrued Expenses
   -------------------------------------

   The carrying amount approximates fair value.

   Notes Payable
   -------------

   The carrying amount approximates fair value. Rates currently available to the
   Company for debt with similar terms and remaining maturities are used to
   estimate the fair value of existing debt.


                                      F-27
<PAGE>

   Subordinated Notes and Accrued Interest Payable
   -----------------------------------------------

   Due to the related party relationship of these notes, it is not practical to
   estimate fair value.

   The carrying amounts and estimated fair values of the Company's financial
   instruments consisted of the following:
<TABLE>
<CAPTION>

                                                         June 30, 2001                         May 31, 2000
                                                  ------------------------------      --------------------------------
                                                            Restated
                                                            --------
                                                   Carrying          Estimated         Carrying          Estimated
                                                     value           fair value          value           fair value
                                                  ------------      ------------      ------------        ------------
<S>                                               <C>               <C>               <C>                 <C>
     Cash,  Cash  Equivalents  and Restricted
       Cash                                       $  3,103,454      $  3,103,454      $  2,448,879        $  2,448,879
     Accounts and Notes Receivable                $  5,392,844      $  5,392,844      $  2,765,882        $  2,765,882
     Amounts   Due   from   Special   Purpose
       Entities                                  $     617,737     $     617,737      $  9,332,890        $  9,332,890
     Investments in Receivable Portfolios
                                                   $32,948,042       $49,175,646       $33,892,290         $63,900,000
     Retained Interest in Securitized  Credit
       Card Receivables                             $7,249,204        $7,249,204      $  2,142,846        $  2,142,846
     Accounts Payable and Accrued Expenses
                                                  $  7,537,895      $  7,537,895      $  4,499,142        $  4,499,142
     Notes Payable                                 $23,186,134       $23,186,134       $23,609,326         $23,609,326
</TABLE>


NOTE P  -  NET INCOME (LOSS) PER SHARE
<TABLE>
                                                                              One month
                                                         Year ended             ended                 Years ended May 31,
                                                          June 30,             June 30,          --------------------------------
                                                           2001                  2000                2000                1999
                                                        ------------         ------------        ------------       -------------
                                                         Restated
<S>                                                     <C>                  <C>                 <C>                 <C>
     Basic net income (loss) per share
       Net income  (loss)  applicable  to common
         stockholders                                   $ (8,488,523)        $ (1,481,284)       $  1,072,195        $  2,075,681
                                                        ============         ============        ============        ============
       Weighted-average shares outstanding
                                                          34,799,135           34,761,965          34,761,965          34,761,965
                                                        ============         ============        ============        ============
       Basic net income (loss) per share                $      (0.24)        $     $(0.04)       $       0.03        $       0.06
                                                        ============         ============        ============        ============
     Diluted net income (loss) per share
       Net income  (loss)  applicable  to common
         stockholders                                   $ (8,488,523)        $ (1,481,284)       $  1,072,195        $  2,075,681
                                                        ============         ============        ============        ============
       Weighted-average shares outstanding
                                                          34,799,135           34,761,965          34,761,965          34,761,965
       Effect of diluted securities options                       -*                   -*           2,162,243             329,585
                                                        ------------         ------------        ------------       -------------
              Weighted-average     of    diluted
                shares outstanding                        34,799,135           34,761,965          36,924,208          35,091,550
                                                        ============         ============        ============        ============
     Diluted net income (loss) per share                $      (0.24)        $      (0.04)       $       0.03        $      $0.06
                                                        ============         ============        ============        ============
</TABLE>

*Antidilutive.





                                      F-28
<PAGE>


NOTE Q  -  PREFERRED STOCK

   As of June 30, 2001 and May 31, 2000, Preferred Stock consists of the
   following:
<TABLE>
<CAPTION>
                                                                                 June 30,              May 31,
                                                                                  2001                  2000
                                                                               -----------           -----------
<S>                                                                           <C>                   <C>
     Series A Preferred Stock, $.001 par value; 2,000,000 shares
        authorized; 1,200,000 1,200,000 shares issued and outstanding;
        stated at liquidation value of $1 per share                            $ 1,200,000           $ 1,200,000

     Series B Preferred Stock, $.001 par value; 800,000 shares authorized,
        issued, and outstanding; stated at liquidation value
        of $1 per share                                                            800,000               800,000

     Series C Preferred Stock, $.001 par value; 5,000 shares authorized, issued,
       and outstanding; stated at liquidation
       value of $1,000 per share                                                 5,000,000             5,000,000

     Series D Preferred Stock, $.001 par value; 10,000 shares authorized,
       issued, and outstanding; convertible into 3,800,000 shares of common
       stock; stated at liquidation value of $1,000
       per share                                                                10,000,000            10,000,000

     Series E Preferred Stock, $.001 par value; 20,000 shares authorized,
       convertible into 5,700,000 shares of common stock; 10,000 shares issued
       and outstanding; stated at liquidation value of $1,000
       per share                                                                10,000,000            10,000,000
                                                                               -----------           -----------

                                                                               $27,000,000           $27,000,000
                                                                               ===========           ===========
</TABLE>


   Dividends on preferred stock have accumulated but have not been declared and
   are not yet payable. The Company, however, treats the dividends as declared
   and payable for the purpose of calculating net income (loss) applicable to
   common shareholders.



                                      F-29
<PAGE>



NOTE R  -  COMPARATIVE CONDENSED INFORMATION (UNAUDITED)

   The following unaudited condensed financial information presents the
   one-month period ended June 30, 1999 and is presented for comparative
   purposes to the one-month period ended June 30, 2000, which is included in
   the consolidated financial statements.
<TABLE>
<CAPTION>

                               Consolidated Statement of Operations


<S>                                                                    <C>
Revenue                                                                $  2,626,562

 Less provision for losses                                                  542,010
                                                                       ------------

         Net revenue                                                      2,084,552

Operating expenses                                                        2,993,015
                                                                       ------------

         Operating loss                                                    (908,463)

Interest expense                                                            286,723
                                                                       ------------

         Loss before income taxes                                        (1,195,186)

Income tax benefit                                                               --
                                                                       ------------

         NET LOSS                                                        (1,195,186)

Dividends on preferred stock                                               (166,667)
                                                                       ------------

Net loss, applicable to common stockholders                            $ (1,361,853)
                                                                       ============

Basic and Diluted net loss per share                                   $      (0.04)

Basic and Diluted weighted-average common shares outstanding           $ 34,761,965
                                                                       ============


                               Consolidated Statement of Cash Flows


Net cash flows used in  operating activities                           $   (730,626)

Cash flows from investing activities:
   Collection of funds advanced on credit cards and consumer debt         1,200,201
   Funds advanced on securitized and owned credit card receivables       (2,035,372)
   Purchase of nonperforming and performing consumer debt portfolios     (4,284,877)
   Other                                                                    (34,113)
                                                                       ------------

         Net cash used in investing activities                           (5,154,161)

Cash flows from financing activities:
   Proceeds from debt, net                                                5,121,096
   Other                                                                    (13,708)
                                                                       ------------

         Net cash provided in financing activities                        5,107,388
                                                                       ------------

         NET DECREASE IN CASH AND CASH EQUIVALENTS                         (777,399)

Cash and cash equivalents at beginning of period                          3,533,930
                                                                       ------------

Cash and cash equivalents at end of period                             $  2,756,531
                                                                       ============
</TABLE>


                                      F-30
<PAGE>


NOTE S  -  SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

As described in Note B, the Company has restated its financial statements for
the year ended June 30, 2001. On a quarterly basis, the restatement had no
impact on net income or loss before income taxes. The impact of the restatement
on income tax benefit was to increase the benefit $302,000 for the quarter ended
September 30, 2000 and to decrease the benefit $22,000, $55,000, and $1,625,000
for the quarters ended December 31, 2000, March 31, 2001 and June 30, 2001. Net
loss per share was decreased by $0.02 in the quarter ending September 30, 2000
and increased $0.05 in the quarter ending June 30, 2001. The restatement did not
impact the net income or loss per share for the quarters ending December 31,
2000 and March 31, 2001. These changes are reflected in the table below.
<TABLE>
<CAPTION>
                                                                                     Year ended June 30, 2001
                                                         --------------------------------------------------------------------------
                                                         Total for
                                                         year ended        Fourth           Third          Second           First
                                                        June 30, 2001      quarter**       quarter*        quarter*        quarter*
                                                        -------------      --------        --------        --------        --------
                                                           Restated        Restated        Restated        Restated        Restated
                                                           --------        --------        --------        --------        --------
                                                                       (dollars in thousands, except per share data)
<S>                                                        <C>             <C>             <C>             <C>             <C>
Summary of operations
   Revenue                                                 $ 47,053        $ 11,355        $ 13,050        $ 11,208        $ 11,439
   Provision for losses                                      (9,306)         (2,941)           (690)         (3,412)         (2,262)
                                                           --------        --------        --------        --------        --------

         Net revenue                                         37,747           8,414          12,360           7,796           9,177

Operating income (loss)                                      (1,180)         (4,026)          3,848            (717)           (284)

Net income (loss)                                            (6,489)         (5,289)          2,344          (2,216)         (1,328)
Dividends on preferred stock                                 (2,000)           (500)           (500)           (500)           (500)
                                                           --------        --------        --------        --------        --------

         Net income (loss)  applicable to
           common stockholders                             $ (8,489)       $ (5,189)       $  1,854        $ (2,716)       $ (1,828)
                                                           ========        ========        ========        ========        ========

Net income (loss) per share
   Basic                                                   $  (0.24)       $  (0.17)       $   0.05        $  (0.08)       $  (0.04)
   Diluted                                                 $  (0.24)       $  (0.17)       $   0.05        $  (0.08)       $  (0.04)
</TABLE>

*    The amounts presented for the first, second and third quarters of fiscal
     year ended June 30, 2001 vary from amounts presented within previously
     filed Form 10Q's due to the Company's change in year end.
**   The amounts include non-recurring charges of $3,787 related to allowances
     for notes receivable from a related party, and from previous owners and
     estimated settlement of a contract dispute.
<TABLE>
<CAPTION>

                                                                                     Year ended May 31, 2000
                                                         --------------------------------------------------------------------------
                                                          Total for
                                                          year ended       Fourth           Third          Second           First
                                                         May 31, 2000      quarter         quarter         quarter         quarter
                                                         ------------      --------        --------        --------        --------
                                                                      (dollars in thousands, except per share data)
<S>                                                        <C>             <C>             <C>             <C>             <C>
Summary of operations
   Revenue                                                 $ 46,387        $ 14,763        $  8,770        $ 14,621        $  8,233
   Provision for losses                                      (5,681)           (865)         (1,078)         (1,703)         (2,035)
                                                           --------        --------        --------        --------        --------

         Net revenue                                         40,706          13,898           7,692          12,918           6,198

Operating income (loss)                                       7,012           3,729            (669)          5,553          (1,600)

Net income (loss)                                             3,072           4,382          (1,836)          3,135          (2,608)
Dividends on preferred stock                                 (2,000)           (500)           (500)           (500)           (500)
                                                           --------        --------        --------        --------        --------
         Net income (loss)  applicable to
           common stockholders                             $  1,072        $  3,882        $ (2,336)       $  2,635        $ (3,108)
                                                           ========        ========        ========        ========        ========
Net income (loss) per share
   Basic                                                   $    .03        $    .11        $   (.07)       $    .07        $   (.09)
   Diluted                                                 $    .03        $    .10        $   (.07)       $    .07        $   (.09)
</TABLE>



                                      F-31