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

                                                    FORM 10-KSB

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

              For the year ended December 31, 1998

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934



                                            Commission file number 0-24940 


                  PIONEER COMMERCIAL FUNDING CORP.                   

                                  (Name of small business issuer in its charter)

New York                                                  13-3763437           
(State or other jurisdiction of
 incorporation or organization)            (I.R.S. Employer Identification No.)

21700 Oxnard Street, Woodland Hills, CA                             91367
  (Address of principal executive offices)                        (Zip Code)


Issuer's telephone number (818) 346-1921

Securities registered under Section 12(b) of the Exchange Act:

         Title of each class                Name of each exchange on which
registered

   Common Stock                                                          NASDAQ

   Warrants                                                              NASDAQ

Securities registered under Section 12(g) of the Exchange Act:


                                            (Title of Class)


                                            (Title of class)


<PAGE>



         Check whether the issuer (1) filed all reports  required to be filed by
         Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or
         for such shorter  period that the  registrant was required to file such
         reports),  and (2) has been subject to such filing requirements for the
         past 90 days. Yes x No

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


         State issuer's revenues for its most recent fiscal year $6,414,161.

         As of March 1, 1999,  there were 5,542,272  shares of the  Registrant's
         common stock, $.01 par value, issued and outstanding of which 2,139,090
         held by  non-affiliates  of the Issuer.  Based on the closing price for
         shares of common stock on that date, the aggregate  market value of the
         common  stock held by  non-affiliates  of the Issuer was  approximately
         $1,871,704.  For  purposes  of  the  foregoing  calculation  only,  all
         directors  and  executive  officers  of the  Issuers  have been  deemed
         affiliates.

         (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)

         Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by a court.  Yes       No    

                                    (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         State the number of shares  outstanding of each of the Issuer's classes
         of common equity,  as of the latest  practicable  date. As of March 31,
         1999 there were 5,542,272 shares of common stock outstanding.

         DOCUMENTS INCORPORATED BY REFERENCE

         The   following   exhibits  are   incorporated   by  reference  to  the
         Registrant's  Annual  Report on Form  10KSB  filed  for the year  ended
         December 31, 1998 or to the  Company's  Registration  Statement on Form
         SB-2, Registration No. 33-82838 NY.



<PAGE>
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>



         Exhibit
         Number                     Description

         3.1                        Certificate of Incorporation

         3.2                        Certificate of Amendment of the Company's Certificate of
                                    Incorporation

         3.3                        Certificate of Amendment of Certificate of Incorporation of
                                    the Company

         3.4                        By-Laws of the Company

         10.1                       Credit Agreement between Bank One, Texas, N.A.
                                    and the Company

         10.3                       The Company's Non-Qualified Stock Option Plan



</TABLE>

                                                         3

<PAGE>



                                                      PART I


Item 1.           Description of the Business.

         General

                  Pioneer Commercial Funding Corp.  ("Pioneer" or the "Company")
is a mortgage warehouse lender providing  short-term  (generally 10-90 days with
an average of 33 days per loan)  financing  to small and medium  sized  mortgage
bankers who hold  ("warehouse")  mortgage loans which they originate pending the
nonrecourse  sale  of such  loans  to  institutional  investor  agencies  in the
secondary mortgage market such as the Government  National Mortgage  Association
("GNMA"),  the Federal National Mortgage Association  ("FNMA"),  and the Federal
Home Loan  Mortgage  Corporation  ("FHLMC");  each one  referred to herein as an
"Agency")  and/or  accredited  financial  institutions  such as banks,  thrifts,
insurance carriers and large mortgage bankers (each one and each Agency referred
to herein as a "Financial Institution").

         The Company's Mortgage Lending Operations

                  The Company  provides  mortgage  warehouse lines of credit for
small and  medium  sized  mortgage  bankers  who have  satisfied  the  Company's
financial, business and creditworthiness standards. The mortgage loans for which
the Company  provides  mortgage  warehouse  lending are  primarily  used to fund
purchases of owner and non-owner occupied  residential  Properties (maximum four
units).

                  In  a  mortgage  warehouse  loan  transaction,  the  Company's
mortgage  banking  customer  will  first  obtain  a  funding  commitment  from a
Financial Institution for a fee, which is usually a fraction of a percent of the
commitment  amount. The Company's customer will then seek to fill the commitment
through the submission of one or more loans to the Financial  Institution  which
conform not only to the Financial  Institution's  established loan criteria, but
also to the  commitment's  rate and delivery date.  These  commitments  can take
three forms:  individual  loan, small pool, or standard pool. An individual loan
commitment is an agreement by a Financial  Institution,  with a usual term of no
longer than two weeks, to purchase a single whole loan of a specified  amount on
or before a specified date (the "Commitment  Date") at a specified rate. A small
pool commitment is an agreement by a Financial Institution, with a usual term of
no longer than three weeks, to purchase an

                                                         4

<PAGE>



unrestricted  number of whole loans of a specified  total  amount on or before a
specified date at a specified  rate. A standard pool  commitment is an agreement
by a  Financial  Institution,  with a usual term of no longer  than 90 days,  to
purchase an unrestricted number of whole loans of a specified total amount of no
less  than $1  million  on or  before  a  specified  date at a  specified  rate.
Generally,  the Company's  customers do not possess  sufficient  capital or bank
lines of credit to fully  fund loans  they  originate  during the period of time
that  transpires  between the date on which a loan is closed and the  Commitment
Date. Accordingly,  the Company provides its customer with a line of credit that
is  collateralized  by each loan that the Company funds for its customer,  which
enables  the  customer  to  hold   (warehouse)   the  loan  for  the  period  of
approximately  10 to 90 days that typically  occurs from the closing of the loan
until the  Commitment  Date.  During this  period,  the  Company  holds the loan
documents (generally, the promissory note and an assignment of the first deed of
trust  or  mortgage  securing  the  note),  and upon  its  delivery  of the loan
documents to the Financial Institution,  the Company receives the full amount of
the loan and all other  amounts  payable to the mortgage  banking  company.  The
Company  applies such funds  against  amounts due from its customer to repay the
principal of the  Company's  warehouse  loan to the customer and then remits any
excess funds to the customer.

                  The   Company    derives   its   revenues    from   both   the
transaction-based  fees that it charges its  customers  in  connection  with the
loans it funds on their  behalf and the interest  rate spread  between the yield
paid by the  Company to its  financing  sources  for its  borrowed  funds,  when
applicable, and the interest rate charged by the Company for mortgage loans that
it funds on behalf of its mortgage banking company customers.  During the fiscal
years ended  December 31, 1997 and 1998 (the "1997 fiscal year" and "1998 fiscal
year",  respectively),  such interest rate spread was generally 1.75% and 2.00%,
respectively.

                  Transaction  fees are determined  pursuant to a schedule based
upon the  length  of time  between  the  funding  of a loan by the  Company  and
reimbursement  of same by the  Financial  Institution.  During the 1997 and 1998
fiscal years, the Company's customers were charged an initial fee of $80 to $190
upon  funding of a loan.  If the loan was repaid  within 60 days of the  funding
date,  additional fees were typically not earned by the Company on such loan. If
such loan was not repaid within said period, the customer paid an additional fee
of $300. Performance pricing incentives were also offered in the last quarter of
1998. Under this plan initial

                                                         5

<PAGE>



processing  fees were  reduced  to $75 per loan for  loans  repaid in 30 days or
less. An additional  fee of $75 per loan was charged for loans held for 31 to 60
days.  Standard stale loan fees were charged thereafter.  In addition,  a yearly
facility fee ranges from 25 to 37.5 basis  points based on the approved  line of
credit to such  customer.  In the event that the  Company  disburses  funds to a
title company in  preparation  for closing of a loan which  thereafter  does not
close,  only the initial  fee,  plus  interest for the one to three days that it
normally  takes  before  such  funds are  returned  by the title  company to the
Company, are charged by the Company to its customer.

         The Company's Bank One, Texas, N.A. Line of Credit.

                  As of March 31,  1997,  the  Company  entered  into a one year
credit  agreement (the "Credit  Agreement")  with Bank One,  Texas,  N.A. ("Bank
One").  Pursuant to the Credit  Agreement,  Bank One provided the Company with a
$25,000,000  revolving  line of credit  (the  "Bank One  Credit  Line")  and the
Company  paid fees  ranging from $17.50 to $12.50 per loan based on monthly loan
volume. In addition, based on the type of the loan, the Company pays interest on
advances  made by Bank One at a variable  rate  ranging  from 1/8% below to 1/8%
above Bank One's prime rate of interest  (the "Bank One Prime  Rate").  The Bank
One Prime Rate is the rate quoted  from time to time by the Wall Street  Journal
as the base rate on corporate loans at large U.S. money center  commercial banks
 . As  collateral  security  for its  indebtedness  to Bank One under the  Credit
Agreement,  the Company  has granted to Bank One a security  interest in various
assets  including,  but not limited  to, all  promissory  notes  acquired by the
Company with respect to any loan funded by the Company with proceeds of the Bank
One Credit Line and all  mortgages  or other forms of  collateral  securing  the
funding of such loans. On August  25,1997,  Bank One amended the credit facility
that it  provides  to the  Company to  $35,000,000.  On  September  26,1997  and
December 12, 1997 the facility was  increased to  $50,000,000  and  $60,000,000,
respectively.  On February  18, 1999,  Bank One extended the Stated  Termination
date to April 30, 1999.  The Company and Bank One are  currently in  discussions
for an extension  of at least a six month  period.  It is currently  anticipated
that such an extension may be granted.  In addition,  Bank One amended the total
Principal  Debt of  Borrowings  so that it may never exceed the lesser of either
(a) a  $40,000,000  Commitment  or (b) the sum of the  Borrowing  Base  plus (i)
through and including  February 28, 1999,  $15,000,000,  (ii) thereafter through
March 31,  1999,  $10,000,000,  and (iii)  thereafter  through  April 30,  1999,
$5,000,000.



                                                         6

<PAGE>



                  Prior to the Credit Agreement with Bank One, the Company had a
line of credit with United Mizrahi Bank ("UMB"). The UMB credit line was paid in
full by the Company in February 1997.

         The Company's Mortgage Banking Company Customers

                  During the 1998 fiscal  year,  the Company  funded 3,172 loans
aggregating $172.6 million with the three largest customers, which accounted for
36.7% of its total  fundings.  The Company  funded 893 loans  aggregating  $76.6
million for one customer,  which accounted for 16.3% of the Company's  fundings;
813 loans  aggregating $53 million for the second customer,  which accounted for
11.2% of the Company's fundings;  and 1,466 loans aggregating $43 million funded
for the third customer, which accounted for 9.2% of the Company's fundings.

                  During the nine months ended  December  31, 1997,  the Company
funded 1,840 loans aggregating  $134.5 million with the three largest customers,
which accounted for 43.2% of its total fundings.  The Company funded 1,151 loans
aggregating  $66.8  million for one customer,  which  accounted for 21.5% of the
Company's fundings; 487 loans aggregating $45.2 million for the second customer,
which accounted for 14.5% of the Company's  fundings;  and 202 loans aggregating
$22.5 million  funded for the third  customer,  which  accounted for 7.2% of the
Company's fundings.

                  At December  31,  1998,  the  Company had 39 mortgage  banking
customers.  During the year ended  December 31, 1998,  the Company  funded 7,569
mortgage warehouse loans for an aggregate dollar volume of $470 million.

         The Mortgage Loan Process

                  In order to be  approved  as a  customer,  a mortgage  banking
company  must  satisfy a set of  standards  that have  been  established  by the
Company.

                  All    of    the    Company's    customers    are    Financial
Institution-approved mortgage banks that generally originate three categories of
mortgage  loans which are purchased by such  Financial  Institutions,  i.e., (i)
residential mortgage loans which either have been insured by the Federal Housing
Administration, insured by the Farmer's Home Administration or guaranteed by the
Veteran's  Administration  (collectively,  "FHA/VA  Loans");  (ii)  conventional
residential mortgage loans, i.e., non-FHA/VA Loans which comply

                                                         7

<PAGE>



with  the  requirements  for  sale  to,  or  conversion  into,   mortgage-backed
securities   issued   by  FNMA  or  FHLMC   ("conforming   loans");   and  (iii)
non-conforming product which includes sub-prime loans.

                  After a  customer  has  satisfied  the  Company's  application
standards,  a credit  facility  agreement is entered into by the Company and the
customer ("Credit Facility Agreement") which specifies,  among other things, the
maximum amount which can be borrowed by the customer  under the Credit  Facility
Agreement,  the  maximum  percentage  of any single  mortgage  loan that will be
advanced,  the interest rate and the terms of repayment.  All funds  advanced by
the Company under a Credit Facility  Agreement are  collateralized by a security
interest in the note and mortgage or deed of trust,  as well as all  instruments
and  documents  comprising  the loan  documentation  on each loan  funded by the
Company and a personal  guaranty of the  principals of the  customer.  To insure
completeness,  the process of reviewing and determining whether an applicant has
satisfied these standards is fully  monitored  through the Company's  Collateral
Tracking  System (the  "CTS"),  which the  Company  utilizes to manage the risks
inherent in its business, and prepare, track and confirm the on-time delivery of
all necessary documents to the appropriate Financial Institution.

                  Within  one day of the CTS's  confirmation  that all  required
documentation has been received and reviewed by the Company's staff, the Company
will wire  between 98% to 100% of the  proceeds  of the loan to the  appropriate
escrow agent or title company with  instructions to disburse the funds only upon
consummation of the loan closing,  or otherwise return the funds to the Company.
At the time of closing,  the mortgage  banking  company funds the balance of the
loan.

                  On or shortly before  expiration of the  Commitment  Date, the
Company  delivers all promissory notes and mortgage  instruments  comprising the
loans to be purchased pursuant to the Financial Institution's commitment to such
Financial Institution. Upon receipt of such funds from the Financial Institution
or the paying agent, the Company applies such funds against amounts due from the
customer to repay the principal of the Company's  warehouse loan to the customer
and then remits the excess funds to the customer. By limiting the mortgage loans
funded to those that conform to Financial Institution criteria, which define the
prevalent  standards  for the entire  secondary  mortgage  market,  the  Company
reduces its overall  financing risk to those mortgages which are the most liquid
and readily acceptable by secondary mortgage market

                                                         8

<PAGE>



lenders.

                  Furthermore,  the  Company  will  have  all  of the  data  and
documentation  necessary to sell the loan to another  Financial  Institution if,
for any  reason,  a Financial  Institution  refuses to accept and pay for a loan
subsequent to the closing thereof.

         The Collateral Tracking System

                  The Company  manages the risks  inherent in its  business  and
prepares, tracks and confirms the on-time delivery of all necessary documents to
the  appropriate  Financial  Institution  with the  CTS,  a  proprietary  set of
computer-based  operating software.  The CTS, which was developed principally by
the  Company for its  business  and not for resale to other  mortgage  financing
companies,  provides the operating  data controls that are used by the Company's
staff to run the business on a  day-to-day  basis.  The CTS programs  assist the
Company in its efforts to avoid problems caused by, and the monetary losses that
can result from, frequent short-term  processing  deadlines,  the high volume of
loan transactions and the complex document structures of mortgage loan financing
transactions  which are integral parts of the mortgage loan warehouse  financing
business.

                  The CTS keeps track of all amounts funded under its customer's
line of credit,  automatically  determines  whether a sufficient balance remains
thereunder  to  fund  a  particular  loan  and  updates  the  available  balance
information  upon  transfer  of  funds.  The  CTS  generates  all  documentation
pertaining  to the transfer of funds to the title  company  closing a loan,  the
transmittal  and  release of loan  documents  to a  Financial  Institution,  the
receipt of funds in payment of loans purchased by a Financial  Institution,  and
the distribution of funds due to the mortgage banking company.

                  The CTS  programs,  which  include all phases of the Company's
mortgage financing operations,  have been modified and altered over time so that
they meet the Company's evolving business requirements.  CTS was first developed
in 1987 by principals of the  Predecessor.  In the year ended  December 31, 1998
and the nine months ended December 31, 1997, the Company invested  approximately
$15,469 and $52,235,  respectively,  for development and modification of the CTS
to meet the Company's needs.
                                                         9

<PAGE>
         The Year 2000 Issue.

The Year 2000 ("Y2K") issue is the result of computer programs using a two-digit
format,  as opposed to four digits,  to indicate the year. Such computer systems
will be unable to  interpret  dates  beyond the year 1999,  which  could cause a
system failure or other computer  errors,  leading to disruptions in operations.
The  Company  has  two  basic  computer  functions,  accounting  and  collateral
tracking.  Date sensitive calculations such as fees and interest charges and due
dates on loans  comprising the Company's  warehouse loans receivable and payable
would be negatively  effected if the accounting and collateral  tracking systems
were not compliant  after the end of 1999.  The Company,  with the assistance of
outside software  contractors,  is in the process of changing its accounting and
collateral  tracking  computer systems from  non-compliant  systems run on AS400
hardware to a compliant system run on a Windows NT network. Final implementation
of fully  tested and  operationally  Y2K  compliant  systems is  projected to be
complete  by the end of the second  quarter of 1999.  Cost  incurred to date for
computer system enhancement,  which includes work flow technology and collateral
document  scanning  for  electronic  storage  as  well  as  Y2K  compliance,  is
approximately $350,000 which is included in equipment and software fixed assets.
Additional  costs to complete the project are expected to be less than $100,000.
The Company's banks and lender have communicated that they will be Y2K compliant
by the end of 1999.  No other third party Y2K  compliance  is expected to have a
material impact on the operations of the Company.

         Strategy.

                  The Company has  embarked on  strategies  to meet  competitive
forces in the mortgage market.  These  strategies  include focusing on customers
with a broader  product base such as  non-conforming  loans (loans which are not
sold to the Agencies) and home equity loans.

                  The   Company  is  seeking   acquisitions   of   complementary
businesses  such as mortgage  companies  and  companies  that provide  specialty
financial services within the mortgage industry.

         Mortgage Banking Operations

                  On April 16, 1997,  the Company  entered into a joint  venture
agreement  with  Maryland  Financial  Corporation  ("MFC") to form  Pioneer Home
Funding,  LLC, a  California  limited  liability  company  ("PHF").  The Company
accounts for this investment on the equity method.  The agreement  provides that
the  Company  and MFC would  maintain  a 80 percent  and a 20 percent  ownership
interest,  respectively.  An amendment to the  agreement was made on October 31,
1997. This amendment provides that the Company would contribute $40,000 for a 20
percent  interest  in PHF. In  addition,  the Company may from time to time make
loans to PHF as  needed.  Under this  agreement  the  Company  has the option to
convert  loans  made to PHF into an 80  percent  interest  in PHF.  For the nine
months ended December 31, 1997 and the year ended  December  31,1998 the Company
has made advances to PHF and is reflecting a receivable (included

                                                        10

<PAGE>



in other assets on the balance sheet) totaling $224,476 and
$275,344, respectively. At December 31, 1998, the Company has
recorded a reserve aggregating $110,000 against this receivable due
to the financial condition of PHF.

         Competition.

                  The business of originating  and financing the  origination of
residential  mortgage loans is highly competitive.  In order to obtain qualified
residential  mortgage  loans from  small to medium  sized  originating  mortgage
bankers, the Company competes with national, regional and local commercial banks
and mortgage  banking  companies who engage in mortgage loan  warehouse  lending
that have longer operating  histories and  significantly  greater resources than
those of the Company in providing  multi-state,  computer-based bridge financing
of  residential  mortgage  loans.  In recent  years,  a declining  interest rate
environment  favorable to mortgage  loan  originations  has existed.  During the
period  1997-1998,  larger,  established  mortgage banking companies have formed
mortgage  warehouse  divisions.  The  Company  believes  that as an  independent
warehouse  lender,  it can effectively  compete by adjusting to an ever-changing
mortgage  market while  providing a  high-quality  service  through  experienced
management and information provided to the Company's customers through the CTS.

         Seasonality.

                  The mortgage banking industry is generally subject to seasonal
         trends. These trends reflect a national pattern of sales and resales of
         homes,  although refinancing tends to be less seasonal and more closely
         related  to  changes  in  interest  rates.  Sales and  resales of homes
         typically peak during the spring and summer and decline to lower levels
         from December through March.

         Regulation - Mortgage Warehouse Lending.

                  Mortgage loan warehousing is not presently  subject to federal
regulation.  At the state level,  the California  Finance  Lenders Law went into
effect July 1, 1995.  This law imposes  licensing  obligations  on the  Company,
requires the filing of annual and periodic reports, establishes maximum interest
rates  and  repayment  terms in  certain  cases,  and  provides  for  fines  and
imprisonment  for  violation  of the law.  Other  participants  in the  mortgage
warehouse  financing  process,  such as  title  companies  and  appraisers,  are
regulated by the states in which they reside and such regulations

                                                        11

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often  determine  the scope and  approach of the  Company's  collateral  control
monitoring  program.  Furthermore,   mortgage  banking  is  a  highly  regulated
industry.  The Company's mortgage banking customers are subject to the rules and
regulations of, and examinations by, the Federal Housing Administration ("FHA"),
the Veterans  Administration  ("VA"),  GNMA,  FNMA,  FHLMC and state  regulatory
authorities  with respect to  originating,  processing,  underwriting,  selling,
securitizing and servicing  residential  mortgage loans. In addition,  there are
other federal and state statutes and regulations affecting such activities.

         Employees

         At December 31, 1998 the Company employed 18 full-time employees.  None
of the employees of the Company is represented by a labor union or is subject to
a collective bargaining agreement.  The Company believes that its relations with
its employees are good.

Item 2.           Property

                  On October 17,1997,  the Company entered into a ten year lease
to rent 6,846 square feet on the sixteenth  floor of an office building at 21700
Oxnard Street, Woodland Hills, California. The monthly base rent during year one
through five is $13,692 and for
years six through ten is $15,745.


                                                        12

<PAGE>



Item 3.           Legal Proceedings.

                  During  October  1997 the Company  warehoused  $1.7 million in
mortgages  for a customer  who used a third party  conduit,  American  Financial
Mortgage  Corporation,  to sell its loans to an investor,  Norwest Funding, Inc.
The Company provided instructions to the third party conduit that the funds were
to be wired by the investor to the Company's  bank.  The investor  mis-wired the
funds to the  conduit's  bank,  Corestates  Bank,  N.A. the  conduit's  bank has
refused to return the funds. The Company  commenced legal action, to collect the
funds from the conduit, the conduit's guarantor,  the investor and the conduit's
bank. The Company's  lender,  Bank One Texas,  N.A. ("Bank One"), has joined the
litigation as a co-plaintiff in support of the Company's  position.  In addition
the company has a $5 million  personal  guarantee from the third party conduit's
primary  shareholder and an additional $2 million  guarantee from the customer's
primary shareholder. Although it is impossible to determine the ultimate outcome
of this matter, management believes that it will recover the funds.


Item 4.           Submission of Matters to a Vote of Security Holders.

         None.

                                                      PART II

Item 5.           Market for Common Stock and Related Stockholder Matters.

                  The Common Stock issued by the Company in connection  with the
IPO has been listed on the Nasdaq  SmallCap  Market  since August 14, 1996 under
the symbol  "PCFC".  The following  table sets forth below the high and low sale
prices for the Common Stock for the periods indicated:

         Quarter Ended                                High             Low
         -------------                                ----            ---
         March 31, 1997                        $   3.00               $ 0.78
         June 30, 1997                         $   2.50               $ 1.25
         September 30, 1997                    $   2.8125             $ 1.875
         December 31, 1997                     $   2.875              $ 1.50
         March 31, 1998                        $   2.6875             $ 1.75
         June 30, 1998                         $   3.25               $ 1.875
         September 30, 1998                    $   2.4375             $ 1.25
         December 31, 1998                     $   2.25               $  .25


                                                        13

<PAGE>



         As of December  31,  1998,  there were 23 record  holders of the Common
Stock.

         Dividend Policy and Restrictions on Payment of Dividends.

                  The Company has never paid cash dividends on its Common Stock.
Furthermore, the provisions of the plan of reorganization (the "POR") pertaining
to the Predecessor's  emergence from bankruptcy prohibit the Company from paying
any dividends to its common  shareholders until the sum of $1,350,000 shall have
been  paid  to  the  Predecessor's  pre-bankruptcy  unsecured  creditors.  As of
December 31, 1998, no payment to the unsecured creditors has been made. Further,
in  accordance  with the POR, the  Predecessor  became  obligated to pay certain
portions of its net income in  satisfaction  of said payment  obligation  to its
pre-bankruptcy  creditors.  Upon consummation of the Merger,  the Company became
obligated,  by  operation  of law, to comply with such  payment  obligation  and
dividend payment prohibition,  among other operating  restrictions.  The Company
does not anticipate paying cash dividends on the Common Stock in the foreseeable
future as it  intends to retain  future  earnings  to finance  the growth of the
business.  The payment of future cash  dividends on the Common Stock will depend
on such  factors as  earnings  levels,  anticipated  capital  requirements,  the
operating  and  financial  condition  of the  Company and other  factors  deemed
relevant by the Board of Directors.

Item 6.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations

                  Certain matters addressed in this Annual Report may constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended,  and Section 21E of the  Securities and Exchange Act of
1934, as amended.  Such  forward-looking  statements are subject to a variety of
risks and  uncertainties  that could cause actual  results to differ  materially
from those  anticipated  by the  Company's  management.  The Private  Securities
Litigation  Reform  Act of 1995  (the  "Act")  provides  certain  "safe  harbor"
provisions for forward-looking  statements.  All forward-looking statements made
in this Annual Report are made pursuant to the Act.

         General

                  The  Company  commenced  active  operations  on June 14,  1993
following its emergence from Chapter 11 bankruptcy proceedings.

                                                        14

<PAGE>



The  Company  did not  engage  in any  substantial  mortgage  warehouse  lending
activities  from the time it emerged  from  bankruptcy  through  March 31, 1997.
During  the nine  months  ended  December  31,  1997 the  Company  significantly
increased  its financing  facility and began the process of evaluating  many new
customer  relationships.  On March 31,  1997 the Company  entered  into a credit
agreement  with Bank One.  On August  25,  1997,  Bank One  amended  the  credit
facility that it provided to the Company to  $35,000,000.  On September 26, 1997
and December 12, 1997 the facility  increased to  $50,000,000  and  $60,000,000,
respectively.  The line of credit was reduced to  $50,000,000 on October 1, 1998
and $40,000,000 on October 30, 1998.

                  As of December  31,  1997,  the Company had 46  customers  and
during the nine months then ended had funded 4,824 loans with an aggregate value
of $311 million.

                  As of December 31, 1998,  the Company had 39 customers and had
funded 7,569 loans with an aggregate value of $470 million.

         Results of Operation for Year Ended December 31, 1998 Compared to
the Nine Month Period Ended December 31, 1997.

                  Revenues:  The Company's  revenues increased to $6,414,161 for
the year ended December 31, 1998 from $3,115,750 for the nine month period ended
December 31, 1997. This increase is attributable to the additional  three months
in the 1998 period, a continued  increase in the volume of loans and an increase
in the amount of borrowings  outstanding  during the period.  The aggregate loan
volume for the year ended  December  31,  1998 was $470  million on 7,569  loans
compared to $311 million on 4,824 loans for the nine month period ended December
31, 1997.  During the year ended  December  31, 1998,  the average loan size was
$62,095 with an average  duration of 33 days compared to an average loan size of
$64,879 with an average loan duration of 26 days for the nine month period ended
December  31,  1997.  Processing  fees  for the year  ended  December  31,  1998
increased to $1,752,390  from $842,654 for the nine month period ended  December
31, 1997.  Attending  this increase in loan volume is the interest  component of
revenues (interest charged customers).  Interest revenue increased to $4,424,386
for the year ended  December 31, 1998 from  $2,163,182 for the nine month period
ended December 31, 1997.

                  Interest and Fee Costs:  The Company's direct costs consist of
interest and other charges that it pays to its revolving  credit line  provider.
The Company's  interest and fee charge for the year ended  December 31, 1998 was
$3,991,137  as compared to  $1,737,215  for the nine months  ended  December 31,
1997.  This increase is  attributable to the increase in loan funding volume and
the  additional  three months in the year ended  December 31, 1998.  The Company
funded 7,397 loans for a total amount of $462

                                                        15

<PAGE>



million through bank borrowings for the year ended December 31, 1998 compared to
4,448 loans for the nine month period ended  December 31, 1997 with a total loan
amount of $287 million.

                  The increase in average loan  duration is primarily due to the
shortage of liquid funds  supplying the  secondary  market for subprime and high
loan to value residential  mortgage loans which occurred in the third and fourth
quarters of 1998.  Several major  mortgage  investors  withdrew from the market.
Others refused to honor their  commitments at contracted  prices and terms. This
situation  adversely  affected  several of the Company's  customers as they were
unable  to sell  loans  under  previously  contracted  terms.  Accordingly,  the
Company's  customers had to resell these loans to new investors who, as a result
of the tight  money  supply,  dramatically  tightened  their loan  specification
requirements  and dropped their prices  resulting in a significant  slow down in
loan  turnover.  This was  especially  true with high loan to value  loans which
comprised a large  percentage  of the  Company's  loan base.  As a result of the
above described  tightening of the mortgage money supply,  five of the Company's
clients have downsized their  operations in anticipation of exiting the mortgage
origination business and in so doing have reduced resources available to perform
the  tasks  required  to  effectively  and  timely  resell  their  loans  to new
investors, further adding to the length of time such loans stay on the Company's
line of credit.

Loan Loss  Provision:  The  $1,016,450  loan loss  provision  for the year ended
December 31, 1998 is due to the  recognition  of a discount on the sale of loans
during the year and the accrual of a reserve for estimated  losses on the future
disposition  of  loans  held  for  sale,   mortgage   warehouse  loans  and  for
uncollectible interest and fees receivable.  The Company sold 32 of the 37 loans
held for resale  with an  original  loan value of  $3,806,115  at a discount  of
$72,070.  Management estimates that the remaining five loans held for resale may
also sell at a loss.  In  addition,  management  estimates  that  certain  other
uncommitted  mortgage warehouse loans belonging to customers described above may
be sold at discounts  significant  enough that those  customers may be unable to
cover  the  shortage  and pay all of the  accrued  interest  and  fees  thereon.
Accordingly,  an estimate for these  future  losses has been  reserved.  No such
provision was made in the nine month period ended December 31, 1997.

                  Other Operating Expenses: Other operating expenses increased

                                                        16

<PAGE>



to  $2,597,223  in the year ended  December  31, 1998 from  $919,005 in the nine
month period ended  December 31, 1997.  Compensation  and benefits  increased to
$1,055,972  in the year ended  December 31, 1998 from $370,077 in the nine month
period ended  December 31, 1997 due to the additional  three months  included in
the year ended December 31, 1998 and the increase in employee  strength required
to process the  additional  volume of loans.  The amount of time to process each
loan from funding to repayment  increased in 1998 due to the additional  efforts
required to insure loans met the more rigorous  specifications of investors as a
result of the tight money supply in the secondary  market for high loan to value
residential  mortgages and to assist  customers in their efforts to resell loans
with unhonored commitments.

                  Depreciation  expense  increased to $202,530 in the year ended
December 31, 1998 from $36,421 in the nine month period ended December 31, 1997.
The fixed asset base upon which depreciation is determined increased from highly
depreciated  furniture,  equipment  and  software  in  service in the nine month
period ended December 31, 1997 while the Company  resided in the Reseda location
to a fixed asset base of virtually all new  furniture,  leasehold  improvements,
computer  equipment and additional  scanning software in the year ended December
31, 1998.  Fixed  assets  increased to  $1,374,179  from  $682,382 and net fixed
assets  increased to $732,796  from  $233,529 at December 31, 1998 from December
31, 1997.

                  Professional  fees,  which include  accounting and legal fees,
increased to $322,075 for the year ended December 31, 1998 from $127,136 for the
nine month period ended December 31, 1997 primarily due to the additional  costs
attendant to the  lawsuit,  more fully  described in Item 3, against  Corestates
Bank, N.A., American Financial Mortgage Corporation and Norwest Funding, Inc.

                  Rent expense increased to $210,591 for the year ended December
31, 1998 from $37,072 for the nine month  period ended  December 31, 1997 due to
the move at the  beginning of 1998 from the Reseda  location with a base monthly
rent of $2,178  per  month to the  Woodland  Hills  office  with a $13,692  base
monthly  rent.  During  1998  the  Company  was  obligated  on  leases  for both
locations.  The Reseda office was sublet to three lessees  beginning in the last
quarter of 1998.




                                                        17

<PAGE>



         Net Loss Versus Net Income:

                  The Company incurred a net loss of $1,158,753 including a loan
loss provision of  $1,016,450,  for the year ended December 31, 1998 compared to
net income of  $529,743  for the nine month  period  ended  December  31,  1997.
Depreciation and rent expense increases  associated with the move from Reseda to
Woodland Hills, which management  considered necessary for the planned growth of
the Company, had a negative effect on 1998 earnings.  The investor tightening of
loan specification  requirements  further increased the required processing time
per loan in the second half of 1998 and the  Company's  reduction of  processing
fees in the last quarter of 1998 also had a negative effect on 1998 earnings.

         Cash Flows:

                  Operating  Activities:  In spite of a $1,158,753  loss for the
         year ended  December 31, 1998,  the Company  generated $15 million from
         operating  activities as a result of a reduction in warehouse mortgages
         receivable  of $13 million and the sale of $4 million in loans held for
         resale.  In the nine month period  ended  December 31, 1997 the Company
         utilized  $50  million  due to  increases  of $45  million of  mortgage
         warehouse loans, $4.5 million of loans held for resale and $1.7 million
         of receivables for loans shipped.

                  Investing Activities:  In 1998, $380,537 was invested in fixed
assets and  $199,625 was  advanced to Pioneer  Home  Funding.  In the nine month
period ended December 31, 1997, $413,592 was invested in fixed assets,  $264,476
was invested in Pioneer Home Funding and $225,000 was invested in Fidelity First
Mortgage Corp.

                  Financing  Activities:  In  1998,  $16.7  million  was used to
reduce short term  borrowings on the Company's line of credit  compared to a $50
million net increase in cash provided by short term line of credit  borrowing in
the nine month period ended  December 31, 1997.  In 1998,  $726,000 and $241,000
was generated by the issuance of subordinated  debt and common stock compared to
$1,000,000 and $9,000 for the nine month period ended December 31, 1997.

         Liquidity and Capital Resources:

                  Bank One has continued to make available to the Company a
revolving line of credit of $40 million.  The Company's primary

                                                        18

<PAGE>



sources of capital  which it employs in its  warehouse  lending  operations  are
borrowings under its Bank One line of credit and its net equity capital funds of
approximately  $5.2 million and $1.7 million in  subordinated  debt. The Company
and Bank One are  currently  in  discussions  for an extension of at least a six
month period. It is currently anticipated that such an extension may be granted.

Item 7.           Financial Statements

         See pages F-1 to F-25


Item 8.           Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure.

                  On November 11, 1998 the Registrant  appointed  Lazar Levine &
Felix LLP as the new  auditors  for the  Registrant.  The change in auditors was
approved by Registrant's Board of Directors.  The reason for the change was that
Grant  Thornton LLP, the present  auditor,  indicated  that they would not renew
their   engagement  for  the  year  ended  December  31,  1998.  There  were  no
disagreements with Grant Thornton LLP on any matter of accounting  principles or
practices,  financial statement  disclosure or audit scope or procedure which if
not resolved to the  satisfaction  of the former  accountants  would have caused
them to make reference to the subject matter in their report. None of the events
listed in  paragraphs  (B) through (D) of  Regulation  S-B Item 304 (a) (1) (iv)
occurred.

                                                     PART III


Item 9.           Directors, Executive Officers and Control Persons.

         Executive Officers and Directors

         The executive officers and directors of the Company are as follows:

                  Name                 Age         Position

         Boaz Harel.........          35       Chairman of the Board,
                                               Director


                                                        19

<PAGE>



         M. Albert Nissim...        65        President, Director

         John O'Brien. . . .        51        Vice President,
                                              Chief Financial Officer

         David W. Sass......        63        Secretary

         Richard Fried......        52        Director

         Tamar Lieber.......        56        Director

         Lynda Davey........        44        Director

         Joseph Samuels.....        68        Director


                  Boaz Harel was  appointed  to the Board in  November  1996 and
elected as Chairman of the Board on July 2, 1997.  From 1991 to 1993,  Mr. Harel
was the founder and managing  director of Mashik Business and Development  Ltd.,
an engineering  consulting company.  Since 1993, Mr. Harel has been the Managing
Director of Leedan Business Enterprise Ltd. ("Leedan"),  a publicly-held Israeli
company  which is the  beneficial  owner of 58% of the  Company's  Common Stock.
Since January 1994, Mr. Harel has served as a member of the Supervisory Board of
ICTS  International  N.V. and since  September 1996, Mr. Harel has served as the
Chairman of ICTS USA (1994),  Inc., an indirect subsidiary of Leedan. Since 1997
Mr. Harel has been Co-Managing Director of Leedan International Holdings B.V., a
principal shareholder of the Company and an indirect wholly-owned  subsidiary of
Leedan.

                  M. Albert Nissim was appointed as the President of the Company
in January  1997 and was  elected to the Board on  September  25,  1997.  He has
served as Secretary of ICTS  International  N.V.  since January 1996. Mr. Nissim
has also served as President of ICTS USA (1994),  Inc. since January 1994.  From
1994 to 1995,  he served as Managing  Director of ICTS  International  B.V.  Mr.
Nissim served as the President of Harel & Partners from 1991 to 1994.  From 1990
to the  present,  he has  been  the  Vice  President  and a  director  of  Tuffy
Associates  Corp., an automotive  repair franchise  company  affiliated with Mr.
Ezra Harel, the brother of Boaz Harel. Mr. Nissim is also a Co-Managing Director
of Leedan International  Holdings B.V., a principal  shareholder of the Company.
In April 1997, Mr. Nissim was appointed as one of the Company's designees on the
Board of Directors of Pioneer Home

                                                        20

<PAGE>



Funding, L.L.C., a subsidiary of the Company.


                  John O'Brien was appointed Vice President and Chief  Financial
Officer  on April  28,  1998.  Mr.  O'Brien  is a  California  Certified  Public
Accountant and has previously served as the Chief Financial Officer of Paramount
Citrus  Association,  Sun Pacific and ABBA Pure and Natural Hair Care  Products.
Prior to that Mr.  O'Brien was an audit manager with Ernst & Young.  Mr. O'Brien
earned a BS degree in Business Administration (Accounting) from California State
University at Northridge in 1973.


                  David W. Sass has been a Director  since  April,  1998 and has
been a  practicing  attorney  in New York  City  for the  past 38  years  and is
currently  a  senior  partner  in the  law  firm of  McLaughlin  &  Stern,  LLP,
securities  counsel  to the  Company.  Mr.  Sass is also a  director  of  Pallet
Management  Systems,  Inc., a company  engaged in the  manufacture and repair of
wooden  pallets  and other  packaging  services  and a  director  of The  Harmat
Organization,  Inc., a New York based construction company and a member and Vice
Chairman of the Board of Trustees of Ithaca College. Mr. Sass earned a B.A. from
Ithaca College,  a J.D. from Temple  University  School of Law and an L.L.M. (in
taxation) from New York University School of Law.

                  Richard  Fried was  appointed  to the  Predecessor's  Board in
February 1994 and served as Vice-President of the Predecessor. Upon consummation
of the Merger in November 1994, he became a director of the Company.  Since June
1991 Mr. Fried has served as President of Medical Systems,  Inc., an application
software development company, of which he has been a principal shareholder. From
February  1993,  he has served as President of  Montgomery  Associates,  Inc., a
corporation   wholly-owned   by  him,   which  is  engaged  in  business  as  an
importer-exporter. Since April 1993, Mr. Fried has been a principal shareholder,
and has served as  President,  of Sea Change  Systems,  Inc.,  a software  tools
development company. From April 1993 to May 1994, he was a Branch Manager of LPL
Financial Services,  a stock brokerage firm, which is an NASD member firm. Since
November  1994, Mr. Fried has been a controlling  shareholder  and has served as
President of SMARTpay, Inc., a collection service. From April 1995 he has served
as President of Centennial  Systems,  Inc., a software  distribution,  sales and
service firm of which he is a principal

                                                        21

<PAGE>



shareholder.  Since October 1996, Mr. Fried has been a controlling  shareholder,
and has served as President, of Leeward Software,  Inc., an application software
developer.  From  October  1996 he has also  served  as  President  of  Windward
Software, Inc., a materials management software intellectual property company of
which he is also a principal  shareholder.  From  December 1996 he has served as
President of Strategic  Reporting  Systems,  Inc., a database report  generation
software   development  and  distribution  firm  of  which  he  is  a  principal
shareholder.  From April 1997, he has served as managing  director of HYCOM USA,
Inc., an international  software development and distribution  company, of which
he is a principal shareholder.

                  Tamar  Lieber was  appointed  to the Board in June  1995.  Ms.
Lieber has been  engaged in practice as a senior  psychotherapist  at the Center
for Preventive  Psychiatry in White Plains, New York, a non-for profit community
mental health clinic, for more than the past five years.

Lynda Davey was elected to the Board on September 25, 1997. Ms. Davey has served
as the President of Avalon Group, Ltd. And Chairman of Avalon Securities,  Ltd.,
private investment banking firms, since April, 1992. From April, 1988 throughout
1991 Ms. Davey was Managing  Director and head of investment  banking at Tribeca
Corporation,   a  New  York  merchant  bank.   Prior  to  1988,  Ms.  Davey  was
Vice-President  of the  Merchandise  and Retail Group in the  corporate  finance
department of Salomon Brothers Inc. Ms. Davey also serves as a director of Tuffy
Associates Corp. And the Center for Design  Innovation of the Fashion  Institute
of Technology. Ms. Davey is a registered architect.

                  Joseph  Samuels  has  served  as a  president  and is the sole
shareholder  of Fulton  Properties of Calif.  Inc.,  an  investment  corporation
engaged in acquisition,  development and management of real estate for more than
the past five years.  Mr.  Samuels has also served as President  and is the sole
shareholder of Goldsboro Properties Inc., a real estate holding corporation, for
more than the past five years.

         Item 10.          Executive Compensation.

                  The following table sets forth compensation awarded to, earned
by or paid to  executives  of the Company.  No executive  officer of the Company
earned a salary and bonus of more than  $100,000  during the 1997  fiscal  year.
During such fiscal year, the Company did not grant

                                                            22

<PAGE>



any restricted stock awards or stock appreciation rights to any of its
executives.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                                                       Annual Compensation                             Awards
    Name and
Principal Position                  Fiscal Year               Salary($)         Bonus($)         Other Annual         Securities
                                                                                                 Compensation ($)     Underlying
                                                                                                                        Option

Boaz Harel*                             1998(1)              $100,000           $15,000                                 100,000
Chairman of the Board                   1997(2)               $25,000                                                    15,000


M. Albert Nissim**                      1998(1)              $118,654           $12,000                                  50,000
President                               1997(2)               $54,000                                                    90,000


John O'Brien***                         1998(1)              $58,513
Chief Financial Officer

David W. Sass****                       1998(1)              $ 0
Secretary
</TABLE>

*     Commenced as Chairman on July 2, 1997.
** Commenced  service as  President of the Company in the fourth  quarter of the
1996 fiscal year. *** Commenced service as Chief Financial Officer in the second
quarter of the 1998 fiscal  year.  ****  Commenced  service as  Secretary in the
second quarter of the 1998 fiscal year.

(1)  For the Year Ending December 31, 1998

(2) Nine Months ended December 31, 1997

(3)  For Fiscal Year Ending March 31, 1997


         Compensation of Directors.

                  The  Directors of the Company  received cash  compensation  of
         $300 per meeting in his or her capacity as a director.

         Options Issued to Executives.

                  In consideration of the services rendered by Messrs.  Goldberg
and Housman,  in lieu of payment of salaries,  between June 1995 and the closing
of the IPO,  the Company  issued  five year  options to each of them to purchase
75,758  shares of Common  Stock at an  exercise  price of $5.00 per share.  Such
options were not issued  pursuant to the Company's  Incentive Stock Option Plan.
The table below sets forth information

                                                       23

<PAGE>



regarding option grants to executive officers and Directors of
the Company.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                 Number of                             Exercise Price
Name                           Options Granted                           Per Share             Expiration Date


M. Albert Nissim(1)                 50,000                                 $5.00                 October, 2000
                                    90,000                                 $2.50                 February, 2000

Arthur Goldberg*                    75,758                                 $5.00                 August, 2001

Elie Housman*                       75,758                                 $5.00                 August, 2001

Boaz Harel(1)                      100,000                                $2.375                 October, 2000
                                    15,000                                $1.125                 January, 2000

Richard Fried(1)                    24,000                                $2.125                 October, 2000
                                    15,000                                $1.125                 January, 2000

Tamar Lieber(1)                     24,000                                $2.125                 October, 2000
                                    15,000                                $1.125                 January, 2000

Lynda Davey(1)                      24,000                                $2.125                 October, 2000
                                    15,000                                $1.125                 January, 2000

Joseph Samuels(1)                   24,000                                $2.125                 October, 2000
                                    15,000                                $1.125                 January, 2000


*Former officer and director.
</TABLE>

(1) Options vested at the rate of 1/3rd each year.


         Executive Compensation.

                  On May 12, 1998, Albert Nissim's compensation was increased to
$9,500 per month effective April 1, 1998 in consideration  of his  contributions
to the Company.  In addition,  Mr. Nissim was awarded a $12,000 bonus payable in
the second quarter in consideration of the Company's performance.

                  On May 12,  1998  Boaz  Harel was  awarded  a  $15,000  bonus,
payable in the second quarter in consideration of the Company's performance.





                                                        24

<PAGE>



         Employment Agreements.

                  In July 1997, the Company  extended the  Employment  Agreement
with M. Albert  Nissim as President  for an  indefinite  period,  on a part-time
basis, at a salary of $6,000 (amended to $9,500) per month. The Agreement may be
terminated by either party on not less than 90 days prior notice.

         Boaz and Leedan Agreement

                  The  Company  has  approved a  compensation  plan for Mr. Boaz
Harel and/or Leedan Business  Enterprises,  Ltd.  ("Leedan"),  the company which
provides management services to the Company by making Mr. Harel available to the
Company.  Leedan  is also a  principal  shareholder  of the  Company.  The  plan
provides aggregate renumeration to Mr. Harel and/or Leedan of $100,000 per annum
plus 5% of the Company's net income pre-tax above  $1,000,000  annually.  Leedan
and Mr. Harel will determine how such compensation will be divided between them.

Item 11.          Security Ownership of Certain Beneficial Owners and
                  Management

                  The  following  table  sets forth the  holdings  of the Common
Stock as of March 1, 1999 by each  person or entity  known to the  Company to be
the beneficial owner of more than five percent (5%) of the outstanding shares of
Common Stock and by (1) each director and named executive  officer;  and (2) all
directors and executive officers as a group.



                                                            25

<PAGE>
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>



                                                              Number of Shares                  Percent
Name                      Title                               of Common Stock                   of Class 

ICTS International N.V.                                          300,000                          5.4%
Vertrekpassage 226
1118 AV Schiphol Airport
Holland

Lancer Partners L.P.                                             345,000                          6.2%
200 Park Avenue, Ste 3900
New York, NY 10166

Leedan Business
  Enterprise Ltd.                                                2,376,136(1)                     42.9%
("Leedan Business")
8 Shaul Hamelech Blvd.
Tel-Aviv 64733, Israel

Rogosin International B.V.                                       530,000(3)                      9.5%
One Rockefeller Plaza,
Ste. 2412
New York, NY 10020

Boaz Harel               Director                                2,376,136(1)(2)                  42.9%
1 Rockfeller Plaza
Suite 2412
New York, New York
10020

M. Albert Nissim         President and                            140,0004                         *
One Rockefeller Plaza    Director
Suite 2412
New York, NY

Tamar Lieber             Director                                 339,000(5)                      5.8%
160 W. 66th Street
Apt. 49B
New York, NY 10023

Richard Fried            Director                                 51,046(5)                        *
33 Marian Road
Marblehead, MA 01945

Lynda Davey              Director                                 24,000(5)                        *
1375 Broadway                                                     15,000
5th Floor
New York, NY 10018

Joseph Samuels           Director                                24,000(5)                       *
321 24th Street                                                  15,000
Santa Monica, CA 90402

Directors and
Executive
Officers as a
group (6 persons)                                                2,984,182                      53.8%



*        Less than 1%



</TABLE>

                                                            26

<PAGE>



(1) Leedan  International  Holdings  B.V.,  which together with Leedan Systems &
Properties  Promotion  (1003)  Ltd.  Holds  48.2% of the issued and  outstanding
Common Stock of the Company,  is an indirect  wholly-owned  subsidiary of Leedan
Business.  Certain  members of the family of Mr. Boaz  Harel,  a director of the
Company,  collectively,  own  approximately  57.5% of the outstanding  shares of
Leedan Business.  Mr. Harel, owns approximately 17% of the outstanding shares of
Leedan  Business  and  disclaims  beneficial  ownership  of any  stock of Leedan
Business held by an other member of the Harel family.

(2) Does not include  three year option for  100,000,  vesting  1/3rd each year,
exercisable  at $2.375  per share nor a three  year  option  for  15,000  shares
exercisable at $1.125 per share, vesting 1/3rd each year.

(3) An affiliate to Leedan Business  Enterprises Ltd. Shares were purchased in a
private transaction.

(4) Includes 90,000 shares of Common Stock  exercisable at $2.50 per share which
Mr.  Nissim has the right to acquire  within 60 days from the date  hereof  upon
exercise of an option  held by him and 50,000  option  exercisable  at $5.00 per
share at the rate of 1/3rd per year for three years.

(5) Includes 24,000 shares as part of a 3 year option, exercisable at $2.125 per
share,  vesting at the rate of 1/3rd per year for three  years as well as 15,000
shares as part of a three year option  exercisable at $1.125 per share,  vesting
at the rate of 1/3rd per year.

(6) Does not  include any options  referred  to in notes (2),  (3),  (4) and (5)
hereof.

Item 12.          Certain Relationships and Related Transactions

         Certain Transactions.

                  On November 18, 1998 a settlement was reached with a guarantor
of a mortgage  banking  customer's  defaulted line of credit.  The guarantor was
also a company  stockholder.  Pursuant to the settlement,  an entity which is an
affiliate of Leedan accepted $530,000 of the guarantor's  recognized debt to the
Company in exchange for the guarantor's shares in the Company.  This entity paid
the Company  $176,667  and issued two  installment  notes of $176,667  each with
maturity  dates of August 23, 1999 and May 23, 2000,  respectively.  These notes
bear interest at a rate of 8.25% per annum and are payable quarterly  commencing
three months from the date of issuance which was November 23, 1998.

                  On  November  18,  1998,  a  settlement  was  reached  with  a
guarantor  of a  mortgage  banking  customer's  defaulted  line of  credit.  The
guarantor was also a Company  stockholder.  Pursuant to the settlement,  Rogosin
Business Enterprises Ltd., accepted $530,000 of the guarantor's  recognized debt
to the Company in trade for the guarantor's shares in the Company.  Furthermore,
pursuant to the  settlement,  the guarantor  issued two additional  notes in the
amount of $735,102 to the Company.


                                                        27

<PAGE>



                  Pursuant to the  settlement  as stated  above,  the  guarantor
issued to the Company  two  installment  notes in the  amounts of  $265,103  and
$470,000,  respectively.  These notes bear interest at a rate of 8.25% per annum
and are payable  quarterly  commencing  three months from November 18, 1998, the
date of issuance of the notes. Both notes mature November 18, 2000.


         On September 14, 1998 Joseph Samuels, a Director of the Company and two
affiliates of Leedan Business  Enterprises  Ltd. loaned to the Company  $100,000
and $550,000 and $76,000,  respectively. The loan was in connection to the Ninth
Amendment to the Credit  Agreement with Bank One to authorize the infusion of an
aggregate of $726,000 in the form of the  Company's 11%  Subordinated  Debenture
for a term until a new lending facility is in place to replace Bank One.

         On April 2, 1997 and April 4, 1997, the Company issued  unsecured loans
of  $400,000  and  $600,000,  respectively,  to  Rogosin  Converters,  Inc.,  an
affiliate of the Company. Members of the family of Mr. Boaz Harel, a director of
the Company,  have an indirect controlling interest in Rogosin Converters,  Inc.
The loans were  guaranteed by Leedan  International  B.V., a shareholder  of the
Company.  The  Company  earned  interest  of 12% per annum on the  loans,  which
interest was paid monthly.  The principal and accrued interest on the loans were
paid in full on June 20, 1997.

Item 13. Exhibits & Reports on Form 8-K

            (A) The Following financial statements are included in Part II, Item
7:

            Independent  Auditors' Report by Lazar, Levine & Felix, LLP for year
ended December 31, 1998

            Independent Auditors' Report by Grant Thornton LLP for year
ended December 31, 1997

            Balance Sheets as of December 31, 1998 and 1997.

            Statements  of Operations  for the year ended  December 31, 1998 and
the nine month period ended December 31, 1997.

          Statements of Comprehensive Income for the year ended December 31,
1998 and the nine months ended December 31, 1997.

            Statements of  Stockholders'  Equity for the year ended December 31,
1998 and the nine month period ended December 31, 1997.



                                                        28

<PAGE>



            Statements  of Cash Flows for the year ended  December  31, 1998 and
the nine month period ended December 31, 1997.

            Notes to Financial Statements.

            Schedules are omitted for the reason that they are not required, are
not  applicable,  or the  required  information  is  included  in the  financial
statements or notes thereto.

            (B) Reports on Form 8-K Not applicable.

            (C)  Exhibits.  The  following  exhibits  are  filed  as part of the
Company's  report.  Where  such  filing is made by  incorporation  by  reference
(I/B/R) to a previously  filed statement or report,  such statement or report is
identified in parenthesis.

            Official Exhibit

            Number                  Description

            [3.1]                   Certificate of Incorporation of the Company.

            [3.2]                   Certificate of Amendment of the Company's
                                    Certificate of Incorporation.

            [3.3]                   Certificate of Amendment of Certificate of
                                    Incorporation of the Company.

            [3.4]                   By-Laws of the Company.

            [10.1]                  Credit Agreement between Bank One, Texas,
                                    N.A. and the Company, dated March 31, 1997.

            11                      Earnings Per Share

            27                      Financial Data Schedule


                                                        29



<PAGE>
                 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Pioneer Commercial Funding Corp.


We have audited the  accompanying  balance sheet of Pioneer  Commercial  Funding
Corp.  (a New  York  corporation)  as of  December  31,  1998,  and the  related
statements of operations,  changes in stockholders=  equity,  and cash flows for
the year then ended.  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 audit.  The financial  statements of Pioneer
Commercial  Funding Corp. as of and for the nine month period ended December 31,
1997,  were  audited  by other  auditors  whose  report  dated  March 25,  1998,
expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Pioneer Commercial Funding Corp. as
of December 31, 1998,  and the results of its  operations and its cash flows for
the  year  then  ended,  in  conformity  with  generally   accepted   accounting
principles.




                                               LAZAR LEVINE & FELIX LLP


New York, New York
April 1, 1999, except as to
Note C which is dated
April 12, 1999




                                                                F - 1

<PAGE>
Grant Thornton
Suite 700
1000 Wilshire Blvd.
Los Angeles, CA 90017-2464
(213) 627-1717



            REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Pioneer Commercial Funding Corp.


We have audited the  accompanying  balance sheet of Pioneer  Commercial  Funding
Corporation (a New York  corporation)  (the "Company") as of December 31, 1997,
and the related statements of operations,  comprehensive income, stockholders'
equity,  and cash flows for the nine month  period then ended.  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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Pioneer  Commercial  Funding
Corporation  as of December 31, 1997,  and the results of its operations and its
cash flows for the nine months then ended, in conformity with generally accepted
accounting principles.

Grant Thornton LLP

Los Angeles, California
March 25, 1998


                                     F-2
<PAGE>

                                       Pioneer Commercial Funding Corp.
                                                BALANCE SHEETS
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>




                                                                               December 31              December 31
                                                                                  1998                     1997
                                                                             ------------------       ------------------
                              ASSETS
Cash and cash equivalents                                                   $   1,503,788             $  2,972,845
Mortgage warehouse loans receivable, net of allowance for loan losses          33,640,202               47,291,076
Loans held for resale, net of allowance for loan losses                           705,479                4,504,231
Receivable for loans shipped                                                    1,716,969                1,716,969
Accrued interest and fee receivable                                               825,340                  930,656
Notes receivable-current portion                                                  176,667                       -
Prepaid and other assets                                                          180,503                    99,907
                                                                             ------------------       ------------------
    Total Current Assets                                                       38,748,948                57,515,684
                                                                            ------------------       ------------------
Fixed Assets
    Furniture and equipment                                                       634,376                  119,882
    Proprietary computer software                                                 551,114                  535,645
    Leasehold improvements                                                        198,689                   26,855
                                                                            ------------------       ------------------
                                                                                1,384,179                  682,382
    Less accumulated depreciation and amortization                                651,383                  448,853
                                                                            ------------------------ ------------------
        Net Fixed Assets                                                          732,796                  233,529
                                                                              ------------------       ------------------

Investment securities available for sale                                             318,750              1,032,000
Notes receivable-noncurrent portion                                                  911,770                    -
Deposits on furniture and equipment                                                      -                  321,260
Other assets                                                                         475,063                484,130
                                                                            ------------------------ ------------------
        Total Assets                                                     $        41,187,327      $        59,586,603
                                                                            ==================       ==================

               LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Mortgage warehouse loans payable                                     $        33,384,925      $        50,056,160
    Accounts payable and accrued expenses                                            213,646                  362,869
    Accrued interest and fees                                                        777,798                1,047,132
    Due to mortgage banking companies                                                220,228                  629,421
    Deferred loan fees                                                                29,000                   29,000
    Deferred legal fees                                                               65,395                   60,683
                                                                              ------------------------ ------------------
        Total Current Liabilities                                                 34,690,992               52,185,265
                                                                              ------------------------ ------------------

Subordinated debt                                                                 1,726,000                  1,000,000
                                                                              ------------------------ ------------------
        Total Liabilities                                                        36,416,992                 53,185,265
                                                                              ------------------------ ------------------
Commitments and Contingencies
Stockholders' Equity:
Common  stock  - $.01  par  value;  authorized  20,000,000  shares;  issued  and
  outstanding - 5,542,272 at December 31, 1998 and
  5,442,272 at December 31, 1997                                                    55,423                   54,423
Additional paid-in capital                                                      14,556,952               14,316,952
Accumulated deficit                                                             (9,935,790)              (8,777,037)
Accumulated other comprehensive income                                              93,750                  807,000
                                                                              ------------------------ ------------------
Total Stockholders' Equity                                                       4,770,335                6,401,338
                                                                              ------------------------ ------------------
Total Liabilities and Stockholders' Equity                             $        41,187,327           $   59,586,603
                                                                              ======================== ==================

               The accompanying notes are an integral part of these statements.
                                                      F-3






<PAGE>
                                                                Pioneer Commercial Funding Corp.
                            STATEMENTS OF OPERATIONS


           For the twelve  months  ended  December  31, 1998 and the nine months
ended December 31, 1997




                                                                           1998                     1997
                                                                    ------------------       ------------------
Income:
Interest income                                                      $   4,424,386         $       2,163,182
Commissions and facility fees                                              237,385                   109,914
Processing fees                                                          1,752,390                   842,654
                                                                    ------------------       ------------------
    Total Income                                                         6,414,161                 3,115,750
                                                                    ------------------       ------------------
Interest and Fee Costs:
Interest expense-warehouse and lines of credit                           3,762,591                1,671,389
Bank charges and facility fees                                             141,042                    7,765
Bank processing fees                                                        87,504                   58,061
    Total Interest and Fee Costs                                         3,991,137                1,737,215
                                                                    ------------------       ------------------
Net Interest and Fee Income                                              2,423,024                1,378,535
Loan loss provision                                                      1,016,450                       -
                                                                         1,406,574                1,378,535
                                                                    ------------------       ------------------
Other Operating Expense:
Compensation and benefits                                                1,055,972                  370,077
Depreciation and amortization                                              202,530                   36,421
Professional fees                                                          322,075                  127,136
Loan administration charges                                                198,756                      -
Utilities                                                                   46,448                   25,712
Rent                                                                       210,591                   37,072
Repairs and maintenance                                                     13,408                   10,275
Other                                                                      547,443                  312,312
    Total Other Operating Expenses                                       2,597,223                  919,005
                                                                    ------------------       ------------------
    Income (loss) from operations                                       (1,190,649)                 459,530
                                                                    ------------------       ------------------
Other Income and Expense:
Interest income - other                                                     77,799                   64,668
Interest expense-other                                                      (5,099)                  (3,534)
Miscellaneous income                                                            25                   10,228
Equity in loss of affiliate                                                (40,000)                     -
    Total Other Income and Expense                                          32,725                   71,362
                                                                    ------------------       ------------------
    Income (Loss) Before Taxes Based on Income                          (1,157,924)                 530,892
Provision for taxes based on income                                            829                    1,149
    Net Income (Loss)                                                $  (1,158,753)     $           529,743
                                                                    ==================       ==================

Basic and Diluted Income (Loss)
    Per Share of Common Stock                                        $       (0.21)     $               0.10
                                                                    ==================       ==================

Weighted Average Number of Shares                                        5,536,519                 5,193,545
                                                                    ==================       ==================

                                            The accompanying notes are an integral part of these statements.
                                                                     F-4



<PAGE>
                                                   Pioneer Commercial Funding Corp.
                                                    STATEMENTS OF COMPREHENSIVE INCOME

                  For the twelve  months  ended  December  31, 1998 and the nine
months ended December 31, 1997



                                                                       December 31,             December 31,
                                                                           1998                     1997
                                                                    ------------------       ------------------

Net income (loss)                                                     $    (1,158,753)        $         529,743

Change in unrealized gain on investment in
  securities available for sale                                               (713,250)                  807,000


Comprehensive net income (loss)                                       $    (1,872,003)         $      1,336,743
                                                                    ==================       ==================






                                                The accompanying notes are an integral part of these statements.
                                                                    F-5

<PAGE>
                                                    Pioneer Commercial Funding Corp.
                                                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the twelve  months ended  December 31, 1998 and the nine months ended December 31, 1997

                                                       Additional                       Other          Total
                                          Common         Paid-in      Accumulated    Comprehensive Stockholders'
                                          Stock          Capital        Deficit      Income (Loss)     Equity
                                      -------------   ------------   ------------   ------------  ---------------

Balance at March 31, 1997               $ 36,423      12,525,952    $(9,306,789)      $   -           3,255,595

Issuance of 1,800,000 common shares
in connection with the conversion of
the convertible note to shares as
of May 9, 1997                            18,000      1,782,000              -              -         1,800,000

Issuance of options to purchase 
100,000 common shares November 1997                       9,000                                          9,000
Unrealized gain on securities
available for sale                                                                    807,000          807,000

Net income for the period                                             529,743                          529,743
                                      -------------   ------------   ------------   ------------  ---------------

Balance at December 31, 1997               54,423     14,316,952   (8,777,037)        807,000        6,401,338


Issuance of 100,000 shares of
Common Stock on January 21, 1998
converting November 26, 1997 options        1,000      240,000                                         241,000

Change in unrealized gain on
investment in securities available
for sale                                                                             (713,250)       (713,250)

Net (loss) for period                                               (1,158,753)                    (1,158,753)

Balance at December 31, 1998             $ 55,423     14,556,952    (9,935,790)     $  93,750       4,770,335
                                      =============   ============   ============   ============  ===============



The accompanying notes are an integral part of these statements.

                                                       F-6
<PAGE>
                       Pioneer Commercial Funding Corp.
                            STATEMENTS OF CASH FLOWS
For the twelve  months  ended  December  31, 1998 and the nine months ended December 31, 1997


                                                                              December 31,             December 31,
                                                                                 1998                      1997
                                                                           ----------------         ----------------
Cash Flows from Operating Activities:
Net income (loss)                                                            $ (1,158,753)  $             529,743
Adjustments to reconcile net income (loss) to net cash provided by (used in)
     operating activities:
Depreciation and amortization                                                     202,530                 36,421
Loan loss reserve                                                                 775,136                    -


Loss on abandonment of leasehold                                                      -                     9,178


Equity in loss of affiliate                                                         40,000                    -


(Increase) decrease in --
    Mortgage warehouse loans receivable                                         12,070,883             (44,834,922)
    Loans held for resale                                                        3,625,170           (   4,504,231)
    Receivable for loans shipped                                                        -               (1,716,969)


    Accrued interest receivable                                                   105,316                (902,832)
    Prepaid expenses                                                              (80,596)                (66,109)
    Notes receivable                                                                    -                     -


    Other assets                                                                  (50,064)              (194,654)
Increase (decrease) in --
    Accrued interest payable                                                     (269,334)             1,047,132
    Due to mortgage banking companies                                            (409,193)               543,875
    Accounts payable and accrued expenses                                        (149,223)               160,043
    Net Cash Provided by (Used in) Operating Activities                        14,701,872            (49,893,325)
                                                                             ----------------      ----------------

Cash Flows from Investing Activities:
Purchase of fixed assets                                                        (380,537)               (92,332)
Investment in and advances to joint venture                                      (90,869)              (264,476)
Deposits on furniture and fixtures                                                    -                (321,260)


Investment in securities available for sale                                           -                (225,000)


    Net Cash Used in Investing Activities                                       (471,406)             (903,068)
                                                                            ----------------      ----------------

Cash Flows from Financing Activities:
Net increase (decrease) in borrowings used in operations,
    net of issuance costs                                                    (16,671,235)            50,056,160
Increase in deferred expenses                                                      4,712                    -


Increase in subordinated debt                                                     726,000             1,000,000
Net proceeds from issuance of stock                                               241,000                 9,000
    Net Cash (Used) Provided by Financing Activities                          (15,699,523)           51,065,160
                                                                          ----------------      ----------------

Net Increase (Decrease) in cash                                                (1,469,057)              268,767

Cash and Cash Equivalents at the Beginning of the Period                        2,972,845             2,704,078
                                                                           ----------------      ----------------

Cash and Cash Equivalents at the End of the Period                  $          1,503,788         $    2,972,845
                                                                           ================      ================

Supplemental Disclosure of Cash Flow Information:
    Interest paid                                                  $          4,037,024          $      642,076
                                                                          ================      ================
    Income taxes paid                                              $                829                   1,149
                                                                          ================      ================

Non Cash Financing Activities
Conversion of mortgage loans receivable to notes receivable        $          1,088,437         $          -
                                                                           ================      ================

                                                                                    
The accompanying notes are an integral part of these statements.

                                                              F-7
</TABLE>

<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997




NOTE A - NATURE OF OPERATIONS

Pioneer Commercial Funding Corp. (the "Company"),  formerly known
as PCF Acquisition Corp.  ("PCF") is a New York corporation which
merged  with  Pioneer   Commercial  Funding  Corp.  (a  New  York
corporation)  ("Pioneer") on November 23, 1994. PCF was organized
and commenced operations on March 8, 1994 for the express purpose
of raising capital through an initial public offering ("IPO") for
the benefit of Pioneer.

In 1997, the Company changed its year end from March 31 to December 31.

Pioneer's Reorganization

On  April  2,  1993,  Pioneer  emerged  from  Chapter  11 of the  United  States
Bankruptcy  Code  pursuant  to  a  confirmed  First  Amended  Modified  Plan  of
Reorganization  ("POR").  From June 14, 1993, when the Company  commenced active
operations following its emergence from Chapter 11 until fiscal year ended March
31, 1997, it operated with limited  financing  sources and  substantially all of
the  business  conducted  by the Company was with one to four  mortgage  banking
companies.

Operations

The  Company is engaged in the  business  of mortgage  warehouse  lending  which
primarily  consists  of  providing  lines of credit,  in the form of  "warehouse
financing,"  to mortgage  banking  companies to enable them to close real estate
loans  on  single  family,  owner-occupied  dwellings  and  sell  such  loans to
investors in the secondary market. The Company obtains its funds to provide such
financing from third-party  funding sources with which it has available lines of
credit  and  from its own  sources.  The  Company's  loans  receivable  from the
mortgage  banking  companies are secured by an interest in the  underlying  real
property  which are then assigned to the  Company's  funding  sources.  Investor
groups who purchase the mortgages  (which  generally occurs within 10 to 45 days
from the time the  Company  makes the loan) remit the  proceeds  directly to the
Company in  satisfaction  of the loan and interest  receivable from the mortgage
banking company.  The Company will  simultaneously  use the funds to pay off its
loan and accrued interest payable to its funding sources.  The Company's primary
sources of income from operations are processing fees received from the mortgage
banking  company for each loan  financed and the interest  rate spread  (usually
1.75%) between the rate at which the Company borrows from its funding source and
the rate it charges the mortgage banking company.
The Company's customers fund loans throughout the United States.


<PAGE>
                                        Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


NOTE A - NATURE OF OPERATIONS (continued)

Operations (continued)

The Company's  operations are subject to certain risks which are inherent to its
industry.  Its  results of  operations  depend  heavily  upon the ability of its
mortgage banking customers to originate  mortgage loans. This ability is largely
dependent  upon general  economic  conditions in the  geographic  areas that the
Company serves.  Because these general economic conditions fluctuate,  there can
be no  assurance  that  prevailing  economic  conditions  will always  favor the
Company's  business and  operations.  In addition,  mortgage  banking firms have
historically  experienced  a  wide  range  of  financial  results,  from  highly
profitable  to highly  unprofitable.  These  financial  results  are due to many
factors which affect most, if not all, firms in the mortgage banking business at
about the same time.  Three of these factors which  predominate  are: changes in
mortgage interest rates, the availability of affordable credit, and the state of
the domestic economy.  These three factors,  among others, affect the demand for
new and used  housing  and thus the  demand for  financing  and  refinancing  of
mortgages. Lastly, although the Company's mortgage banking customers must have a
commitment for each loan from an approved  third-party  agency ("Agency") before
the Company will extend mortgage warehouse financing, there is no guarantee that
the Agency will, in fact, accept the mortgage loan when delivered due to certain
deficiencies in the loan or other  unanticipated  circumstances which may exist.
If for any reason an Agency does not accept the mortgage loan, and the Company's
mortgage  banking  customer is unable to pay back its  obligation to the Company
through other means, the Company could find itself the owner of a long-term loan
of less than market value instead of short-term bridge financing receivable.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The  accompanying  financial  statements,  which are prepared in conformity with
generally accepted accounting  principles,  require the use of estimates made by
management.  The most  significant  estimates  with  regard  to these  financial
statements  relate  to the  valuation  allowance  for  estimated  losses  on the
disposition  of stale loans and  uncollectable  interest and fees,  for deferred
income  taxes and the  estimated  obligations  due under the POR,  as more fully
described in Notes J and O,  respectively.  Actual results may differ from those
assumed in management's estimates.

Cash and Cash Equivalents

Cash  equivalents  include time  deposits  and highly  liquid  investments  with
original maturities of three months or less.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)






<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


Income Taxes

The Company has adopted SFAS 109.  "Accounting  for Income Taxes" which requires
use of the asset and  liability  approach of providing  for income  taxes.  This
statement  requires  recognition of deferred tax  liabilities and assets for the
expected  future  tax  consequences  of events  that have been  included  in the
financial statements or tax returns.  Under this method deferred tax liabilities
and  assets  are  determined  based on the  differences  between  the  financial
statement  and tax basis of assets and  liabilities  using  enacted tax rates in
effect for the year in which the  differences  are  expected to  reverse.  Under
Statement 109, the effect on deferred tax assets and  liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date
(see also Note J).

Revenue Recognition

The Company recognizes revenue at the time a mortgage loan receivable is funded.
Interest income is recorded on the accrual basis in accordance with the terms of
the customer loan and security agreement.


Loan Fees

Loan  processing  fees are  capitalized  and  recognized as an adjustment of the
yield of the related loan in accordance with SFAS No. 91.

Basic and Diluted Earnings (Loss) Per Share of Common Stock

Net earnings per share is calculated in accordance  with  Statement of Financial
Standards No. 128, Earnings Per Share ("SFAS 128"), which superseded APB Opinion
No. 15. Basic net earnings per share is based upon the weighted  average  number
of  common  shares  outstanding.  Diluted  earnings  per  share  is based on the
assumption that all stock options and warrants were exercised.

For the year ended  December 31, 1998,  and the nine month period ended December
31, 1997,  the exercise  price  exceeded the average sale price for most options
and  warrants,  and the impact of  conversion  of the warrants and options would
have been antidilutive or immaterial.  Therefore,  the options and warrants were
not considered in the calculation of earnings (loss) per common share.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Concentration of Credit Risk / Fair Value

Financial  instruments that potentially  subject the Company to concentration of
credit risk consist





<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


principally of cash investments and mortgage warehouse loans receivable.

The  Company  maintains,  at times,  deposits  in  federally  insured  financial
institutions  in excess of federally  insured  limits.  Management  monitors the
soundness  of these  financial  institutions  and  feels the  Company's  risk is
negligible.

Management  believes that concentrations of credit risk with respect to mortgage
warehouse loans receivable are limited due to the underlying  assignment of note
and  deed of  trust  on  residential  real  estate  collateral  for  each  loan,
guarantees  by  mortgage  banking   customer   principals,   security   deposits
approximating  10% of each  customer's  line of credit  and UCC  filings  on the
assets of the Company's mortgage banking customers.

As of December 31, 1998 and 1997,  the fair value of cash and cash  equivalents,
receivables, obligations under accounts payable and debt instruments approximate
the carrying value.

Marketable Securities

At December 31, 1998,  marketable  securities have been categorized as available
for sale and, as a result, are stated at fair value in accordance with Statement
of Financial Standards No. 115,  "Accounting for Certain Investments in Debt and
Equity  Securities".  Unrealized  gains and losses are included in shareholders'
equity as other comprehensive income (loss).

Fixed Assets

Fixed assets are recorded at cost. Depreciation of fixed assets is provided on a
straight-line basis as follows:

    Furniture and equipment                          3 - 10 years
    Proprietary computer software                         5 years

Maintenance  and repairs are expensed as incurred.  Leasehold  improvements  are
amortized over the useful life of the asset or the lease,  whichever is shorter.
Proprietary  computer  software consists of a set of computer programs that were
developed  internally by the Company for the use in its business and are not for
resale to the other mortgage finance companies.





<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fixed Assets (continued)

Depreciation and  amortization  expense for the year ended December 31, 1998 and
the nine month period ended  December 31, 1997  aggregate  $202,350 and $36,421,
respectively.

Advertising Costs

Advertising costs,  which are included in general and  administrative  expenses,
are  expensed as  incurred.  For the year ended  December  31, 1998 and the nine
month period ended December 31, 1997,  advertising costs aggregated  $45,593 and
$28,205, respectively.

Comprehensive Income

In 1997, the Company  adopted  Statement of Financing  Accounting  Standards No.
130, "Reporting  Comprehensive  Income" (SFAS 130"), which establishes new rules
for the reporting and display of comprehensive  income and its components.  SFAS
130  requires  unrealized  gains or losses on the  Company's  available-for-sale
securities to be included in other comprehensive income.

Segments of an Enterprise and Related Information
In 1998, the Company adopted Financial  Accounting Standards Board Statement No.
131,  "Disclosures  about  Segments of an Enterprise  and Related  Information",
which establishes standards for reporting about operating segments.  The Company
has determined  that no operating  segment  outside of its core business met the
quantitative  thresholds  for  separate  reporting.   Accordingly,  no  separate
information has been reported.

Reclassifications
Certain  reclassifications  have been made to  conform  prior  years data to the
current format.

NOTE C - MORTGAGE WAREHOUSE LOANS RECEIVABLE/PAYABLE

Loan receivables are generally due within sixty days from the date funded,  with
an average outstanding period of 33 days and interest payable ranging from prime
plus 1.75% to prime plus 2.0%.  Similarly,  all of the related loans payable are
due within the same time frame. During the fiscal year ended March 31, 1997, the
Company  obtained a $25 million  revolving line of credit pursuant to a security
agreement  between the Company  and Bank One,  Texas,  N.A.  ("Bank  One").  The
Company pays  interest on advances at the "prime rate" of interest,  quoted from
time to time by the Wall Street  Journal plus or minus  one-eighth of a percent.
As collateral security for its





<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


NOTE C - MORTGAGE WAREHOUSE LOANS RECEIVABLE/PAYABLE (continued)

indebtedness to Bank One the Company granted to Bank One a security  interest in
various assets  including,  but not limited to, all promissory notes acquired by
the Company with respect to any loan funded by it with moneys advanced under its
Bank One credit line and all  mortgages  or other forms of  collateral  security
obtained by the Company in connection  with the funding of such loans. On August
25,  September 26 and December 12, 1997, Bank One amended the credit facility to
provide the Company with $35,000,000, $50,000,000 and $60,000,000, respectively.
Effective June 30, 1998 Leedan Business Enterprise Ltd. ("Leedan"),  a 49% owner
of the  Company,  entered  into a Capital  Maintenance  Agreement  with Bank One
wherein Leedan will cause capital  contributions or subordinated  debt advances,
up to $2  million,  to be made to the  Company in order to  maintain an adjusted
Company net worth of a least $8 million,  upon official  written request by Bank
One.  This  agreement  will  continue  in effect  until the Company has paid its
obligation  to Bank One and Bank One  terminates  its  commitment  to supply the
Company  credit (See also Note M). On September 1 and September  15, 1998,  Bank
One amended the credit  facility to decrease the borrowing  limit to $55,000,000
and $50,000,000  respectively.  The credit facility expired on October 30, 1998,
whereupon  Bank One agreed to  continue  funding the  Company's  loans until the
facility was renewed or another lender  replaced Bank One. On February 18, 1999,
subsequent to the balance sheet date,  Bank One renewed the credit facility with
a borrowing limit of $40,000,000  through April 30, 1999. On April 12, 1999, the
Company was  notified by the Bank that they  believe the Company will be able to
negotiate  an  extension  of the line of credit  agreement.  In  addition,  they
indicated that a six month extension, if needed, would most probably be granted.

For the year ended December 31, 1998, and for the nine months ended December 31,
1997 the  weighted  average  interest  rate on loans  receivable  was 10.23% and
10.3%,  respectively,  and on loans  payable  was 8.36% and 8.39%  respectively.
Loans  receivable are  collateralized  by a security  interest in the underlying
real property which the Company then assigns to its funding  sources as security
for the loans payable.

NOTE D - LOANS HELD FOR RESALE

In 1997,  the Company in accordance  with its loan and security  agreement  took
possession from a customer in the process of liquidating  under Chapter 7 of the
Bankruptcy  Code 37 loans it funded  having an aggregate  value of $4.5 million.
The Company has a perfected  interest in the loans and sold 32 of the loans at a
net  discount of  $72,070.  The five loans  unsold at December  31, 1998 with an
original loan amount of $698,116,  together with  holdback  receivables  on sold
loans of $180,945,  are held at net realizable value which includes a reserve of
$173,582.

<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


NOTE E - RECEIVABLE FOR LOANS SHIPPED

During  October 1997, the Company  warehoused  $1.7 million in mortgages for the
same  customer as  described  in Note D above,  who used a third party  conduit,
American  Financial  Mortgage  Corporation,  to sell its  loans to an  investor,
Norwest  Funding,  Inc.  The Company  provided  instructions  to the third party
conduit that the funds were to be wired by the investor to the  Company's  bank.
The investor  mis-wired the funds to the conduit's bank,  Corestates  Bank, N.A.
The  conduit's  bank has  refused  to return the  funds.  The  Company is taking
actions,  including  legal  action,  to collect the funds from the conduit,  the
conduit's guarantor,  the investor and the conduit's bank. The Company's lender,
Bank One Texas,  N.A. ("Bank One"),  has joined the litigation as a co-plaintiff
in support of the Company's position. In addition,  the Company has a $5 million
personal  guarantee from the third party  conduit's  primary  shareholder and an
additional  $2  million  guarantee  from  the  customer's  primary  shareholder.
Although it is impossible  to assess with accuracy the ultimate  outcome of this
matter, management is confident that it will recover the funds.

NOTE F - INVESTMENT SECURITIES AVAILABLE FOR SALE

On July 7,  1997,  the  Company  purchased  300,000  shares at $.75 per share of
Fidelity First Mortgage Corp., NASDAQ (FFIR) for a total investment of $225,000.
FFIR shares  closed on December  31, 1998 and 1997 at $1.06 and $3.44 per share,
respectively,  resulting  in an  unrealized  gain  of  $807,000  in  1997  and a
reduction in the unrealized  gain of $713,250 in 1998.  Fidelity First Mortgage,
which is also a customer of the  Company,  is based in  Columbia,  Maryland  and
funds  conforming  and  non-conforming  single family  residential  mortgages in
Maryland, Virginia, Delaware, Florida, North and South Carolina. At December 31,
1998 and 1997,  mortgage  warehouse loans receivable from this customer amounted
to $1,633,457 and $12,309,626,  respectively and net accrued interest receivable
amounted to $47,970 and $106,045 for 1998 and 1997 respectively.


<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


NOTE G - NOTES RECEIVABLE:

On November 18,  1998,  a settlement  was reached with a guarantor of a mortgage
banking  customer's  defaulted line of credit.  The guarantor was also a company
stockholder.  Pursuant to the  settlement,  an entity  which is an  affiliate of
Leedan (see Note C) accepted $530,000 of the guarantor's  recognized debt to the
Company in exchange for the guarantor's shares in the Company. This entity
 paid the Company $176,667 and issued two installment notes of $176,667 each
 with maturity dates of August 23, 1999  and May 23, 2000, respectively.  These
notes  bear  interest  at a rate of 8.25% per annum  and are  payable  quarterly
commencing three months from the date of issuance which was November 23, 1998.

                                                                                                        $353,334

Pursuant to the  settlement  as stated above,  the guarantor  also issued to the
 Company  two  installment  notes  in the  amounts  of  $265,103  and  $470,000,
 respectively.  These  notes bear  interest at a rate of 8.25% per annum and are
 payable  quarterly  commencing three months from November 18, 1998, the date of
 issuance of the notes. Both notes mature November 18, 2000.
                                                                                                            735,103
                                                                                                          1,088,437
                                                                                Less current portion        176,667
                                                                                                           $911,770
</TABLE>

NOTE H - INVESTMENT IN AND ADVANCES TO PIONEER HOME FUNDING

On April 16, 1997,  the Company  entered  into a joint  venture  agreement  with
Maryland  Financial  Corporation  ("MFC") to form Pioneer Home  Funding,  LLC, a
California  Limited Liability  Company,  ("PHF").  The Company accounts for this
investment on the equity method. The agreement provides that the Company and MFC
would  maintain  80% and  20%  ownership  interests,  respectively,  in PHF.  An
amendment to the agreement was made on October 31, 1997. This amendment provides
that the Company would  contribute  $40,000 for a 20 percent interest in PHF. In
addition, the Company may from time to time, at its option, make loans to PHF as
needed. Under this agreement the Company has the option to convert loans made to
PHF into an 80% interest in PHF. As of December  31, 1998 and 1997,  the Company
has advanced as a loan receivable $275,344 and $224,476,  respectively (which is
included  in other  assets on the balance  sheet).  At December  31,  1998,  the
Company has recorded a reserve aggregating  $110,000 against this receivable due
to the financial condition of PHF.





<PAGE>
                                        Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


NOTE I - OTHER ASSETS

The  following  items  are also  included  in Other  Assets  (See Note H) on the
Company's financial statements:

1.  Effective April 25, 1996, a one year certificate of deposit in the amount of
    $25,000 was pledged in order for the Company to receive a California  Lender
    Bond as a  California  Financial  Lender.  The  certificate  of deposit  was
    renewed as of April 25,1998 and is renewable  annually at the  discretion of
    the insurance carrier.

2.  As a result of the  signing  of a ten (10) year  lease for  office  space at
    21700 Oxnard Street, Suite 1650, Woodland Hills, California,  on October 17,
    1997,  the Company  delivered an  unconditional,  irrevocable  and renewable
    Letter of Credit (LC), in the amount of $150,000,  in favor of the Landlord.
    The LC is secured by a $150,000  Certificate of Deposit which is included in
    Other Assets on the Company's financial statements.

NOTE  J - INCOME TAXES

The components of the provision for income taxes are as follows:

                                   12 Months Ended               9 Months Ended
                                   December 31, 1998         December 31, 1997
Current
   Federal                        $           -               $          -
   State                                   1,149                         829 
                                     ------------------
                                             829                       1,149
Deferred
   Federal                                    -                          -
   State                                      -                          - 
                                     --------------------     -----------------
Provision for Income Taxes        $          829              $        1,149
                                      ================        ================

The  Company's  reported  income tax expense for 1997 varied from the  statutory
federal  income tax rate due to the effect of net operating  loss  carryforwards
available.


<PAGE>

                                        Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997



NOTE  J - INCOME TAXES (continued)

The tax effects of temporary  differences  that give rise to deferred tax assets
are presented below:

                                    December 31, 1998         December 31, 1997
Deferred Income Tax Assets
          Net Operating Losses         $680,000                       $516,000
          Valuation Allowances         (680,000)                      (516,000)
                                       ---------                      ---------
                                       $      -                       $      -
                                    ===============              ==============

At December 31, 1998, the Company had net operating  loss (NOL's)  carryforwards
available  for income tax purposes of  approximately  $2.4  million  expiring in
varying amounts through 2012.  Approximately $1 million of the NOL's are limited
in use pursuant to a change in ownership in November 1994.


NOTE K - DUE TO MORTGAGE BANKING COMPANIES

The Company generally finances up to 100% of the total loan amount closed by the
mortgage banking company.  Upon sale of the loan to the investor group, proceeds
for 100% of the loan amount plus premiums or less  discounts are remitted to the
Company by the investor.  The Company, from time to time, holds such funds until
receipt of amounts due from the  mortgage  banking  company for fees and accrued
interest.



NOTE L - DEFERRED LEGAL FEES

Deferred legal fees are a consequence of the POR (see Note O) and are payable in
four annual installments which began on April 16, 1994. The Company has not paid
the April 1996, 1997 and 1998  installments  totaling $65,395 as of December 31,
1998.

<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


NOTE  M - STOCKHOLDERS' EQUITY AND INITIAL PUBLIC OFFERING

Initial Public Offering

In August 1996,  the Company  consummated  its IPO pursuant to which the Company
issued and sold  600,000  shares of its common  stock,  par value $.01 per share
(the  "Common  Stock"),  and  690,000  warrants  (including  warrants  sold upon
exercise of the underwriters' over-allotment option) to the public at a price of
$5.00 per share and $.10 per warrant,  which yielded to the Company net proceeds
of approximately  $2 million.  The warrants give the owner the right to purchase
an  additional  share of  common  stock at a price of $5.50 for a period of four
years commencing after the completion of the IPO (the "Exercise  Period").  Such
warrants will be immediately tradable separate from the common stock. Commencing
two years after the  completion  of the IPO and through the end of the  exercise
period,  the warrants may be redeemed by the Company upon 30 days written notice
at a price of $.05 per warrant,  provided that (1) the closing sale price of the
Company's  common stock shall not be less than $7.50 per share for any period 20
days subsequent to the issuance of the written  notice,  or (2) that the warrant
holders  have not  exercised  their  warrants at any time prior to the period 30
days after the issuance of the written notice. In addition,  the underwriter was
issued  the right  for a period  of four  years  commencing  one year  after the
completion of the IPO to purchase,  in tandem,  60,000 shares of common stock of
the Company and 60,000  common stock  purchase  warrants at a price of $6.12 for
each  combined  share and  warrant.  The terms of the  warrants  acquired by the
managing  underwriter  were the same as those  discussed  above except that such
options are nontransferable. The warrants are exercisable into 690,000 shares of
Common Stock at a price of $5.50 per share August 12, 2000.

Private Placement
On February 28, 1997,  the Company  completed a private  placement of securities
(the "Private  Placement")  with eight investors who invested an aggregate of $4
million in the Company in  consideration  for 2.2 million shares of Common Stock
and $1.8 million principal amount of convertible promissory notes of the Company
(the "Convertible  Notes"). On May 9, 1997, the Company increased its authorized
shares of common  stock by 15  million to 20 million  shares.  With these  newly
available shares, the Company immediately converted its outstanding  Convertible
Notes into 1.8 million shares of common stock.

Subordinated Debt

On November 26, 1997, the Company issued $1,000,000 in subordinated debt as part
of a $4 million private placement.  The private placement provided for a minimum
purchase of $250,000 (1 unit) with each unit obtaining 7,500 Warrants that allow
for the purchase of 7,500 shares.  The exercise  price of the shares is equal to
the  price of the  Company's  stock as of the date of issue of the  subordinated
debt. The Company has 30,000 Warrants  outstanding (7,500 per unit for 4 units).
The subordinated debt carries


<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


NOTE  M - STOCKHOLDERS' EQUITY AND INITIAL PUBLIC OFFERING

Subordinated Debt (continued)

an  interest  rate of 10% per  annum and  matures  on  November  25,  2002.  The
Company's  stock price on November  26,  1997 was $2.875 On  September  11, 1998
three  subordinated  debt advances  pursuant to the Leedan  Capital  Maintenance
Agreement (Note C) were made to the Company totaling $726,000, secured by notes.
The notes are due when a  replacement  for the Bank One  lending  facility is in
place, with interest paid quarterly at 11% per annum.

 Dividend Restriction

The  holders of the  Company's  common  stock are  entitled to one vote for each
share held of record on all matters  submitted  to a vote of  stockholders.  The
common  stockholders  are entitled to receive  ratably such  dividends as may be
declared  by the  Board of  Directors  out of  funds  legally  available.  As of
December 31, 1998, in management's opinion, it is not anticipated that dividends
will be paid on common  stock in the  foreseeable  future as certain of the debt
instruments  to which the Company is a party to prohibit or restrict the payment
of dividends (see Note O for further discussion of restrictions under the POR).


NOTE N - STOCK OPTION PLANS

The  Company  has  adopted  the  disclosure-only  provisions  of SFAS  No.  123,
"Accounting for Stock-Based  Compensation."  Accordingly,  no compensation costs
have been  recognized  for the  Company's  Non-Qualified  Stock Option Plan (the
"Plan").

The Plan (previously known as PCF Acquisition Corp.  Non-qualified  Stock Option
Plan) was adopted on August 1, 1994, and provided for the issuance of options to
purchase up to 151,515  shares of the Company's  common stock to persons who are
at the time of grant, employees of, or consultants to, the Company. The Plan was
modified on November 4, 1994, in  anticipation of the then  forthcoming  merger,
with and into Pioneer Commercial  Funding Corp. The modification  provided for a
maximum of 200,000 shares of stock that may be optioned or sold under the Plan.

In 1997, the Company  adopted the 1997 Omnibus Stock  Incentive Plan under which
it was authorized to issue non-qualified stock options, incentive stock options,
and warrants to key employees, directors and selected advisors to purchase up to
an aggregate of 500,000  shares of the stock of the Company.  The options have a
term of five years and  generally  become  fully  vested by the end of the third
year.

<PAGE>
                                        Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


NOTE N - STOCK OPTION PLANS (continued)

The Company has issued additional  options outside the Plan at the discretion of
its Board of Directors ("BOD").

The following table  summarizes  information  related to shares under option and
shares available for grant under the Plan and separate actions of the BOD.

Weighed Average fair value of options granted during the year as of follows:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                                       December 31, 1998          December  31, 1997
                                                       -----------------          ------------------


                                                          Weighted                        Weighted
                                                          Average                         Average
                                                          Exercise                        Exercise
                                          Shares           Price            Shares         Price
Options outstanding
  beginning                              825,045            $3.28         543,045          $3.57
Granted                                      -                -           282,000          $2.73
Exercised                                    -                -                -              -
Canceled                                     -                -                -              -
Options outstanding ending               825,045            $3.28         825,045          $3.28
                                      =============== ================  ============== ==============


The following information applies to options outstanding at December 31, 1998

                                                                    Options Outstanding                Options Exercisable

                                                  Weighted
                                                  Average
                                                 Remaining             Weighted                                    Weighted
      Range of               Number             Contractual             Average               Number               Average
   exercise prices        Outstanding           Life (Years)        Exercise Price         Exercisable          Exercise Price
$1.00 - $1.50               45,000                  3.01                 $1.13                  -                       -

$1.51 - $2.25              207,000                  3.47                 $2.08              119,000                 $2.04
$2.26 - $3.40              250,000                  3.37                 $2.45               83,333                 $2.45
$3.41 - $5.00              323,045                  1.71                 $5.00              289,712                 $5.00
                           825,045                  2.28                 $3.28              492,045                 $3.85
                      ====================                                             ====================

</TABLE>

NOTE N - STOCK OPTION PLANS (continued)


The fair  value of  options  at date of grant for 1997 was  estimated  using the
Black-Scholes model with the following weighted average assumptions.  No options
were granted in 1998.

                                                                    12/31/97
                                         Expected Life (years)          3

                                         Risk Free interest rate        5.5%
                                         Volatility                    77.7%
                                         Dividend End                    0%


Had  compensation  cost for the plan been determined  based on the fair value of
the options at the grant dates  consistent  with the method of SFAS No. 123, the
Company's net earnings would have been:



                                                           12/31/97
Net earnings
  As reported                                              $529,743
  Pro forma                                                $421,867
Basic earnings per share
  As reported                                                 $0.10
  Pro forma                                                   $0.08
Diluted earnings per share
  As reported                                                 $0.10
  Pro forma                                                   $0.08

The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of  future  amounts.  SFAS 123  does not  apply  to  awards  prior to 1995,  and
additional awards in future years are anticipated

<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997


NOTE O - COMMITMENTS AND CONTINGENCIES

Plan of Reorganization

Under  the POR,  the  Company  is  contingently  liable  to its  pre-Chapter  11
unsecured creditors,  for such creditors' pro rata shares of noninterest-bearing
notes (the "Notes") totaling $1,350,000. Commencing with the close of the fiscal
year ending March 31, 1996, and for all succeeding years thereafter,  until full
aggregate  payment of $1,350,000 is made under the Notes, each Note holder shall
receive a cash  distribution  equal to such Creditors'  pro-rata share of twenty
percent of the Net Income Available for Note Payments, if the Net Income for any
such year exceeds $1,300,000.

In addition to the Notes, approximately $50,000 in professional fees incurred in
connection  with the POR were  deferred  and will only be paid to the extent the
Notes are paid in full.

For the year ended December 31, 1998 and the nine months ended December 31, 1997
the Company  had not  generated  income  that  resulted in payment on the Notes.
Accordingly,  no liability has been reflected in the Company's balance sheet for
the Notes or the professional fees for 1997 or 1998.

      As of December 31, 1998, the Company was unable to determine whether it is
      probable that it will  generate  income in future years which would result
      in payments on the Notes. As such, no future  liability has been reflected
      in the Company's balance sheet for the Notes or the professional fees.

      In  accordance  with the POR,  certain  operating  restrictions  have been
      placed upon the  Company  until the time that all amounts due on the Notes
      have been paid in full. These restrictions include:

      -  Incurring  new debt in excess of $25,000,  except for  secured  lending
         required  in the  ordinary  course of the  Company's  mortgage  lending
         operations.

      -  Expending  more than  $25,000 in the  aggregate  in a calendar  year to
         purchase or lease capital assets, except to replace existing assets.

      -  Expending more than $320,000  annually in the aggregate to the officers
         of the Company and placing limitations on salary increases.

      -  Merging or consolidating with another business.


<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997

 NOTE O - COMMITMENTS AND CONTINGENCIES  (continued)

 Plan of Reorganization (continued)

      -  Declaring dividends on any class of common stock, except that, if there
         should be a public  offering of the securities of the Company,  and, if
         at the option of the Company,  fifty  percent of the proceeds in excess
         of  $5,000,000  from such  offering are utilized for the payment of the
         Notes, then such dividend restriction shall be deemed waived.

In 1997 and 1998 the  Company  has made  expenditures  of more than  $25,000  to
purchase and lease capital assets in connection with its move to new facilities.
Management  believes  that  these  expenditures  were  necessary  to expand  the
Company's mortgage  operations,  and is not aware of any financial impact on the
Company under the restrictions of the POR because of these expenditures.

Lease Obligation

The Company  leases 6,846 square feet of office space  through  October of 2007.
The  monthly  base rent  through  September  2002 is  $13,692  and for years six
through ten is $15,745.

The Company  continues to be obligated  under is previous  office lease  through
October 31,  2001.  The current  lease calls for monthly  rent of $2,178 and CPI
increases with a minimum of 3% and a maximum of 5% annually. The Company sublets
the space at the Reseda  location for $1,410 per month subject to three one year
leases.

Rent  expenses  for the year ended  December  31, 1998 and the nine months ended
December 31, 1997 aggregated $210,591 and $37,072, respectively.

At December 31, 1998, future minimum rental are as follows:

Fiscal Year Ended December 31,

1999                                                         $      190,440
2000                                                                 190,440
2001                                                                 188,262
2002                                                                 164,304
2003                                                                 188,950
Thereafter                                                           755,800
                                                                    --------
                                                              $    1,678,196 


<PAGE>
                                        Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997

NOTE O - COMMITMENTS AND CONTINGENCIES (continued)

Commitments to Extend Credit Facilities

At  December  31,  1998  the  Company  had made  approximately  $80  million  in
commitments  to  extend  credit  facilities  to  it  current  customers.   These
commitments  generally have fixed expiration dates or other termination  clauses
and may require payment of a fee.  Because many of the  commitments  will not be
fully drawn upon,  the total  commitment  amounts do not  necessarily  represent
future cash requirements.

Employment Agreement

In July 1997,  the Company  extended  the  Employment  Agreement  with M. Albert
Nissim as President for an indefinite  period,  at a salary of $6,000 per month.
Effective April 1, 1998, Mr. Nissim's  compensation  was increased to $9,500 per
month.  In  addition,  he was  awarded a $12,000  bonus.  The  Agreement  may be
terminated by either party on not less than 90 days prior to notice.

Other Agreement

The Company has approved a  compensation  plan for a director  and/or Leedan the
company  which  provides  management  services to the Company.  Leedan is also a
principal  shareholder of the Company. The plan provides aggregate  remuneration
to the director and/or Leedan of $100,000 per annum plus 5% of the Company's net
income  (pre-tax)  above  $1,000,000  annually.  Leedan  and the  director  will
determine how such compensation will be divided between them.

NOTE P - ECONOMIC DEPENDENCY

During the 1998 fiscal year,  the Company  funded 893 and 813 loans  aggregating
approximately $76.6 million and $53 million,  respectively, to two customers. At
December 31, 1998 mortgage  warehouses  loans  receivable  from these  customers
amounted to $8,393,600 and $3,036,283, respectively.

During the nine months ended December 31,1997,  the Company funded 1,151 and 487
loans aggregating approximately $66.8 million and $45.2 million, respectively to
two customers.  At December 31, 1997 mortgage  warehouse  loans  receivable from
these customers amounted to $12,309,626 and $2,242,915, respectively.

<PAGE>
                                         Pioneer Commercial Funding Corp.
                                           NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1998 and 1997

NOTE Q - RELATED PARTY TRANSACTIONS

For year ended  December  31, 1998 and the nine months  ended  December 31, 1997
certain family members of a previous  executive  officer and a member of the BOD
of the  Company  were  engaged  to perform  various  accounting  and  consulting
services for the Company.  Such  individuals  were  compensated  during the year
ended   December  31,  1998  and  the  nine  months  ended   December  31,  1997
approximately $16,166 and $15,865,  respectively,  for these services. (See also
Notes F, G and O for other related party transactions).



<PAGE>

                                                    SIGNATURES

                  In  accordance  with Section 13 or 15(d) of the Exchange  Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                            PIONEER COMMERCIAL FUNDING CORP.


                                            By:                                 
                                            Name:  M. Albert Nissim
                                            Title: President

                                            Date: April 15, 1998

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


                                            By:                                 
                                            Name:  M. Albert Nissim
                                            Title: President

                                            Date: April 15, 1998



                                            By:                                 
                                            Name: John O'Brien
                                            Title: Chief Financial Officer

                                            Date: April 15, 1998



                                            By:                                 
                                            Name:  Richard Fried
                                            Title: Director

                                            Date: April 15, 1998



                                            By:                                 
                                            Name:  Boaz Harel
                                            Title: Director

                                            Date: April 15, 1998


                                                      

<PAGE>


                                            By:                                
                                            Name:  Tamar Lieber
                                            Title: Director

                                            Date: April 15, 1998


                                            By:                               
                                            Name: Lynda Davey
                                            Title: Director

                                            Date: April 15, 1998


                                            By:                                
                                            Name: Joseph Samuels
                                            Title: Director

                                            Date: April 15, 1998