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, 2001

[ ]      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.)

         One Rockefeller Plaza, Suite 2412, New York, N.Y.  10020
         -------------------------------------------------  (Zip Code)

         Issuer's telephone number (212) 218-1850
                                   ----- --------

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

Title of each class                 Name of each exchange on which registered





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

                                  Common Stock
                                 --------------
                                (Title of Class)


         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

                                                         1

<PAGE>
         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 $84,111. As of
March 26, 2002, there were 3,778,663 shares of the Registrant's common stock,
$.01 par value, issued and outstanding of which 1,004,368 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 $1,255,460. 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 26, 2002 there
were 3,778,663 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,
1999 or to the Company's Registration Statement on Form SB-2, Registration No.
33-82838 NY.

         Exhibit
         Number                     Description

         3.1                    Certificate of Incorporation
         3.2                    Certificate of Amendment of the Company's
                                Certificate of Incorporation
         3.3                     By-Laws of the Company
         10.1                   Credit Agreement between Bank One, Texas, N.A.
                                 and the Company
         10.2                   The Company's Non-Qualified Stock Option Plan




                                                         2

<PAGE>



                                                      PART I


         Item 1.           Description of the Business.

         General

                  Pioneer Commercial Funding Corp. ("Pioneer" or the "Company")
was engaged in the business of a mortgage warehouse lender providing short-term
(generally 10-90 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").

                  Pursuant to an Asset Purchase Agreement dated July 30, 1999
with Princap Mortgage Warehouse, Inc., a California corporation, with its
principal office at 23550 Hawthorne Boulevard, Torrance, California ("PMW") the
Company has sold to PMW all of its equipment, furniture and other physical
assets, all of its computer operating systems, for the sum of $800,000. PMW also
had the right to purchase any or all of the customer accounts of the Company for
an amount equal to the aggregate outstanding principal balance and all accrued
but unpaid fees and interest on such accounts as of the Closing. The Company
will continue its collection activities with respect to those accounts which are
not purchased by PMW. The Company's shareholders approved the sale on September
21, 1999.

                  Management of the Company determined that the Company did not
meet the revenue objectives for its mortgage warehouse lending business as it
was not able to procure credit lines and did not expect the Company to be able
to meet these objectives in the foreseeable future. The Company therefore
decided to sell its hard assets and explore other business opportunities.

                  The Company found that the present comparatively high cost to
it for borrowed funds and the inability to borrow enough funds to create a
sufficient volume of loan transactions resulted in rates of return and total
returns that were unacceptable in relation to the degree of risk inherent in
lending in the secondary market.

                  The high cost to the Company for available borrowed money is
due, in large measure, to the fact that, unlike its competitors which are,
generally, banking institutions or their affiliates, it was required to borrow
funds at the Prime Rate of interest rather than at LIBOR base. This difference
often meant as much as a 2% difference in the borrowing rates, thereby having a
significant negative effect on the margins for each loan transaction. In
addition, unlike banking institutions, which could generally obtain borrowed
funds at up to ten to fifteen times their capital,

                                                         3

<PAGE>



the Company was only able to borrow approximately six times its capital. This
resulted in less funds available to make loans; therefore, the volume of
transactions and the resulting revenues have been significantly lower than that
which could be achieved by the Company's competitors. This problem was initially
caused and continued to be significantly exacerbated by a situation which arose
in October and November, 1997 in which the Company was unable to gain access to
over $1.7 Million of its own funds. This matter is the subject of an ongoing
litigation in the Philadelphia Court of Common Pleas, entitled Pioneer
Commercial Funding Corporation and Banc One, Texas, N.A. v. American Financial
Mortgage Corporation, Thomas F. Flately, Norwest Funding, Inc. and Corestates
Bank, N.A. (No. 0885, April Term, 1998) in which the Company has alleged that
the defendants have wrongfully diverted approximately $1.7 Million belonging to
the Company, representing amounts due for loans made by the Company to a Company
in the business of originating residential mortgage loans (the "Litigation"). In
June 2000, the Company received a check in the amount of $219,828 which
represented payment for a settlement reached with Norwest Funding, Inc. After
trial, on December 4, 2000 a judgment (the "Judgment") was entered (a) against
the bank and in favor of the Company as follows: compensatory damages in the
amount of $1,779,520 plus interest of $78,854, consequential damages in the
amount of $13,500,000, punitive damages in the amount of $40,500,000, for a
total of $55,858,374 and (b) in favor of the Company against American Financial
Mortgage Corp. and Thomas F. Flatley as follows: compensatory damages on the
contract and conversion in the amount of $1,779,520 plus interest of $890,443 on
the contract claims, attorney's fees in the amount of $1,200,000, for a total of
$3,869,963. Although the Company reached a settlement with Thomas F. Flately
prior to the verdict, the remaining defendants have appealed this verdict.
In November 2001, the Company received a payment from Thomas
Flatley in the amount of $1,000,000. On March 18, 2002, the Superior Court
in Pennsylvania issued its opinion in the appeal affirming the lower courts
judgment of $1,779,520 compensatory damages and $13,500,000 consequential
damages against the bank. Accrued interest from the judgment date
is applicable. The court ordered a new trial solely on the award of punitive
damages in the amount of $40,500,000.

         As a result of the sale, the Company no longer has any continuing
business operation other than winding up of its operations and its collection of
the Judgement. The Company is not seeking to engage in other business ventures
until such time as the Litigation has been fully resolved. In any event, at such
time as the Company proceeds in seeking to engage in other business ventures,
there can be no assurance as to when, or if, an economically viable business can
be acquired or continued successfully.

         Employees

         At December 31, 2001 the Company employed one full-time employee. The
Company believes that its relations with its employee is good.





                                                         4

<PAGE>



         Item 2.           Property

The  Company  currently  operates  out of an  office  which  it  shares  with an
affiliate  of the  Company.  The  Company  pays  rent,  including  expenses,  of
approximately $3,000 per month.

         Item 3. Legal Proceedings.

         As described in Item 1 above, in connection with the Litigation, the
Judgment was entered against the bank in favor of the Company as follows:

                  Compensatory damages in the amount of $1,779,519.99 plus
                  interest of $78,854.29 Consequential damages in the amount of
                  $13,500,000.00 Punitive damages in the amount of
                  $40,500,000.00 For a total of $55,858,374.28

and in favor of Pioneer Commercial Funding Corp. against American Financial
 Mortgage Corp. and Thomas F. Flatley as follows:

                  Compensatory damages on the contract and conversion in the
                  amount of $1,779,519.99 plus interest of $890,442.56 on the
                  contract claims Attorney's fees in the amount of $1,200,000.00
                  For a total of $3,869,962.55

Although the Company  reached a settlement  with Thomas F. Flately  prior to the
verdict,  the remaining defendants appealed the verdict. In November 2001, prior
to the verdict, the Company received a payment from Thomas Flatley in the amount
of  $1,000,000.  On March 18, 2002,  the Superior  Court  affirmed the amount of
compensatory  damages and consequential  damages, and ordered a new trial solely
on the award of punitive damages.

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

         Not applicable.






                                                         5

<PAGE>



                                                      PART II

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

                  The Common Stock issued by the Company in connection with its
Initial Public Offering is listed on the Bulletin Board under the symbol
"PCFC.OB". 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, 2000                $  0.625               $  0.625
         June 30, 2000                 $  0.875               $  0.875
         September 30, 2000            $  5.875               $  4.00
         December 31, 2000             $  6.50                $  3.625
         March 30, 2001                $  5.50                $  3.00
         June 29, 2001                 $  3.25                $  1.50
         September 28, 2001            $  2.80                $  1.05
         December 31, 2001             $  2.45                $  1.60

         As of December 31, 2001, there were nineteen (19) 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, 2001, 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.







                                                         6

<PAGE>



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


                  When used in this Form 10-KSB and in future filings by the
Company with the Securities and Exchange Commission, the words or phrases "will
likely result" and "the company expects," "will continue," "is anticipated,"
"estimated," "project," "outlook" or similar expressions are intended to
identify "forward-looking statements." Pioneer Commercial Funding Corp wishes to
caution readers not to place undue reliance on any such forward-looking
statements, each of which speak only as of the date made. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Company has no obligation to publicly release the result of any
revisions, which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.

         General:

                  The Company commenced active operations on June 14, 1993
following its emergence from Chapter 11 bankruptcy proceedings. 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 August, 1999 the Company sold its assets constituting its mortgage lending
business and as a result, the Company does not have any operations at this time.
The Company is seeking other business opportunities.

         As of December 31, 2001 and 2000, the Company had no new customers and
funded no loans.

         Results of Operations for Year Ended December 31, 2001 Compared to the
Year Ended December 31, 2000.

                  Revenues:

                  The Company's revenues decreased from $245,012 for the year
ended December 31, 2000 to $84,111 for the year ended December 31, 2001. This
decrease is attributable to the Company's winding down its mortgage business.
Processing fees decreased from $44,400 for the year ended December 31, 2000 to
$5,850 for the year ended December 31, 2001. Part of the decrease in loan volume
is the interest component of revenues (interest charged customers).

                                                         7

<PAGE>



Interest revenue decreased from $200,612 for the year ended December 31, 2000 to
$78,261 for the year ended December 31, 2001.

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, 2001 was $449,871 as compared to $495,533 for the
year ended December 31, 2000. This decrease is attributable to the decrease in
the interest rate during 2001.

                  Loan Loss (Recovery) Provision:

The $120,297 loan loss recovery for the year ended December 31, 2001 was due to
cash receipts from loans that were written off in prior years. The $1,157,401
loan loss provision for the year ended December 31, 2000 was due to the
recognition of a discount on the sale of loans during the years 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. 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 potential losses has also been established.

                  Other Operating Expenses:

Other operating expenses decreased to $1,473,492 for the year ended December 31,
2001 from $2,690,290 for the year ended December 31, 2000. Compensation and
benefits decreased from $310,100 for the year ended December 31, 2000 to
$171,328 for the year ended December 31, 2001 due to the reduction of employees
after the decision to exit the mortgage business.

Professional fees, which include accounting, legal fees and consulting,
decreased to $1,121,901 for the year ended December 31, 2001 from $1,850,763 for
the year ended December 31, 2000 primarily due to the winding down of legal
costs attendant to the lawsuit, more fully described in Item 3, against
Corestates Bank, N.A., American Financial Mortgage Corporation, Thomas F.
Flatley and Norwest Funding, Inc.

Rent expense decreased from $286,270 for the year ended December 31, 2000 to
$25,736 for the year ended December 31, 2001 primarily due to a $150,000
certificate of deposit which was security for a letter of credit in favor of the
Company's landlord, being claimed by the landlord for unpaid rent for the year
ended December 31, 2000. Rent expense was not reflected by the Company for the
California location during the year ended December 31, 2001.




                                                         8

<PAGE>
         Net Loss:

The Company  incurred a net loss of $716,430  including a loan loss  recovery of
$120,297,  for  the  year  ended  December  31,  2001  compared  to net  loss of
$3,837,404  including a loan loss  provision  of  $1,157,401  for the year ended
December 31, 2000.  The loss for 2001 was reduced by a litigation  settlement of
$1,000,000  (see Note F of Notes to the Financial  Statements) and a recovery of
loan losses incurred in prior years instead of a loan loss provision.

         Cash Flows:

                  Operating Activities:

Along with a $716,430 loss for the year ended December 31, 2001, the Company
used $689,138 of cash from operating activities primarily as a result of a
reduction in accounts payable and accrued expenses of $258,960. In 2000 the
Company used $884,653 of cash from operating activities as a result of a
reduction in warehouse mortgages receivable of $689,786 along with a $3,837,404
loss.

                  Investing Activities:

 In 2001, the Company received $8,325 from the sale of securities.

                  Financing Activities:

                  In 2001, the Company used $20,000 to reduce its short term
line of credit. In 2000, $1,460,807 was used to reduce short term borrowings on
the Company's line of credit and $1,105,002 was collected as proceeds from the
issuance of stock.

         Liquidity and Capital Resources:

                  Bank One has not renewed the revolving line of credit with the
Company, which was previously extended to September 30, 1999. In 2001 and 2000,
the Company's primary sources of capital, which it employed in its warehouse
lending operations, were borrowings under its Bank One line of credit and $1.6
million in subordinated debt, of which $600,000 was converted into common stock
of the Company during 2000.


                                  RISK FACTORS

         In addition to the other information included in, or incorporated by
reference into this report, the following risk factors should be considered
carefully in evaluating the Company and its business. An investment in the
Company involves a high degree of risk. The following risk factors are some but
not all of the factors that are associated with an investment in the Company.
Some statements included herein are based on many assumptions and are subject to
risks and

                                                         9

<PAGE>



uncertainties. Actual results could differ materially from the results discussed
in the forward looking statements due to a number of factors, including, but not
limited to, those identified below.

The Company no longer has any continuing business operations

         Pursuant to an Asset Purchase Agreement dated July 30, 1999 with PMW,
the Company sold to PMW all of its equipment, furniture and other physical
assets, all of its computer operating systems, for the sum of $800,000. PMW also
had the right to purchase any or all of the customer accounts of the Company for
an amount equal to the aggregate outstanding principal balance and all accrued
but unpaid fees and interest on such accounts. The Company continues its
collection activities with respect to those accounts, however, PMW did not
exercise its right to purchase any of the customer contracts. The Company's
shareholders approved the sale on September 21, 1999. As a result of the sale,
the Company no longer has any continuing business operation other than winding
up of its operations. The Company is not seeking to engage in other business
ventures until such time as the Litigation has ended. In any event, at such time
as the Company proceeds in seeking to engage in other business ventures, there
can be no assurance as to when, or if, an economically viable business can be
acquired or continued successfully.

The recent verdict in favor of the Company was appealed by the defendants.

Although the Company reached a settlement with Thomas F. Flately prior to the
verdict, the remaining defendants appealed the verdict, and on March 18, 2002,
the Superior Court affirmed the amount of compensatory damages and
consequential damages, and ordered a new trial on the issue of punitive damages.
 There can be no assurance that the new trial will have as favorable an
outcome to the Company.  Furthermore, there can be no assurance that the
Company will be able to enforce the Judgment against the defendants.

Control by principal stockholder

         Leedan Business Enterprise LTD ("Leedan") owns approximately 56% of the
issued and outstanding shares of Common Stock of the Company. As a result of its
ownership, Leedan will have a major influence in determining the direction and
policies of the Company, the election of the directors of the Company, the
outcome of any other matter submitted to a vote of stockholders, and to prevent
or cause a change in control of the Company.

Market considerations

         There can be no assurance that the market price of the Common Stock
will not decline.

The Company is no longer listed on the NASDAQ stock market

          The Company is no longer listed on the NASDAQ stock market as a result
of its' no longer meeting NASDAQ's listing qualifications. There can be no
assurance that the Company will meet NASDAQ's requirements in the future so that
it may re-apply for listing, nor can there

                                                        10

<PAGE>



be assurance that, even if the Company does meet NASDAQ's listing requirements,
the Company will be accepted by NASDAQ.

The Company has never paid any dividends

         The Company has never paid cash dividends on its Common Stock.
Furthermore, 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, 2001, 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 7.           Financial Statements

         See pages F-1 to F-19

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

         None


                                                        11

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



                                                     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.........                          38                              Chairman of the Board, Director

         M. Albert Nissim...                          68                              President, Director

         David W. Sass......                          66                              Secretary

         Richard Fried......                          55                              Director

         Tamar Lieber.......                          59                              Director

         Lynda Davey........                          47                              Director

         Joseph Samuels.....                          71                              Director
</TABLE>

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.  From 1993 to 1997, Mr. Harel had been the Managing Director
of Leedan Business Enterprise Ltd. ("Leedan"),  which is the beneficial owner of
approximately  56% 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. Mr. Harel was a 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.

                                                        12

<PAGE>



designees  on the  Board  of  Directors  of  Pioneer  Home  Funding,  L.L.C.,  a
subsidiary of the Company.

David W. Sass has been a Director  since  April,  1998 and has been a practicing
attorney  in New  York  City for the past 40  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 BarPoint.Com,  Inc. a company that will
operate a patent  pending  search  engine and  software  technology  that allows
consumers  to search for product  specific  information  on the  Internet and an
honorary  member 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  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.

                                                        13

<PAGE>



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. During such fiscal year, the Company
did not grant 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*              2001            $50,000
Chairman of              2000           $100,000
the Board                1999           $100,000         $15,000                                      50,000


M. Albert Nissim**
President               2001            $114,000
                        2000            $114,000
                        1999            $118,385         $12,000                                      25,000


David W. Sass          2001                  $0
Secretary              2000                  $0
                       1999                  $0


*       Commenced as Chairman on July 2, 1997.
**     Commenced service as President of the Company in the fourth quarter of the 1996 fiscal year.


</TABLE>

Compensation of Directors.


          The Directors of the Company receive cash compensation of $300 per
meeting in his or her capacity as a director when there is a telephonic meeting
and $500 when the Board meets in person.





                                                        14

<PAGE>



Options Issued to Executives.

 The table below sets forth information 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)           25,000                       $10.00                        October, 2002
Boaz Harel(1)                 50,000                       $4.75                         October, 2002
Richard Fried(1)              12,000                       $4.25                         October, 2002
Tamar Lieber(1)               12,000                       $4.25                         October, 2002
Joseph Samuels(1)             12,000                       $4.25                         October, 2002
Lynda Davey(1)                12,000                       $4.25                         October, 2002

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

</TABLE>

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 per month. The Agreement may be terminated by either party on not less
than 90 days prior notice.  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 of 1999 in  consideration  of the Company's
performance.




                                                        15

<PAGE>



Boaz and Leedan Agreement

The Company has approved a  compensation  plan for Mr. Boaz Harel and/or 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  remuneration 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.  For 2001, Mr. Harel received  $50,000 in total.  Leedan and Mr. Harel
will determine how such compensation will be divided between them in the future.

Item 11.    Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the holdings of the Common Stock as of March 26,
2002 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.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                              Number of Shares                  Percent
Name                                         Title            of Common Stock                   of Class
----                                         -----            ---------------                   ---------

ICTS International N.V.                                         452,000 (1)                        11.2%
Biesboch 225
1181 JC Amstelveen
The Netherlands

Lancer Partners L.P.                                             365,834 (2)                        9.1%
375 Park Avenue, Ste 2006
New York, NY 10166

Lancer Offshore, Inc.                                            221,500                            5.5%
Kava Flambovan 9
Curaco, Netherlands
Antilles

Leedan Business
  Enterprise Ltd.                                                1,368,570 (3)                     34.0%
7 Yad Harytzim
4th Floor
Industrial Zone
Herzliya, Israel 46120

Rogosin International B.V.                                       385,750 (4)                       9.6%
One Rockefeller Plaza,
Ste. 2412
New York, NY 10020


SHR Finanz Gm                                                    235,786 (5)                       5.8%
32 Ost Weststrasse
Rostock 18132
Germany


                                                        16

<PAGE>



                                                              Number of Shares                  Percent
Name                      Title                               of Common Stock                   of Class
----                      -----                               ---------------                   ---------

M. Albert Nissim         President and                             28,200 (6)                      *
One Rockefeller Plaza    Director
Suite 2412
New York, NY

Boaz Harel               Director                                  50,000 (7)                      *
1 Rockfeller Plaza
Suite 2412
New York, New York 10020

Tamar Lieber             Director                                 132,750 (8)                    3.3%
160 W. 66th Street
Apt. 49B
New York, NY 10023

Richard Fried            Director                                 18,023 (8)                       *
33 Marion Road
Marblehead, MA 01945

Lynda Davey              Director                                 17,250 (9)                       *
1375 Broadway
6th Floor
New York, NY 10018

Joseph Samuels           Director                                 35,650 (9)                       *
321 24th Street
Santa Monica, CA 90402

Directors and
Executive
Officers as a
group (6 persons)                                                 1,497,443 (10)                37.2%
</TABLE>

*        Less than 1%

(1) Includes a 5 year Warrant to purchase  13,000 shares at a price of $2.25 per
share.

(2) Includes a 1 year Warrant to purchase  25,000 shares at a price of $3.00 per
share. Does not include 27,500 shares owned by Michael Lauer, the General
Partner of Lancer Partners, L.P.

(3) Leedan  International  Holdings  B.V.,  which together with Leedan Systems &
Properties  Promotion  (1003)  Ltd.  Holds  34.9% 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 50% of the outstanding shares of Leedan
Business. Mr. Boaz Harel no longer is a shareholder of Leedan. Includes a 1 year
Warrant to purchase 30,000 shares at a price of $3.00 per share

(4) An affiliate to Leedan Business  Enterprises Ltd. Shares were purchased in a
private  transaction.  Includes a 5 year  Warrant to purchase  5,750 shares at a
price of $2.25 per share.

(5) Includes a 1 year Warrant to purchase 35,786 shares at a price of $3.00 per
share.

(6) Includes 25,000 options exercisable at $10.00 per share at the rate of 1/3rd
per year for three years.

(7) A three year  option for 50,000,  vesting  1/3rd each year,  exercisable  at
$4.75 per share.

(8) Includes  12,000 shares  exercisable  $4.25 per vesting at the rate of 1/3rd
per year for three years.

(9) Includes 12,000 shares as part of a three year option,  exercisable at $4.25
per share, vesting at the rate of 1/3rd per year.

(10) Does not include  any  options  referred  to in notes (4),  (5),  (6),  (7)
hereof, but included the shares owned by Leedan Business Enterprises, Ltd.




                                                        17

<PAGE>



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 September 14, 1998 Joseph Samuels, a Director of the Company and two
affiliates of Leedan Business Enterprises Ltd. loaned to the Company $100,000,
$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.




                                                        18

<PAGE>



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 the
            year ended December 31, 2001 and 2000.

            Balance Sheets as of December 31, 2001 and 2000.

            Statements of Operations for the year ended December 31, 2001 and
             2000.

            Statements of Comprehensive Income (Loss) for the years ended
             December 31, 2001 and 2000.

            Statements of Stockholders' Equity (Deficit) for the year ended
             December 31, 2001 and 2000.

            Statements of Cash Flows for the year ended December 31, 2001 and
             2000.

            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



                                                        19

<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Pioneer Commercial Funding Corp.


We have audited the accompanying  balance sheets of Pioneer  Commercial  Funding
Corporation (a New York  corporation)  as of December 31, 2001 and 2000, and the
related statements of operations, changes in stockholders'equity (deficit), and
cash  flows  for the  years  then  ended.  These  financial  statements  are the
responsibility of the Company' management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Pioneer  Commercial  Funding
Corporation  as of December 31, 2001 and 2000, and the results of its operations
and its cash  flows for the  years  then  ended in  conformity  with  accounting
principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note C to the
financial  statements,  the  Company is  winding  down its'  mortgage  warehouse
lending business. The Company has also suffered recurring losses from operations
and has negative working capital and net worth.  These factors raise substantial
doubt  about its  ability to continue  as a going  concern.  Management's  plans
regarding  those matters are also described in Note C. The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.



                                                     LAZAR LEVINE & FELIX LLP

New York, New York
February 25, 2002, except as
to Note O(b) which is dated
as of March 18, 2002
                                                    F - 1

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


                                         PIONEER COMMERCIAL FUNDING CORP.
                                                  BALANCE SHEETS
                                         AS OF DECEMBER 31, 2001 AND 2000

                                                    - ASSETS -

                                                                                                     2001                2000
CURRENT ASSETS:
     Cash and cash equivalents                                                                $         38,124     $        738,937
     Mortgage warehouse loans receivable, net of allowance for loan losses                                  -               582,254
     Receivable for loans shipped                                                                    1,716,969            1,716,969
     Accrued interest and fee receivable                                                                    -                41,705
     Notes receivable - net of reserve                                                                 150,504              450,291
     Prepaid and other current assets                                                                   66,057               50,302

TOTAL CURRENT ASSETS                                                                                 1,971,654            3,580,458

OTHER ASSETS:
     Investment securities available for sale                                                          442,863              108,750
     Notes receivable - net of current portion                                                          76,244                   -
     Other assets                                                                                       25,000               32,199

TOTAL ASSETS                                                                                  $      2,515,761     $      3,721,407


                                         - LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)-

CURRENT LIABILITIES:
     Mortgage warehouse loans payable                                                         $      3,241,010      $     3,261,010
     Accounts payable and accrued expenses                                                              68,134              132,965
     Accrued interest and fees                                                                         623,433              886,186
     Deferred loan fees                                                                                 29,000               29,000
     Deferred legal fees                                                                                65,395               65,395
     Subordinated debt                                                                               1,000,000                   -

TOTAL CURRENT LIABILITIES                                                                            5,026,972            4,374,556

SUBORDINATED DEBT                                                                                           -             1,000,000

TOTAL LIABILITIES                                                                                    5,026,972            5,374,556

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT):
     Common  stock - $.01 par value;  authorized  20,000,000  shares;  3,403,663  shares
       issued and outstanding for both 2001 and 2000                                                    34,037               34,037
     Additional paid-in capital                                                                     16,647,520           16,647,520
     Accumulated deficit                                                                           (18,934,886)         (18,218,456)
     Accumulated other comprehensive income (loss)                                                    (257,882)            (116,250)

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                                                (2,511,211)          (1,653,149)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                          $      2,515,761      $     3,721,407

The accompanying notes are an integral part of these financial statements.
                                   F-2
<PAGE>

                                         PIONEER COMMERCIAL FUNDING CORP.
-------------------------------------------------------------------------------------------------------------------
                                             STATEMENTS OF OPERATIONS
                                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


                                                                                            2001                2000
INCOME:
     Interest income                                                                $      78,261      $     200,612
     Processing fees                                                                        5,850             44,400

TOTAL INCOME                                                                               84,111            245,012

INTEREST AND FEE COSTS:
     Interest expense - warehouse and lines of credit                                     449,544            491,423
     Bank charges and facility fees                                                           327              4,094
     Bank processing fees                                                                      -                  16

TOTAL INTEREST AND FEE COSTS                                                              449,871            495,533

NET INTEREST AND FEE (LOSS)                                                              (365,760)          (250,521)

     Loan loss (recovery) provisions                                                     (120,297)         1,157,401
                                                                                         (245,463)        (1,407,922)
OTHER OPERATING EXPENSES:
     Compensation and benefits                                                            171,328            310,100
     Professional and consulting fees                                                   1,121,901          1,850,763
     Utilities                                                                             10,660             11,318
     Rent                                                                                  25,736            286,270
     Other                                                                                143,867            231,839

TOTAL OTHER OPERATING EXPENSES                                                          1,473,492          2,690,290

LOSS FROM OPERATIONS                                                                   (1,718,955)        (4,098,212)

OTHER INCOME AND (EXPENSE):
     Interest income - other                                                               13,852             37,475
     Litigation settlement                                                              1,000,000            219,828
     Miscellaneous income                                                                  -                   5,504
     Loss from sale of securities                                                         (10,425)                -

TOTAL OTHER INCOME                                                                      1,003,427            262,807

LOSS BEFORE TAXES                                                                        (715,528)        (3,835,405)

     Provision for taxes                                                                      902              1,999

NET LOSS                                                                            $    (716,430)     $  (3,837,404)

BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK                                    $      (0.21)      $      (1.31)

WEIGHTED AVERAGE NUMBER OF SHARES                                                       3,403,663          2,929,266

The accompanying notes are an integral part of these financial statements.
                                      F-3
<PAGE>

                                         PIONEER COMMERCIAL FUNDING CORP.
-------------------------------------------------------------------------------------------------------------------
                                     STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



                                                                                                   2001                2000

NET LOSS                                                                                       $     (716,430)     $   (3,837,404)

     Change in unrealized (loss) on investment in securities available for sale                      (141,632)                 -

COMPREHENSIVE NET LOSS                                                                         $     (858,062)     $   (3,837,404)

The accompanying notes are an integral part of these financial statements.
                                      F-4
<PAGE>

                                         PIONEER COMMERCIAL FUNDING CORP.
-------------------------------------------------------------------------------------------------------------------
                              STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


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

Balance, December 31, 1999                 $  27,712        $   14,584,663    $   (14,381,052)      $   (116,250)      $    115,073

Issued 168,334 shares of common stock
  for cash on September 28, 2000               1,683               503,319                 -                  -             505,002

Issued 200,000 shares of common stock
  for cash on October 3, 2000                  2,000               598,000                 -                  -             600,000

Converted loans plus accrued interest
  in the aggregate amount of $792,586
  to 264,195 shares of common stock
  on September 30, 2000                        2,642               789,944                 -                  -             792,586

Issued 104,630 warrants on September
  30, 2000                                        -                171,594                 -                  -             171,594

Net loss                                          -                     -          (3,837,404)                -          (3,837,404)

Balance, December 31, 2000                    34,037            16,647,520        (18,218,456)          (116,250)        (1,653,149)

Change in unrealized loss on
  investment in securities for sale               -                     -                 -             (141,632)          (141,632)

Net loss                                          -                     -            (716,430)                -            (716,430)

Balance, December 31, 2001                 $  34,037        $   16,647,520    $   (18,934,886)      $   (257,882)      $ (2,511,211)
                                           ==========        =============    ================       ============      ============

The accompanying notes are an integral part of these financial statements. \

                                      F-5


<PAGE>
                                         PIONEER COMMERCIAL FUNDING CORP.
                                             STATEMENTS OF CASH FLOWS
                                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


                                                                                                    2001                 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                                               $   (716,430)      $   (3,837,404)
     Adjustments to reconcile net loss to net cash (used in) operating activities:
        Loan loss reserve (recovery) and provision for bad debts                                 (94,021)             930,193
        Loss from sale of securities                                                              10,425               -
        Note receivable written off                                                              367,551               -
        Value of warrants issued                                                                  -                   171,594
     (Increase) decrease in:
        Mortgage warehouse loans receivable                                                      45,385               689,786
        Loans held for resale                                                                         -                80,472
        Accrued interest receivable                                                              (6,900)               61,125
        Prepaid expenses                                                                        (15,755)               88,387
        Notes receivable                                                                         40,992               249,854
        Other assets                                                                              7,199               159,083
     Increase (decrease) in:
        Accrued interest payable                                                                (68,624)              541,423
        Accounts payable and accrued expenses                                                  (258,960)              (19,166)
          Net cash (used in) operating activities                                              (689,138)             (884,653)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Net proceeds from sale of securities                                                         8,325                   -
          Net cash provided by investing activities                                               8,325                   -

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net (decrease) in borrowings used in operations                                            (20,000)           (1,460,807)
     Net proceeds from issuance of stock                                                              -             1,105,002
          Net cash (used in) financing activities                                                (20,000)            (355,805)

NET (DECREASE) IN CASH                                                                          (700,813)          (1,240,458)

     Cash and cash equivalents at the beginning of year                                          738,937            1,979,395

CASH AND CASH EQUIVALENTS AT THE END OF YEAR                                              $       38,124       $      738,937

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Interest expense                                                                     $      500,000       $           -
     Income taxes                                                                         $        1,034       $        1,999

NONCASH FINANCING ACTIVITIES:
     Conversion of mortgage loans receivable to notes receivable                          $      185,000       $           -
     Conversion of loans payable and accrued interest to common stock                     $           -        $      792,586

The accompanying notes are an integral part of these financial statements.
                                                       F-6
<PAGE>

-------------------------------------------------------------------------------------------------------------------
                                         PIONEER COMMERCIAL FUNDING CORP.
                                           NOTES TO FINANCIAL STATEMENTS
                                            DECEMBER 31, 2001 AND 2000

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 was 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  obtained its funds to provide
such  financing  from  third-party  funding  sources with which it had 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  were  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  borrowed from its funding
source and the rate it charged  the  mortgage  banking  company.  The  Company's
customers fund loans throughout the United States.

The Company's operations were subject to certain risks which are inherent to its
industry.  Its results of  operations  depended  heavily upon the ability of its
mortgage banking customers to originate mortgage loans. This ability was largely
dependent upon general  economic  conditions in the  geographic  areas that the
Company serves.  Because these general economic conditions fluctuate,  there was
no  assurance  that  prevailing  economic  conditions  would  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 were 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  were:  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 should have
a commitment for each loan from an approved third-party agency ("Agency") before
the Company would extend mortgage  warehouse  financing,  there was no guarantee
that the Agency would,  in fact,  accept the mortgage loan when delivered due to
certain deficiencies in the loan or other unanticipated  circumstances which may
exist.
                                      F-7
<PAGE>

                                         PIONEER COMMERCIAL FUNDING CORP.
                                           NOTES TO FINANCIAL STATEMENTS
                                            DECEMBER 31, 2001 AND 2000

NOTE A - NATURE OF OPERATIONS (Continued):

Operations (Continued):

If for any reason an Agency did not accept the mortgage  loan, and the Company's
mortgage  banking  customer was unable to pay back its obligation to the Company
through other means, the Company would find itself the owner of a long-term loan
of less than market value instead of short-term bridge financing receivable.

In September  1999, the Company  pursuant to an Asset Purchase  Agreement  dated
July 30, 1999 with Princap Mortgage Warehouse,  Inc. ("PMW"), sold to PMW all of
its  equipment,  furniture  and  other  physical  assets  and all  its  computer
operating systems for the sum of $800,000. As a result of this sale, the Company
moved its  operations  to New York and no  longer  has any  continuing  business
operations  other  than  winding up its  operations  which  includes  collection
activities with respect to outstanding loans.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates:

The  accompanying  financial  statements,  which are prepared in conformity with
accounting  principles  generally  accepted  in the  United  States of  America,
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 I and M, 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.

Income Taxes:

The Company  utilizes 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 I).

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.

                                      F-8
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

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

Net earnings or loss 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 years ended  December 31, 2001 and 2000, 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.

Concentration of Credit Risk/Fair Value:

Financial  instruments that potentially  subject the Company to concentration of
credit risk consist 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, 2001 and 2000,  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, 2001 and 2000,  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).

Comprehensive Income:

In 1997, the Company  adopted  Statement of Financing  Accounting  Standards No.
130,  "Reporting  Comprehensive  Income" (SFAS 130), which established new rules
for the reporting and display of other 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 on 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.

                                      F-9
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Employee stock options:

The Company accounts for its stock option plans and its employee stock purchase
plan in accordance with the provisions of Accounting Principles Board's Opinion
No. 25, "Accounting for Stock Issued to Employees ("APB 25"). (See Note L.)

Recent pronouncements:

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations to
be accounted for using the purchase method of accounting and is effective for
all business combinations completed after June 30, 2001. The adoption did not
impact the Company's operating results or financial condition. SFAS 142 requires
goodwill to be tested for impairment under certain circumstances, and
written-off when impaired, rather than being amortized as previous standards
required. Furthermore, SFAS 142 requires purchased intangible assets to be
amortized over their estimated useful lives unless these lives are determined to
be indefinite. SFAS 142 is effective for fiscal years beginning after December
15, 2001. Early application is permitted for entities with fiscal years
beginning after March 15, 2001. The Company does not believe that the adoption
of SFAS 142 will currently impact its operating results or financial position.

On October 3, 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), that is applicable to financial statements issued for fiscal years
beginning after December 15, 2001. The FASB's new rules on asset impairment
supersede SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and portions of Accounting Principles
Board Opinion 30, "Reporting the Results of Operations." This Standard provides
a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower of
fair value and carrying amount. This Standard also requires expected future
operating losses from discontinued operations to be displayed in the period(s)
in which the losses are incurred, rather than as of the measurement date as
presently required. The Company is currently assessing the potential impact of
SFAS 144 on its future operating results and financial position, but does not
believe it will be material.


NOTE C - GOING CONCERN UNCERTAINTY:

The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company is winding down its mortgage
warehouse lending business, has sustained substantial operating losses over the
last two years and has used substantial amounts of working capital in its
operations. Management of the Company determined that the Company did not meet
the revenue objectives for its mortgage warehouse lending business and did not
expect the Company to be able to meet these objectives in the foreseeable
future. The Company therefore decided to sell all its operating assets and is
exploring other business opportunities.

In view of these matters, realization of the assets of the Company is dependent
upon the Company's ability to meet its financing requirements and the success of
future operations. These financial statements do not include adjustments
relating to the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.



                                      F-10
<PAGE>
NOTE D - MORTGAGE WAREHOUSE LOANS RECEIVABLE/PAYABLE:

Loans receivable 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 paid 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 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 agreed to 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
continues 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
K). 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, Bank One renewed the credit
facility with a borrowing limit of $40,000,000 through April 30, 1999. This
credit facility was subsequently extended to September 30, 1999 and as of the
date of these financial statements, no additional renewal was granted by Bank
One. At December 31, 2001, the Company continues to owe Bank One $3,241,010.


NOTE E - LOANS HELD FOR RESALE

In September 1999, the Company used a portion of the proceeds from the sale of
fixed assets (see Note A) and acquired 36 stale loans for $574,774 from Bank
One. At December 31, 2001, the balance of these loans have been written down to
zero.


                                      F-11
<PAGE>
NOTE F - RECEIVABLE FOR LOANS SHIPPED:

During October 1997, the Company warehoused $1.7 million in mortgages for the
same customer as described in Note E 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 miswired the funds to the conduit's bank, Corestates Bank, N.A. The
conduit's bank 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. In June 2000, the
Company received a check in the amount of $219,828 which represented payment for
a settlement reached with Norwest Funding, Inc. After trial, on December 4, 2000
a judgment was entered (a) against the bank and in favor of the Company as
follows: compensatory damages in the amount of $1,779,520 plus interest of
$78,854, consequential damages in the amount of $13,500,000, punitive damages in
the amount of $40,500,000, for a total of $55,858,374 and (b) in favor of the
Company against American Financial Mortgage Corp. and Thomas F. Flatley as
follows: compensatory damages on the contract and conversion in the amount of
$1,779,520 plus interest of $890,443 on the contract claims, attorney's fees in
the amount of $1,200,000, for a total of $3,869,963. In November 2001, the
Company settled its litigation against Thomas F. Flatley for $1,000,000. This
amount has been recorded as other income in the statement of operations. The
other defendants have appealed the judgment. No assurance can be given as to the
ultimate outcome of this litigation. The Company has only reflected the original
$1.7 million receivable on its balance sheet. [see also Note O(b)].


NOTE G - 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.
On May 6, 1999, management of FFIR approved a 1 for 50 reverse stock split,
reducing the Company's number of shares to 6,000. In November 1999, the Company
received 1,250 restricted bonus FFIR shares. FFIR shares closed on December 31,
2001 and 2000 at $2.60 and $15 per share, respectively (before the reverse stock
split), resulting in an unrealized loss of $141,632 and $210,000 in 2001 and
2000, respectively.

On February 23, 2001, the Company signed an agreement with FFIR to convert
warehouse loans, accrued interest and fees receivable in the aggregate amount of
$494,496 into 164,832 restricted shares of FFIR. These shares were valued at
$3.00 per share.

At December 31, 2001, these shares were valued as required by Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Fidelity First Mortgage, which was
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.



                                      F-12
<PAGE>


NOTE H - NOTES RECEIVABLE:

                                                                                                        2001                2000
On November 18, 1998, a settlement was reached with a guarantor of a mortgage                          -------             ------
   banking customer's defaulted line of credit. Pursuant to the settlement, 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. Due to the default of these notes, the Company recorded a
   100% reserve
   against the amounts due.                                                                       $     735,103   $        735,103

On March 29, 1999, a settlement was reached with two clients and their guarantor
   wherein the remaining loans on each client's line and interest and fees due
   through October 31, 1998 were replaced with a note from each client
   guaranteed by the client's guarantor in the amounts of $453,430 and $204,640,
   respectively, each payable in sixteen monthly installments
   plus interest at an annual rate of 10%.  Both notes matured June 29, 2000.                             82,740             82,740

In April 2001, the Company received a promissory note in the amount of $185,000
   plus interest at 10% per annum as final settlement for unpaid warehouse loans
   and interest receivable in the aggregate amount of $263,996. The Company had
   previously booked a loan loss reserve of $234,637 against these outstanding
   receivables. This note is payable $5,000 upon signing; $7,000 per month
   during the periods June 1, 2001 through October 1, 2001, February 1, 2002
   through October 1, 2002, February 1, 2003 through October 1, 2003 and $4,000
   per month during the periods November 1, 2001 through January 1, 2002,
   November 1, 2002 through
   January 1, 2003 and November 1, 2003 through January 1, 2004, net of reserve.                           144,008               -
                                                                                                           --------          ------
                                                                                                           961,851          817,843

Less:  reserve                                                                                            (735,103)        (367,552)
                                                                                                          ---------        --------
                                                                                                           226,748          450,291

Less:  current portion                                                                                    (150,504)              -
                                                                                                          --------          -------
                                                                                                  $         76,244   $      450,291
                                                                                                          =========      ==========

                                      F-13
<PAGE>

NOTE I - INCOME TAXES:

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

                                                                                        2001                    2000
                                                                                        ----                    ----
                       Current:
                          Federal                                                    $      -                $      -
                          State                                                            902                   1,999
                                                                                        ------                  ------
                                                                                           902                   1,999
                       Deferred:
                          Federal                                                           -                       -
                          State                                                             -                       -
                                                                                        ------                  ------
                       Provision for income taxes                                    $     902               $   1,999
                                                                                        ======                  ======

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

                                                                                        2001                    2000
                                                                                        ----                    ----

                     Net operating losses                                           $  3,700,000            $  3,500,000
                     Valuation allowances                                             (3,700,000)             (3,500,000)
                                                                                    $         -             $         -
                                                                                    ============           ==============

At December 31, 2001, the Company had net operating loss (NOL's) carryforwards
available for income tax purposes of approximately $9.5 million expiring in
varying amounts through 2015. Approximately $1 million of the NOL's are limited
in use pursuant to a change in ownership in November 1994.


NOTE J - DEFERRED LEGAL FEES:

Deferred legal fees are a consequence of the POR (see Note M) 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 aggregating $65,395 as of December
31, 2001.


NOTE K - STOCKHOLDERS' EQUITY, PRIVATE PLACEMENT AND INITIAL PUBLIC OFFERING:

Common Stock:

On September 28 and October 3, 2000, the Company issued 168,334 and 200,000
shares of common stock for $505,000 and $600,000, respectively in a private
placement.

On September 30, 2000, the Company converted loans in the amount of $626,000
plus accrued interest of $166,586 to 264,195 shares of common stock.

                                      F-14
<PAGE>


NOTE K - STOCKHOLDERS' EQUITY, PRIVATE PLACEMENT AND INITIAL PUBLIC OFFERING (Continued):

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 with an expiration date of August 12,
2000. The expiration date of these warrants was extended to October 31, 2000 at
which date they all expired.

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 the 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 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 D) 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.
During the first quarter of 1999 $100,000 of debt was repaid and in September
2000 $626,000 of debt was converted into 208,667 shares of common stock.

                                      F-15
<PAGE>


NOTE K - STOCKHOLDERS' EQUITY, PRIVATE PLACEMENT AND INITIAL PUBLIC OFFERING: (Continued):

 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, 2001, 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 M for further discussion of restrictions
 under the POR).


NOTE L - STOCK OPTION PLANS AND WARRANTS:

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.

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 is as follows:

                                               December 31, 2001            December 31, 2000
                                                          Weighted                      Weighted
                                                           Average                      Average
                                                          Exercise                      Exercise
                                         ------------       Price          Shares        Price
                                            Shares
   Options outstanding
     beginning                              190,500         $4.96          208,500         $4.90
   Granted                                   -              -               -              -
   Exercised                                 -              -               -              -
   Canceled                                 (67,500)         3.75          (18,000)         4.25

   Options outstanding ending               123,000         $5.62          190,500         $4.96

                                      F-16
<PAGE>


NOTE L - STOCK OPTION PLANS AND WARRANTS (Continued):

The following information applies to options outstanding at December 31, 2001

                                                                                            Options
                                                        Options Outstanding               Exercisable
                                              Weighted Average
                                                 Remaining
     Range of exercise                         Contractual Life    Weighted Average
          prices          Number Outstanding       (Years)          Exercise Price     Number Exercisable

       $1.00 - $4.25             48,000              0.83                $4.25                48,000
       $4.26 - $5.00             50,000              0.83                $4.75                50,000
      $5.01 - $10.00             25,000              0.83               $10.00                25,000
                                123,000              0.83                $5.62               123,000

No options were granted during the years ended December 31, 2001 and 2000.

Warrants:

On September 30, 2000, the Company issued 104,630 warrants to purchase 104,630
shares of common stock at $3.00 per share to the parties who acquired shares in
a private placement in September 2000, and to the holders of the loans and
accrued interest that were converted into common stock. These warrants are
exercisable on December 31, 2001 and expire on December 31, 2002.

The fair value of the warrants was estimated using the Black-Scholes model with
the following weighted average assumptions: expected volatility of 100%; risk
free interest rate of 5.30%; and expected lives of 1 to 3 years. Accordingly,
for the year ended December 31, 2000, compensation expense aggregating $171,594
was recorded.


NOTE M - 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 years ended December 31, 2001 and 2000 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 2000 or 2001.

As of December 31, 2001, 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.

                                      F-17
<PAGE>


NOTE M - COMMITMENTS AND CONTINGENCIES (Continued):

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.

-    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.

Lease Obligation:

The Company is the lessee of 6,846 square feet of office space located in
Woodland Hills, California through October of 2007. The Company vacated this
office space in September 1999. The monthly base rent through September 2002 is
$13,692 and for years six through ten is $15,745. The Asset Purchase agreement
(see Note A) also provided for the purchaser to rent this space for four months
commencing October 1, 1999 at $13,873 per month.

The Company continues to be obligated under a previous office lease through
October 31, 2001. This 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 this
space for $1,410 per month subject to three one year leases.

Rent expenses (net of rental income) for the years ended December 31, 2001 and
2000 aggregated $25,736 and $286,270, respectively.

At December 31, 2001, future net minimum rental expenses are as follows:

Fiscal Year Ended December 31,

                           2002                    $    164,304
                           2003                         188,950
                           2004                         188,950
                           2005                         188,950
                           2006                         188,950
                           Thereafter                   157,460
                                                   $  1,077,564


                                      F-18
<PAGE>


NOTE M - COMMITMENTS AND CONTINGENCIES (Continued):

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 N - LITIGATION:

The Company instituted an action against an individual (a former shareholder) in
connection with his default of two promissory notes in the amounts of $470,000
and $265,000, respectively. The individual is seeking to avoid responsibility on
the notes on the grounds that he executed the notes and an agreement to
relinquish his stockholdings for other amounts due without a full understanding
of the possible verdict in the case the Company brought against First Union
National Bank (see Note F). The Company is of the opinion that there is no merit
to the defense as full information had been provided to such individual prior to
execution of the notes.


NOTE O - SUBSEQUENT EVENT:

a) In February 2002,  subsequent to the balance sheet date, the Company received
$750,000  as proceeds  for the sale of 375,000  shares of the  Company's  common
stock in a private placement offering.

b) On March 18, 2002, subsequent to the balance sheet date, the Superior Court
in Pennsylvania issued its opinion in the appeal affirming the lower courts
judgment of $1,779,520 compensatory damages and $13,500,000 consequential
damages against the bank (see Note F). Accrued interest from the judgment date
is applicable. The court ordered a new trial solely on the award of punitive
damages in the amount of $40,500,000.

</TABLE>


<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: /s/ M. Albert Nissim
                                            Name:  M. Albert Nissim
                                            Title: President

                                            Date: March 26, 2002

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: /s/ M. Albert Nissim
                                            Name:  M. Albert Nissim
                                            Title: President and Chief
                                                     Financial Officer

                                            Date: March 26, 2002

                                            By: /s/ Richard Fried
                                            Name:  Richard Fried
                                            Title: Director

                                            Date: March 26, 2002


                                            By: /s/ Boaz Harel
                                            Name:  Boaz Harel
                                            Title: Director

                                            Date: March 26, 2002


                                            By: /s/ Tamar Lieber
                                            Name:  Tamar Lieber
                                            Title: Director

                                            Date: March 26, 2002

                                            By: /s/ Lynda Davey
                                            Name: Lynda Davey
                                            Title: Director

                                            Date: March 26, 2002


                                            By: /s/ Joseph Samuels
                                            Name: Joseph Samuels
                                            Title: Director

                                            Date: March 26, 2002